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Kremlin to transfer shelf to Rosneft and Gazprom

Gazprom and Rosneft in Moscow.jpg

A conference headed by Russian President Vladimir Putin has approved a proposal to transfer all deposits off the continental shelf to Russian energy giant Gazprom and state-owned oil company Rosneft, mostly to prevent foreigners from buying large stakes them.

A government official said another fundamental decision was to put shelf deposits out to tenders, rather than auctions, the difference being that the price will no longer be the major criterion, while envelopes could remain unopened if a commission finds a bidder's technical and environmental terms optimal.

"That is not surprising," said Valery Nesterov, an analyst with the Troika Dialog brokerage. In 2004, when Exxon and Chevron lost their licenses for Sakhalin III, it became clear that the government was about to establish tough control of shelf deposits.

The government official said the Kremlin's decision could be finalized by amending the laws on mineral resources and on the continental shelf.

It will not be necessary to adopt a new law on mineral resources in the next two years, said Mikhail Subbotin, director of SRP Ekspertiza. Under the bill drafted by the Natural Resources Ministry, the right to develop a field could be obtained only at an auction, while only the court had the right to revoke such licenses.

However, the lower house did not approve the document.

"We would like to adopt the law, but we cannot deprive ourselves of levers, even not very civilized ones," Prime Minister Mikhail Fradkov said in November 2005.

In a move to promote state-controlled companies, the government is pushing potential rivals away, and will thereby hinder quality of field development, Subbotin said.

Mechanisms for the transfer of deposits, budgetary benefits and the efficiency of exploration will not be transparent, the federal government official said.

He added that the government could earn at least $7-$8 billion from auctions on large shelf deposits, while tenders will yield no more than $3.5-$4 billion.

Both foreign and Russian companies, such as LUKoil, which has experience on the Baltic Sea and off the northern shelf, will be damaged, said Nesterov.

© Vedomosti, a Russian newspaper

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