Foreign TNCs in Russian oil and gas industry

Foreign companies play a special role in Russian oil and gas industry. At the beginning of 1990s there was a great demand for foreign capital because Russian oil companies did not have enough financial resources for exploitation of large-scale projects. A number of federal statutes were implemented in order to regulate the inflows of foreign investment in Russian oil and gas sector. By 2008 the volume of foreign direct investment (FDI) inward stock in oil and gas exceeded $30 billion, and its share in total inflows accounted for 25%. Taking into consideration this indicator of FDI, we could conclude that foreign investors showed profound interest in making business in this sector. However more than 90% of FDI inflows originate from offshore jurisdictions (first of all from Netherlands, Cyprus and British Virgin Islands), where Russian capital outside Russia is accumulated. It means that international production in Russian oil and gas to a great extent is controlled by Russian capital and it is essentially Russian production. Almost all large petroleum TNCs operate in Russian market, including British Royal Dutch/Shell and British Petroleum, American ConocoPhilips, Chevron Texaco Co and Exxon Mobil, Italian Eni Group, French Total, Norwegian Statoil Hydro, and Chinese Sinopec. Despite the fact that spheres of activities of these TNCs are quite different in Russia, their positions in Russian market are more significant in the upstream segment, i.e. oil and gas exploration. The most widespread form of contract agreements with foreign TNCs in Russian oil and gas sector are joint ventures - their part in the total amount of concluded contracts exceeds 98% (the remaining part of 2% was accounted for production sharing agreements). In almost all joint ventures Russian partners have more than 50% of stock that is a reflection of government policy to retain total control over oil and gas companies in upstream segments. Foreign TNCs account for only 7-12% of oil production in Russia, so the opinion of TNCs' occupation of Russian market is exaggerated. Foreign companies' influx into Russian oil and gas industry played a positive role from the point of view of financial resources inflows. However from the point of view of modern technologies inflows, contribution of foreign TNCs could be more substantial. The causes of this situation are connected with a number of factors, including lack of a well-thought long-term policy for attracting foreign capital, clear and stable legislation, including the tax one, and an adequate mechanism of enforcement as well as a high level of bureaucracy and corruption in Russian society.

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