EDITORIAL Russia's 'new approach'

With so much else in the news from Moscow, it was easy to miss reports about a new hurdle for foreign capital entering Russia's oil and gas industry. It was also easy to overreact to them.

Difficult enough to track were the political intrigues surrounding Boris Yeltsin's malfunctioning heart. The ailing president had to sack long-time cronies just to prove he could still govern-or at least dampen the ambitions of political rivals.

Fiscal problems

While Yeltsin lobbed political grenades out of the sanatorium where he awaits surgery, Russia's fiscal problems worsened. Austerity in the military stirred speculation about pressures for a coup. The International Monetary Fund withheld disbursements under Moscow's $10 billion line of credit. That move set the government further behind in its wage and pension commitments to civilian and military workers.

In response, the government broadened a crackdown on Russian companies delinquent in tax payments. After publishing the tax debts of major companies, it began bankruptcy proceedings against four concerns, including the refiner Krasnodarnefteorgsintez.

Denying charges that politics had guided selection of the targets, the bankruptcy agency said it had threatened seven other tax-delinquent companies with action and was investigating 12 oil and gas firms.

Meanwhile, there was no sign of let-up in the contests of influence between governments in Moscow and individual republics.

It came as just a gust in a storm, then, when an official of the oil holding company Rosneft said the government would favor new Russian companies in future oil and gas deals.

Heralding a "new approach," Rosneft spokesman Vladimir Tumarkin told the news agency Reuters, "We do not wish to repeat the so-called mistakes of earlier deals, when majority stakes went to foreign companies and Russia was left out."

Tumarkin said he was referring to agreements for exploration and production off Sakhalin Island in which Russian interests are small.

Rosneft, he said, will ask foreign companies now seeking development rights in the Timan-Pechora region to form a consortium and reserve an equity share of at least 50% for Russian companies.

A major change in the rules, this-but hardly the first surprise in Russia. It won't spell the end of international participation in Russian oil and gas projects.

Russia isn't the first country to specify levels for local participation in petroleum ventures involving foreign capital. Minority stakeholders can make money in properly structured deals. Non-Russian companies won't think it too much to ask that Russian companies assume some equity role in Russian oil and gas ventures. In fact, a mandate for Russian participation might accelerate needed improvements in production sharing and other legislation. So the main problem non-Russian companies are likely to have with Tumarkin's announcement is that it forces changes in an investment climate already struggling with uncertainty.

Anticapitalist suspicions

A perhaps smaller but nevertheless undeniable problem is that the change feeds persistent suspicions that what Russia really welcomes is contributions of cash unmotivated by the hope for profit.

The suspicion is overstated when applied to Russia as a whole. Yet it is all too valid for specific individuals and jurisdictions.

Adherents of old-style anticapitalism can and do obstruct projects and general economic progress in Russia. Their more-enlightened counterparts need to acknowledge what this does to Russia's investment appeal and take steps to offset the damage.

An opportunity to do so-and an important indicator to foreign companies about investment conditions in Russia-will be the design of deals under the announced new approach. The test is whether terms create a chance to earn reasonable profit from capital placed at risk. And it applies no more or less in Russia than it does anywhere in the world.