RUSSIA GRAPPLES WITH NEW TARIFFS, OIL/GAS LAW

Some Soviet republics that consume more oil and gas than they produce are trying to obtain a hefty share of the hard currency profits earned from hydrocarbon exports by the Russian Federation. But Russia, a much bigger oil and gas producer than the rest of the U.S.S.R. combined, is ready to counter efforts to place a stiff surcharge on Russian hydrocarbons that must cross the territory of other Soviet republics to reach foreign customers. Meantime, Russian and U.S. legal experts are drafting

Oct. 14, 1991

5 min read

Some Soviet republics that consume more oil and gas than they produce are trying to obtain a hefty share of the hard currency profits earned from hydrocarbon exports by the Russian Federation.

But Russia, a much bigger oil and gas producer than the rest of the U.S.S.R. combined, is ready to counter efforts to place a stiff surcharge on Russian hydrocarbons that must cross the territory of other Soviet republics to reach foreign customers.

Meantime, Russian and U.S. legal experts are drafting model legislation that will be a basis for rewriting the republic's oil and gas law.

TRADE ISSUES

Russia is forced to send almost all of its exported gas and a significant part of its oil deliveries through areas of the splintering nation that have proclaimed independence or autonomy.

The major pipelines transporting gas from Russia's western Siberian fields to eastern and western Europe cross the Ukraine and Byelorussia. Gas exports to countries immediately adjacent to Russia, such as Finland, represent a tiny percentage of Russia's overall foreign gas sales. Ports used to export some Russian oil are located on Russian territory in the Baltic and Black Sea areas.

But the U.S.S.R.'s biggest Baltic oil exporting ports are Ventspils in Latvia and Klaipeda in Lithuania, both now independent of Moscow. Among the Black Sea's major petroleum exporting ports are Odessa and Feodosiya, together with less important Sevastopol, all in the Ukraine, and Batumi in fiercely independent Georgia.

Overland, the U.S.S.R.'s biggest crude export pipeline-Druzhba (Friendship)originates in Russia's Volga-Ural fields but must cross Byelorussia and the Ukraine to reach refineries in Poland, Czechoslovakia, Hungary, and Germany. In the Far East, where all ports and land border points are on Russian territory, no gas and only small volumes of oil are delivered to foreign customers.

Now the Ukraine is demanding Russian oil loaded at its ports be subject to as much as a 25% fee on the oil's value. Moreover, the levy would have to be paid in scarce dollars. At Georgia's port of Batumi, authorities want $25/metric ton ($3.42/bbl) to load Russian oil. Even the U.S.S.R.'s weakened central government wants to place a toll of $22/ton on Russian crude moved via pipelines owned by the all-union firm Transneft from western Siberia to the Russian republic's big Black Sea petroleum exporting port of Novorossiisk.

The Moscow newspaper Argumenty i Fakty (Arguments and Facts) suggested that the Russian Federation will retaliate for fees it is forced to pay other republics for the privilege of loading tankers with Russian oil at their ports, noting, "In all probability, Russia will demand payment in dollars for its deliveries of goods and materials to the republics establishing such fees. These dollars could then be used to pay off the dock workers at oil terminals in other republics.

NEW RUSSIAN OIL LAW

Plans call for the model legislation to be part of a draft underground resources code to be proposed in December 1991 in the Supreme Soviet of the Russian Soviet Federative Socialist Republic (Rsfsr).

Work is proceeding in Russia and the U.S. under a protocol signed Sept. 11 by Rsfsr Vice-Prime Minister Igor Gavrilov and George W. Hardy III, director of the Russian petroleum legislation project of the University of Houston Law Center Foundation. Directors of the U.S. legislation drafting process have formed working groups headed by representatives of academic and petroleum industry viewpoints. Leaders of the Russian drafting process have agreed to organize along the same lines.

UH officials have raised about half the $1.5 million needed to finance the project from major international energy companies with stakes in the outcome. For their support, project sponsors will receive full progress reports at the earliest possible times, Hardy says. UH officials expect the draft oil and gas law to redefine contractual relationships covering joint ventures, concessions, licensees, and other exploration and production agreements between Rsfsr and foreign companies.

Among other topics, the draft legislation will concern oil and gas conservation, environmental protection, taxation and economic rules, oil and gas pipeline regulation, and protection of intellectual property and technology transfer. U.S. and Russian groups currently are trying to identify key issues about which policies must be set as a basis for the model legislation.

A UH group led by Hardy returned to Moscow in early October to join teams of Russian specialists working on the draft. In late October a delegation of Russian experts is to visit Houston to complete position papers on the key issues.

Hardy says U.S. and Russian teams in early November will return to Moscow to begin drafting the underground resources code and oil and gas legislation. Before the resource development package is proposed in the Russian Supreme Soviet, several Russian specialists will return to Houston to fine tune the legislation and begin working on administrative regulations needed to carry out the proposed laws.