Russias parliament has finally passed a bill to facilitate investment by foreign oil companies, but it offers far less than they wanted.
The Federation Council, the upper house of parliament, approved the production sharing agreement (PSA) legislation in a 113-3 vote and sent it to President Boris Yeltsin.
Tim Sherwood, with the U.S.-Russia Business Council, said, There is every indication he will sign it.
Tax question
Oil companies say the bill lacks a clear delineation of tax authority. Sherwood said, It does not resolve the question of federal vs. regional taxation, a question you see throughout Russia.
Another concern is whether PSA disputes will be settled under administrative or civil law. Foreign companies prefer civil law, which would give them recourse to the courtspreferably international tribunals.
Parliament would retain the right to approve major oil and gas deals and renegotiate PSAs if oil prices increase.
Sherwood said, Our sense is that this PSA is not particularly investor friendly. It really is not what the foreign investor community was hoping for. But each oil company will have to decide if the guarantees are adequate in the context of their individual projects.
He said Russian leaders have hinted Yeltsin will sign the bill just to get a PSA on the books. Then the government will try to improve it later.
Sherwood said, Anything you would consider to be fine tuning or polishing is something the Russian parliament has no experience with.
This is almost a worst case scenario. It is a law that does not meet the needs of foreign investors. And the promise of tens of billions of dollars of foreign investment in the Russian economy, based on strong legislative action, does not appear to be right around the corner.
Bills switched
Foreign oil companies were dismayed at the manner in which the legislation was passed.
The Duma approved a PSA June 14, but the Federation Council rejected it Oct. 3. The bill then went to a reconciliation commission, which added some amendments that were not investor friendly.
The Duma passed the reconciliation bill Dec. 6, but its legal department struck some of the amendments on procedural grounds.
Sherwood said the resulting bill was mildly acceptable and probably had just enough guarantees to make it acceptable to foreign investors.
But after that bill mysteriously disappeared from the office of the Duma chairman, he forwarded a bill to the Federation Council that again included the amendments. The council quickly approved it.
Some members of parliament objected to substitution of an unauthorized bill, but they were ignored.
There are strong politics at work here: Russian leaders are very concerned they will be accused of giving away the store to foreign oil companies. Copyright 1995 Oil & Gas Journal. All Rights Reserved.
