Political risk continues to cloud the investment climate for crude oil and natural gas joint ventures in the Soviet Union.
Speakers at a Salomon Bros. Inc.-Georgetown University seminar on the energy resources of the Soviet Union and Central Europe advised against Soviet investments in the near term. But several Soviet energy and economic officials tried to encourage potential oil and gas investors.
Stanislav Shatalin, with the Presidium of the Academy of Sciences of the U.S.S.R., said his country is backing away from a free market system. "If I were a banker I would not invest a cent in our economy," he declared.
Zbigniew Brzezinski, national security adviser during the Carter administration, flatly warned U.S. businessmen against Soviet investments.
"I would be very wary of any arrangement in which returns are not defined," he said. Responding to a question, he said, "Long term ventures on a large scale should be considered risky."
Jeffrey Burt, a lawyer with Arnold & Porter, Washington, D.C., said the Soviet government now will allow foreign ventures to operate without Soviet partners but also has disclosed a new 40% tax on foreign ventures.
Energy and economic officials from Poland, Hungary, and Czechoslovakia also outlined their energy investment opportunities, All want to increase natural gas use and diversify oil and gas supplies away from the Soviet Union.
Wieslaw Filipczak, Polish energy minister, said by 2010 his country needs to upgrade its old refineries and add 300,000 b/d of capacity.
SOVIET NEEDS
Georgetown Prof. Harley Balzer, director of the Russian Area Studies Program, said, "Energy must be the leading sector to generate foreign revenues for the Soviet Union."
Nikolay Petrakov, director of the Institute for the Study of Market Economies and a former adviser to Mikhail Gorbachev, said it has been difficult for the Soviet Union, with no experience in stock companies or small business, to implement economic reforms at a time of regional disruptions.
Vladimir Popov, deputy minister of the Soviet Chemical and Oil Refining Ministry, said the Soviet refining industry will need extensive investments to meet changing product demand. "At the present stage," he said, "we cannot resolve all our problems ... so we must contract with American companies."
Nickolaj Lisovskij, general manager of the oil and gas industry geological department, said his country has undiscovered resources equal to discovered reserves but needs foreign technology "in those areas where traditional technology does not give us the desired result."
His office will meet with companies in Houston and London this month to identify 12 oil areas for joint work.
John Blaney, economic counselor at the U.S. embassy in Moscow, said, "Despite the efforts of the Soviet Union to become a society of laws, it still is a country of power relationships.
"It's like a three level chess game in which each level has different rules and different pieces, and every once in a while the rules change on each level."
Akif Djabarov, general director of Gasneft Azerbaijan, said Azerbaijan's oil fields are declining at 5-6%/year, and 4,000 wells need workovers. He said production in the Caspian Sea could double with the help of western companies.
WHITE NIGHTS
Ronald Benson, vice-president of Phibro Energy Inc. and director of the White Nights joint venture, said the new 40% tax could scuttle that project (OGJ, Dec. 17, 1990, p. 58).
As planned, the joint venture is to drill 20-30 wells and work over the same number in 18 months in three western Siberian fields, increasing oil production to 150,000 b/d in 7-8 years from the present 20,000 b/d.
The venture has a seismic subcontractor on site and will have two western drilling rigs barged to the area by May or June.
But Benson said unless it is exempt from the 40% tax, "we would have to close down. There's no doubt that if it stays at 40%, the rigs won't be there in May."
He added, "The proper economic conditions have to be provided as they were when we started in November. We probably have spent $10-15 million to date. Then all of a sudden there's a decree that changes everything.
"For American companies to put their capital into Russia there has to be some sort of stability, especially for the oil and gas industry, which requires so much capital.
"Our biggest concern is the political situation in the Soviet Union,
"You couldn't go to a bank anywhere in the world today and get money to do a Soviet project like this. You have to take a risk."
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