Washington and Moscow government policies are hindering U.S. oil companies from helping increase Soviet production, the General Accounting Office reports.
A GAO study said Soviet oil production declined 8.8% from 12.5 million b/d in 1988 to about 11.4 million in 1990 and may decline to 9.1 million b/d by 1994. It said Soviet oil exports also have fallen 15% from 4.1 million b/d in 1988 to 3.5 million b/d in 1990.
The congressional watchdog agency said Soviet oil production is dropping because the country lacks capital to finance exploration and production and maintain older equipment.
"This lack of capital results from cutbacks in government funding, uneconomical pricing of oil products, and escalating exploration and production costs," GAO said.
The study also said the Soviets are using outdated, inefficient turbodrilling methods, which require frequent bit changes, to drill about two thirds of their wells. They use waterflooding for primary recovery, and most of their oil exploration technology and equipment is obsolete.
GAO notes Soviet officials have said if the U.S.S.R. is to maintain 1990 production levels it will have to double drilling during the next 5 years and build more pipelines.
U.S. PROBLEMS
The study acknowledges the Soviet Union is seeking joint ventures with western companies to obtain capital and technology needed for oil production. As of last March, 10-20 western companies were discussing exploration and production joint ventures with Soviet officials and several had been signed.
But GAO said, "A number of problems impede U.S. trade and investment in Soviet oil exploration and production. U.S. oil companies and petroleum equipment suppliers assert that two 1974 congressional restrictions-the Byrd amendment to the Trade Act of 1974 and the Stevenson amendment to the Export-Import Bank Act of 1945-limit U.S. ability to provide competitive export credit guarantees and insurance.
"These amendments were enacted when Congress was concerned about granting credit guarantees and insurance involving foreign production of energy while the U.S. needed capital to develop energy at home. In addition, Congress was concerned about subsidizing energy trade with the Soviet Union and about Soviet policies for emigration and its military forces in Europe."
GAO said the amendments prohibit Exlm Bank loans and financial guarantees for the purchase, lease, or procurement of any product or service used to produce fossil fuel energy resources.
They also limit export credit guarantees and insurance for energy research and exploration projects to $40 million and set a $300 million ceiling on the amount of financing Exlm Bank can support with credit guarantees and insurance.
GAO said if Congress repeals the Stevenson and Byrd legislative barriers it "would not mean immediate U.S. loans and guarantees to the Soviet energy sector," and Exlm Bank would still apply its standard procedures for assessing the risk of nonpayment of loans.
SOVIET IMPEDIMENTS
In the Soviet Union, GAO said, the major impediments for U.S. oil companies are political conflicts among the central, republic, and local governments over who owns oil resources and uncertainty about the legality of existing agreements between Soviet and western companies. Some U.S. oil companies are trying to protect their projects by signing agreements with all three government entities.
GAO noted some companies are signing contracts with the Ministry of Geology, which provides operational funds for the Soviet partner, with the director of the Soviet enterprise responsible for implementing the contract, and with the Soviet district government that owns the land.
It said the proposed Soviet all-union treaty may define the responsibilities and authorities of central and republic governments, establish ownership rights and tax structures, and set out rules for management of the energy and fuel system.
"U.S. oil industry and Soviet officials believe another major impediment to trade and investment is the Soviet unfamiliarity with basic western business practices and management skills.
"Some U.S. training and management development programs have been established through joint ventures, but they usually are limited since they focus only on the needs of the specific joint venture."
GAO said investment also is hindered by the U.S.-Soviet tax treaty, which lacks profit repatriation and foreign income tax credit provisions. The two countries are renegotiating that treaty.
The U.S.S.R. currently imposes five taxes on Soviet joint ventures, and one of them-the tax on income from investments-subjects the foreign partner to a 15% tax on repatriated profits. Also, taxes paid in the Soviet Union are not credited against taxes paid in the U.S.
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