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Foreign resources companies face eviction from Russia

Natural Resources Minister Yury Trutnev has announced he will soon inspect the Kharyaginskoye oilfield being developed by Total under a production-sharing agreement.

Experts do not doubt the minister, given the will, can find breaches of environmental legislation there, but steps taken by his ministry could lead to the expulsion of foreign companies from the country.

"The minister will find violations, all right, without any trouble," said Konstantin Cherepanov from Ray, Man & Gor Securities. "Oil companies act in Russia as if our strict environmental laws need not be observed."

The ministry's actions will force foreign companies out of Russia, predict analysts. "The only protected foreign assets in Russia are the Russian stake in TNK-BP and the joint development by ConocoPhilips and LUKoil in Timano-Pechora," said Alexander Razuvayev, head of analysis at the Megatrustoil financial company.

"All the other foreign companies are at risk. Russia is showing a clear tendency for the nationalization of the oil and gas sector, and the gradual eviction of foreigners from the country," he said.

"The Natural Resources Ministry is being used as a leverage against overseas companies," Cherepanov argues. "They are unlikely to be ejected from PSAs, but it is certain that foreigners will lose control of the projects, handing over some of their stock to state-owned companies. For example, Shell's holding in Sakhalin II may pass to Gazprom."

Observers note that domestic production will not suffer if foreign companies decamp, because Russian oil and gas concerns will take their place. Nor will the Sakhalin scandal affect the flow of investments.

But plans of Russian oil companies to enter foreign markets and buy oil-refining assets may be scuttled. "Russia is isolating itself by trying to rely on its own efforts in oil production. It cannot be said to be wrong, but the means resorted to in replacing foreign investors with local players may boomerang against us," Cherepanov warns.

Rosneft's and Gazprom's efforts to buy energy assets in Europe might be bitterly resisted as a result.

© Biznes, a Russian newspaper

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