WATCHING GOVERNMENT LACK OF INVESTMENT HINDERS RUSSIAN ACTION

Russia is improving the climate for western investments in its oil and gas sector but still has far to go.

A seminar at Johns Hopkins University's Paul Nitze School of Advanced International Studies examined whether western assistance will help improve the energy status of eastern Europe and the states of the former Soviet Union.

Robert Ebel of the Center for Strategic and International Studies, Washington, observed Russian resources of crude oil, natural gas, and coal are world class and more than ample to support any reasonable expansion.

"That is not the problem," he said. "Instead, it is more the remote location of the new oil, coal, or natural gas to be produced and the geological barriers to development which must be overcome."

FAILURE TO INVEST

Ebel said much of the present day ills of the fuels and energy sector is attributed to a sharp decline in investment. There are no funds, it is said, and the failure to invest has deeply influenced the decline in energy availability,

"Nonetheless," Ebel said, "there are funds, but they are parked outside Russia in foreign banks, where they will stay until the domestic economy noticeably improves. The Institute of International Finance has calculated that Russia exported oil, gas, and other products worth $90 billion over the past 3 years, but $40 billion was never repatriated."

He predicted the Russian gas industry will especially prosper in coming years, partly because Prime Minister Victor Chernomyrdin once headed Gazprom, the state gas monopoly. Russia's 1996 presidential election will be the decisive factor controlling all aspects of the country's economy especially the energy sector, in the next few years.

Ebel said President Boris Yeltsin and Chernomyrdin will try to protect Russia-and voters-against continuing high rates of inflation or shortages of fuel.

He said despite all the publicity, there has been little foreign investment in the Russian oil and gas industry. "The reasons are well known, beginning with the continued political and economic uncertainties and ending with inadequate investor protection. In between lies a confiscatory tax system.

"Should these obstacles be removed, what then? Will large funds immediately flow into Russia? I would doubt it. In my estimation, Russia does not particularly welcome foreign investment. Rather, they say 'Just send cash and we can take it from there.'"

Ebel said as the World Bank, Export-Import Bank, and commercial banks make more funds available, the need for the foreign investor will diminish.

HARD CURRENCY

Deputy U.S. Energy Sec. Bill White said foreign oil companies still face problems in creating Russian hard currency resources because "the vast majority of high return energy projects require capital goods which are not of local origin. I do not think this is an insurmountable problem."

White said the Russians continue to make steady progress to open their energy sector to foreign investment.

He added, "People who lament the slowness of progress (in Russia) don't read history,"