National Energy Security Fund National Energy Security Fund Foreign Investment in Russia’s Hydrocarbon Sector Konstantin Simonov Konstantin Simonov Chatham House Chatham House London London March, 29 March, 29 2011 2011
Konstantin Simonov’s speech presentation at The International Conference "Russian Oil and Gas: New Trends and Implications".London, UK, March, 29, 2011.
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National Energy Security FundForeign Investment inRussias
HydrocarbonSector Konstantin Simonov Chatham House London March, 29
2011
Typical Presentation of Situation in Russia Russia is the land
of resource nationalism Restriction of operating conditions for
foreign companies Increasing the role of state companies National
Energy Security Fund
The Real Meaning of Famous Law Dmitry Medvedevs presidential
term in office began with a symbolic act: practically
simultaneously with his inauguration the new law On Procedures of
Implementing Foreign Investments in Commercial Organizations of
Strategic Importance in the RF came into force The matter was
probably that while oil prices were high Vladimir Putin tried to
make it clear to nonresidents that they could be just junior
partners of Russias large state firms or majors with state
participation that had preferential rights to acquire licenses of
new projects on favorable conditions. It was important for Putin to
fix the one-stop principle he personally headed the commission for
foreign investments in strategic sectors showing that if
nonresidents wanted to work in the oil and gas sector they had to
come to him National Energy Security Fund
Sakhalin-2: Case of Resource Nationalism? Gazprom bought 50%
plus 1 share in the project from Shell, Mitsui and Mitsubishi for
more than $7bn Shell, Mitsui and Mitsubishi are still minority
shareholders of Sakhalin-2 All issues related to violations of the
environmental legislation were certainly settled Moreover, SE
immediately managed to increase Sakhalin-2s budget from $12bn to
almost $20bn Meanwhile, the Sakhalin-1 project every year has
serious problems with approval of the project budget in contrast to
Sakhalin-2 that avoids them National Energy Security Fund
Downstream Nationalism Favorite topic of Putin was asset
exchange. He was ready to allow nonresidents into the Russian
production sector only following the upstream in exchange to
downstream principle. Putin had a strategic task to enter the final
user market where the highest profit margin is charged But
gradually it became clear that the scheme was collapsing. Actually
Putin failed to achieve substantial success. In the gas industry
nobody wanted to transfer significant assets to Gazprom National
Energy Security Fund
Psychological Confrontation Some kind of psychological
confrontation between Putin and nonresidents started. On one side,
Putin understands there are very few places in the world where
costs of production of hydrocarbons are low and political risks are
minimal. Resource nationalism rapidly spread around the planet;
political risks in countries rich in oil and gas also increased,
while the economic crisis, new kinds of fuel and energy efficiency
policies did not substantially reduce the world demand for
hydrocarbons. The oil spill in the Gulf of Mexico at a BP platform
vividly demonstrates that easily retractable oil reserves are
running out; companies are ready to produce oil in rather
complicated conditions. Access to deposits is an expensive
privilege. And Russia is not the worst place for investments
compared to Latin America, Africa and Central Asia On the other
side, reserves of cheap hydrocarbons are reducing in Russia too.
Production is gradually moving to northern and eastern regions; oil
and gas production costs are becoming substantial National Energy
Security Fund
2010: Bad news ConocoPhillips withdrawal from LUKOILs share
capital E.on withdrawal from Gazproms share capitalNational Energy
Security Fund
BUT! 2011: Real U-turn + + + + +National Energy Security
Fund
What is Russias Need? Investment Technology Share of risks
Market outletNational Energy Security Fund
Instead of what? Tax benefits Investment to infrastructure
Liberalization of domestic gas market National Energy Security
Fund
Exchange of Shares Interpenetration with foreign companies
Putin would like to organise deals involving an exchange of assets
and shares in Russian companies for s hares in foreign majors. It
is also a question of political stability National Energy Security
Fund
Privatization In the period from 2012 to 2015 the government is
ready to sell up to 15% of Rosneft shares. After 2015 Russias
participation in Rosnefts capital may be reduced. In 2011 a 25%
minus one share stake in Sovcomflot A 25% minus one share stake in
Russian Railways will be sold soon Zarubezhneft, Aeroflot and
Sheremetyevo are to become private in 2011-2015 National Energy
Security Fund
BP-Rosneft-AAR CaseTwo big surprises State is trying to involve
BP to new project in Russia but private business is struggle
against it! We can also remember Khodorkovsky who abolished PSR in
Russia Private businessmen is publicly struggling with Putin and
there is no doctor National Energy Security Fund
Live after Libya National Energy Security Fund
and Fukushima Increasing of gas consumption in "No nuclear"
scenario 250 210,9 200 150 103,2 100 68,8 41,1 37,1 33,9 50 22,5
17,8 0 USA France Japan Russia South Germany Canada China
KoreaNational Energy Security Fund
Thank you! www.energystate.ruNational Energy Security Fund