C.I.S. environmental rules growing tougher

Environmental rules in the former Soviet Union are getting more stringent for foreign groups trying to strike oil and gas deals.

Growing green awareness among grassroots groups in the Commonwealth of Independent States (C.I.S.) and high expectations of western wealth and environmental expertise are among several factors fueling the trend.

C.I.S. environmental requirements are mounting for foreign companies, even though member countries are relatively lenient when applying rules to domestic firms.

Russia, Kazakhstan, and other former Soviet republics want foreign investment to help develop hydrocarbons and other resources and spur economic growth. At the same time, they want their environments to be protected from further damage, said Bernhard Metzger, manager of an environmental survey conducted in Kazakhstan by Arthur D. Little Inc. (ADL) consulting company, Cambridge, Mass.

ADL bills its survey as the largest by western entities.

"There is a growing green awareness in the C.I.S. among watchful citizens, advocacy groups, and nongovernment agencies that want to improve current conditions and have high expectations of western industries," Metzger said. "They know the West is sophisticated and wealthy. They expect the best, even though environmental enforcement of their own businesses has been less stringent."

As a result, C.I.S. members are starting to demand comprehensive environmental studies and top notch environmental protection programs by foreign companies before granting rights to develop natural resources. In addition, new environmental protection laws and a pending environmental impact assessment law are expected to have big implications for companies wanting to do business in the C.I.S.

To be successful in the C.I.S., Metzger said, western industries must be sensitive to local customs and cultural idiosyncrasies, ready for sudden political changes, and responsive to evolving rules.

"Any company wanting to invest there should understand how seriously they are taking the environmental performance of outside developers," he advised.

Metzger based his conclusions on results of a preacquisition environmental survey of Kazakhstan's 60 sq mile Karachaganak gas field for a joint venture of units of British Gas plc and Agip SPA. The survey established a baseline reading of pollution to identify possible problems before the two companies signed an agreement to help Kazakh officials continue exploring and developing the field.

As part of the study, ADL gathered data on environmental characteristics and socioeconomic conditions in a several hundred square mile area around the field.

ADL and about a half dozen Russian, British, German, and Italian subcontractors analyzed hundreds of soil and water samples at a Moscow laboratory and a mobile lab flown in from the West to assess environmental damage resulting from past and current field operations in the area and surrounding villages. In addition, ADL used a western mobile air monitoring lab to track air quality and a satellite communications system linking three continents to manage equipment deployment and staff logistics.

Despite some serious but episodic air pollution events, the ADL team found the environmental impact of previous drilling operations was 'much less serious than any of us expected," Metzger said.

However, the survey found that many years of intense farming surrounding Karachaganak had caused serious environmental damage, including heavy soil erosion and contamination with pesticide residue, destruction of natural habitats, and reduced biodiversity.

Metzger said ADL's study showed companies willing to obey environmental mandates will find acceptance by the locals and backing of international financial organizations.

"But if you fail to take into account local regulations, the movement toward more local control and local players in the game, the danger of appearing too know-it-all, and the hard environmental line they are making Westerners toe, you won't get your permit and you may never understand why."