Russia is one of the key players in the global energy market

Jun 24, 2004 02:00 AM

by Alexander Dobrovinsky

Russia is one of the major players in the world energy market. Currently, Russia's oil and gas sector accounts for some two-thirds of the country's national budget and high oil prices have been the main driving force behind the country's recent economic growth.
The most promising directions for state policy in the oil industry include optimisation of tax policy, the development of competition in the domestic oil market, development support for oil refining facilities, and the development of transport and export infrastructure for oil products. The implementation of these measures would require the adoption of a new comprehensive set of laws on oil and gas that outlines principles for long-term state policy in this sector, ensuring conditions for new development trends.

Long-term state policy in the gas sector should concentrate on four points.
First, it should expand the scope of application of gas market prices within Russia, with concurrent de-monopolizationof domestic gas trading.
Second, it should rationalize the use of resources, maintaining an adequate level of production and capital concentration.
Third, the policy should aim at encouraging the development of new gas fields, starting with independent gas producers.
Fourth, it should maximize benefits from gas exports for the national economy, based on the participation of national agents in open international trading.

Historically, the majority of Russia's natural gas exports were sent to customers in Eastern Europe, but Russia now is looking at markets in China, Japan, and possibly South Korea. However, if the sector is to remain strong in the future, it will have to reach out to new markets, particularly in Asia and the United States.
If Russia desires to become a powerful player in the global oil and gas industries, it must seek markets beyond Europe, which is not expected to see much expansion in the next decade and has political restrictions on the percentage of oil bought from a single supplier. In the mid-1990s, many analysts considered the oil and gas industries to be the best targets for foreign investment in Russia.

To return production to its peak levels will require an estimated $ 70 to $ 130 bn in new investment, which clearly would have to come from foreign sources. The Russian oil and gas sector also would benefit from infusions of Western technology and expertise. Nevertheless, Russia's generally poor investment climate and other obstacles such as special taxes have discouraged additional investment in gas and oil. Some major oil investors have received tax exemptions, but delays in rebate payments have created additional deterrents.
To improve investment in the Russian energy sector, all the above measures must be addressed by the introduction of relevant laws. This is the only approach that can ensure Russia's oil and gas sectors are attractive for investment.

Dobrovinsky is CEO partner attorney at Alexander Dobrovinsky and Partners, which specializes in corporate, business and international law.

Source: KoreaTimes
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