Moscow's "New Frontier" stigma is diminishing, but Russia's legal and tax regimes and business practices provide few of the assurances that executives take for granted in the US and elsewhere.
For example, BP PLC's initial forays into Russia could have provided the background material for an international spy thriller. In 1997, BP invested about $500 million in the Russian company OAO Sidanko.1 What followed in 1999 was an incredibly complicated series of maneuverings involving BP, Sidanko, Tyumen Oil Co., international commercial and quasi-governmental banks and lending institutions, and the British, US, and Russian governments.
The focal point of all this activity was the true legal ownership of prized Sidanko assets that had been taken over by Tyumen Oil during a highly contentious bankruptcy proceeding initiated against Sidanko. After BP initially received several legal setbacks, many analysts thought the company would have to write off its entire investment.
BP persevered in defending and ultimately salvaging its investment. In fact, BP announced recently that it is increasingly its equity stake in Sidanko to 25%.1
ExxonMobil has taken a different approach. Although Mobil built a small retail presence in Russia before the merger, ExxonMobil executives have played down their interest in Russia as an area of intense, immediate, strategic importance.
The lingering perception that Russia lacks mature legal and regulatory frameworks explains this reticence. ExxonMobil wants more clarity than it can currently get regarding the potential risk-return profiles of future Russian investments. Until commercial transparency in Russia is more prevalent, ExxonMobil's most significant capital investments will be directed elsewhere.2
References
- "BP Move on Sidanko Seen Boosting Russian Oil Stocks," Dow Jones International News, Dow Jones and Company, Apr. 16, 2002.
- Raymond, Lee, "The Rule of Law in International Oil and Gas Development," World Energy, Vol. 5 (2002), No. 1, pp. 110-13.
