It's time for oil producing republics of the Commonwealth of Independent States to sign some world-class oil and gas deals. Now that the Soviet central government has dissolved, outsiders have a better idea than they did before about who negotiates what. Jurisdictional uncertainty remains a problem, to be sure; it's simply not the peremptory business stopper that it used to be.
So, newly in charge of their economic destinies, the key oil republics must get busy. They must resolve crippling energy shortages. They must quickly establish real-money foundations for their economies. They must demonstrate to now-beleaguered populations that free markets represent the only hope for lasting prosperity. And they must accomplish it all before desperation breeds political pressures for socialist relapse.
Toward these ends, oil and gas must become top economic priorities. Resurgent production promises relief from energy shortage and hope for hard-currency earnings from exports. But resurgent production depends on work, capital, and technology provided to big projects under major international agreements. So far, agreements like that have been elusive. Much remains to be done before major deals, the kind that the republics need and that companies seek, can come about in significant numbers.
A VITAL STEP
Russia soon may take a vital step by laying the legal foundation for international petroleum agreements. Helped by advisers provided under a joint protocol with the University of Houston Law Center, federation officials have drafted a natural resource code and introduced it in the legislature. A proposed oil and gas law will follow. Passage of the measures will fill a paralyzing void.
Other oil producing republics should implement comparable laws soon. Some are said to be studying Russia's experience with the University of Houston model. All the republics must understand that in the absence of a solid legal framework, major petroleum agreements and projects cannot proceed. Companies interested in major projects in the old Soviet Union won't take the necessary financial risks until legal and political risks appear manageable.
Republics also should recognize how closely companies are watching the pioneering, smaller projects already under way. They're looking for signs that agreements are being honored, that foreign joint venture partners are receiving the production to which they're entitled, that currency conversions are not causing unexpected problems. In other words, companies waiting for big deals need to see smaller deals work. The republics should see that they do.
OLD ATTITUDES
Everything considered, the old Soviet Union's political transformation and associated jurisdictional changes have occurred with impressive speed. Enactment soon of Russia's petroleum and resource laws should accelerate the process elsewhere. Still to change are old ways of looking at business. Companies still encounter revulsion toward profit and the notion that government should determine how much investors can earn. Some government officials cannot bear the thought of private companies' owning natural resources.
For the old, statist attitudes that poisoned the Soviet economy and destroyed an empire, the only antidote may be time. Yet time is one of many luxuries that members of the new commonwealth cannot afford. It may require a leap of capitalist faith, but the republics must make some big deals soon and make them work. The political and legal pieces are falling into place. Companies with capital to invest, and citizens with pantries to fill, now need to see results.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
