Sergey Donskoy, Ministry of Natural Resources of Russia
Release Date: 2010-08-10
Sergei Donskoy, Deputy Minister of Natural Resources of Russia (MNR), has been interviewed by Russiaenergy.com for Oil and Gas Financial Journal to discuss the state policies in safeguarding the natural resources, bringing closer the relations of the state and oil and gas businesses and controlling the environmental impact.By creating strategic reserves of mineral deposits, Russia hoped to safeguard key fields that were of importance to the country, and at the same time create a more explicit relationship between the government of the Russian Federation and oil and gas businesses operating in the country. Five years later, how successful has the legislation been in achieving these two aims?
If we rewind the tape five years back to 2005, the situation that you refer to was different, the dynamics of the economy were very different, and many legislative initiatives had a very different context. At that time, the main issue that is still relevant was about introducing serious changes in the legislation and there were a lot of offers to amend the law “On Subsoil”. Later on, it was decided to implement the necessary amendments specifically for the emerging issues related to the usage of subsoil resources. As for the strategic reserves, the current legislation defines the need to form an oilfield reserve foundation to include different types of resources. This measure was implemented in 2008 in the frame of the amendments in the subsoil legislation (made under the 58th federal law) that were approved in May 2008. It is in this frame that we’re currently implementing this new standard that envisages three main types of fields to be added to the reserve foundation: fields located on the preserved natural territories; fields located near infrastructure and fields located on military territories responsible for national defense and security.
I would say that the idea of creating the reserve foundation is more of a responsive measure. What I mean is that while the industry needs to accumulate and safeguard the reserves to ensure the future stability, it also needs to ensure the available economic assets that can potentially boost up the industry. The development of the economy and the industry as a whole is slowing down, so we need to react by ensuring active investments and development of oilfields. The MNR tries to involve a wider range of fields in the development and involve more companies so that the fields could bring maximum benefit to the state and the people.
It is indeed necessary to create reserves, also for other types of natural reserves. Prospectively, we can expect new technologies for more efficient development of the subsoil to ensure reserves for the future. The suggestions of the MNR in this regard will allow the government decide what types of other natural reserves can be included in the reserve foundation in order to produce new metals for the metallurgical industry, for instance.
Another stated aim of the legislation was to increase the number of subsidiaries operating in Russia, boosting foreign and domestic investments in the oil and gas sector and having a positive impact on tax revenues. How has the environment in the Russian industry changed in this regard?
One of the points that the subsoil legislation addresses is the so-called ‘federal leases’ that define the state policy for the production at the federally-owned subsoil reserves. As for its influence on the investments and its impact on increasing the employment and other social effects, we need to understand that the legislative mechanisms approved in summer 2008 were oriented on a completely different economic environment based on the experience of 2006-2007. Once again, I would like to stress that the decision concerning the federal lease and the choice of companies entitled to buy licenses for these spaces, as well as the procedure of how the government corrects the forms of participation in the federal lease, had all been approved under a different investment environment.
As we see today, the current result is a clearer regulation in this area: now the investors are enjoying much more transparency. For instance, the state has the official right to withdraw the federal subsoil from the investor companies with foreign participation, however there have been no such cases yet. If an investor is stripped of a federal lease, there is a state decree approved in early 2009 that guarantees a compensation for the damages related to the investor’s expenses from discovering a certain field and surveying it. As we saw from the reaction of the industry, these mechanisms should be more flexible and more oriented on investors’ understanding of the economic prospects so that they remain interested to invest in the industry. Our consultations with both the international subsurface users and consulting companies have shown that internationally there is insufficient experience in this sphere. In order to protect the investor and compensate for the undertaken risks, the legislation needs to be more flexible and more adequate to investors’ expectations. Our main objective is to increase the investment attractiveness and create conditions that are adequate to the current economic reality.
The amendments introduced in the subsoil legislation in 2008 have influenced the criteria of choosing the companies that can operate the offshore (currently only Gazprom and Rosneft) and the procedures of issuing licenses for the offshore fields.
We’re looking to expand the list of companies allowed to get licenses for development of the offshore fields. We also suggest the idea of creating consortia and the possibility of increasing the number of operators at the expense of the affiliates of Gazprom and Rosneft, as well as other ways to let the state control the management of developing the fields in order to maximize the public benefit and revenues, attract more Russian contractors and ensure transfer of innovative technologies in the frame of attracting the foreign contractors for offshore development. What we’re talking about is a possible maximization of the public benefit in terms of its influence on the regions and the scientific and innovative development that it provides – as opposed to a merely fiscal benefit. It will let us prove that we’re not capitalizing on a raw-based economy.
Do you think that these reforms are politically possible in the short term? Does it require any changes in the mentality?
Historically wise, offshore development started in Russia even before 1917. In the beginning, the experience of the Russian offshore development was applied in the USA and other countries. Of course, the mentality changes in the course of history but all depends on what objectives we pursue when shaping our policy. Unlike a century ago, today the objectives are more geopolitical. We’re aware of the necessary changes and we need to find an adequate mechanism that would not contradict the available legislation and, at the same time, serve our needs with the maximum possible impact in terms of the prospects of developing the industry. We understand that we’re in a competitive environment in a rapidly changing economy, and we need the necessary tools and have to react quickly.
The awareness in the international O&G industry has shifted towards the environmental issues: the case of Sakhalin Energy’s environmental violations has caused controversy worldwide but the speed and efficacy of the MNR in dealing with the offences have surprised many, especially is we recall Russia’s track record relating to the environment. Does this witness that the stereotype of Russia’s not being committed to the environment is a misconception?
It’s true that offshore development is ecologically challenging, to put it mildly. Today there are a lot of examples and cases that raise the awareness of the dangers of offshore development and our task is to develop the corresponding regulations and ensure efficient methods of managing and supervising offshore development.
Today Sakhalin Energy is one of the world leaders in controlling the environmental impact and in implementing the measures aimed at making these projects efficient in terms of monitoring the environmental impact. Last year, during our visit to the production facilities, the first issue that we were reported at every single meeting was the environmental impact. We understand that we have to expand our activities in offshore development and we’ll develop additional mechanisms to reduce the environmental risks taking into account the experience of the Mexican Gulf.
| Company: | Ministry of Natural Resources of Russia |
| Position: | Deputy Minister of Natural Resources of the Russian Federation |
| Country: | Russian Federation |