Illustration: Lu Ting/GT
During a recent economic conference in the Siberian city of Krasnoyarsk, Russian Deputy Prime Minister Arkady Vladimirovich Dvorkovich was quoted by Reuters as saying that the Russian government is ready to consider allowing Chinese investors to take more than 50 percent stakes in strategic oil and gas fields. "We have a strategic partnership with China and now decisions are made much faster than before," Dvorkovich reportedly added.
Current laws in Russia allow foreign investors to own up to 50 percent of oil fields with reserves of more than 70 million tons and gas fields with more than 50 billion cubic meters. Dvorkovich described the current ownership rules as "comfortable" yet explained that "if there is a request (for control), we will consider it."
At present, Dvorkovich's statements - as encouraging as they may seem - offer no guarantees to Chinese investors. As Dvorkovich himself stated at the conference, the Russian government would need to change its current regulations if it were to allow Chinese investors to take more than 50 stakes in strategic energy assets. For both Russian and Chinese authorities, such a development could be a long way off.
The Russian government has historically been very cautious about introducing foreign capital into its petrochemical industry. During the 1990s, the Russian government signed a series of production share agreements with major international oil companies aimed at attracting foreign investment and stimulating development in domestic industrial sectors. Later the Russian government made several amendments to this agreement, setting harsher requirements and higher costs for foreign investors. Officials in Russia insisted that some overseas parties had taken advantage of legal loopholes in the country's energy sector. Such changes reflect, at least in part, some of Russia's ambivalence toward outside investment.
To date, Chinese corporate investment in the Russian oil and gas industry has also been limited.
Of course, talk of enlarging Chinese investment access to Russian energy assets comes at a time when economic bonds between the two countries are strengthening. Last year the Russian government signed a deal, valued by Gazprom at $400 billion, to supply China with 38 billion cubic meters of gas per year starting in 2019. Dvorkovich's speech - for what it's worth - hints at new possibilities for Chinese investors as well as a new era in Sino-Russian economic relations.
For policymakers in Russia, a country mired in economic difficulty, the need for deeper cooperation with China has become all the more urgent after several rounds of Western sanctions. Frayed ties with Europe and other advanced economies have battered the Russian currency, sparked dramatic capital outflows and ramped up inflation. With financing channels in the West cut off, Russian businesses - particularly those in the energy sector - are turning to Asia and Latin America for new sources of funding. Last year, Russian President Vladimir Putin paid a visit to Latin America, where he met with leaders from Argentina, Brazil, Cuba and Nicaragua to strengthen economic ties. Cooperation with China in the energy industry may just be part and parcel of Russia's plans to strengthen alliances outside of the West.
For China, it's difficult to deny that domestic energy enterprises need to expand their foreign investment portfolios. For one thing, China's energy supply structure is insufficient to meet its own needs. For another, China has an increasing need for clean energy. It seems inevitable that China will intensify investment in clean energy sources like natural gas, which Russia can deliver in large quantities.
However, this does not mean Chinese companies should let their guard down. Russia's economic outlook, after all, is far from rosy. Volatility in the ruble and mounting levels of debt present clear financial risks. Furthermore, cooperation between Russian and foreign investors have not always been smooth. China should take such facts into account before deciding on any big investment plays in its neighbor to the north.
Chinese companies should also compare different investment methods and strategies and see which are the most suitable in the Russian energy industry. They should decide whether it's necessary to take control of upstream resources or other projects in the production chain. Both sides should also minimize default risks through legal means, such as specified arbitration strategies in their contracts.
Finally, in the case of large-scale investment, Chinese firms should also work closely with local communities and media in Russia to reduce fear that China is taking advantage of Russia's economic difficulty and seeking domination of its natural resources.
The article was compiled by Global Times reporter Xie Jun, based on an interview with Zhang Xin, a research fellow at Center for Russian Studies of East China Normal University. email@example.com