Dealing with Russia: A Chinese Perspective

Abstract

Abstract Russia's opening-up to the outside world has been a great event for the world in general and its neighboring countries in particular. Foreign direct investment (FDI) in Russia started in 1992 and expanded in 1998. Currently, there are 26 foreign companies from eleven countries active in the petroleum upstream sector in Russia, six of which are international majors including BP-Amoco, Shell, Exxon-Mobil, TotalFinaElf and Texaco-Chevron and the like. Europe and US based companies dominate the foreign investment in Russia. E&P projects totaled 44, which are located mainly in Timen-Pechoran, Sakhalin, Eastern Siberia and Western Siberia, regionally speaking. As the largest neighboring country of Russia, China has not concluded any major petroleum direct investment projects in the country except for oil and gas pipeline to be finally approved. Authors will make quantitative analyses of the FDI in Russia here. Currently, China imported about 60 million tones of oil in 2001 by the sea lance from the Middle East. Against the growing domestic demand, the single source based route makes China's energy less secure. A search for additional sources from Russia and Central Asia has been emphasized and escalated since the opening up of Russia's energy sector. Beyond the pipeline transportation, China is continuing to seek for major undeveloped oil researves, oil pipelines associated projects, along with business alliance through privatization or M&A activities. There are huge issues to be tackled, accordingly. Chinese petroleum companies are negotiating with Russian counterparts on this matter. Results remain less bright because of corporate strategic and cultural differentials. Some oil and gas provisions remain less clear in Russia. China has learned from the lessons of western oil companies doing businesses in Russia in the last decade. Long lasting procedure of legislative approval and negotiation with local counterparts thereafter disappointed many western companies. Meanwhile, among several obstacles are contractual system and tax arrangements. However, the paper suggest that The authors suggest that bidding for undeveloped oil fields and the shares of privatized oil companies in Russia are among choices. PSA along with joint venture arrangement are effective ways available for consideration. However, favorable and transparent policies should be prioritized for any success of business in Russia. International investors have to realize that Russian need for multiple routes and exporting outlets to ship oil and gas to the regional market. However, the primary for Russia and China or others alike is further close work on contractual conciliation and legal and administrative regulations of the oil and gas pipelines.