Plenary meeting reveals critical gaps and delays (454 words)

Published: 5/16/2001

There were some interesting scenes and exchanges on 14th April, at the bi-annual plenary meeting of the Advisory Council on Foreign Investment, chaired by Prime Minister Kasyanov. The meeting, which was attended by a wide range of companies and investors, including some of Russia's oligarchs, such as Khodorkovsky of Yukos and Bendukidze of Uralmash, was characterised by a desire on the part of the government to be seen to be responsive: superficially, at least. In fact, Kasyanov - rather implausibly, given recent corporate tussles - went so far as to declare that the Russian government drew no distinction between foreign and domestic investors. Governor Geraschenko claimed that the banking system had completed its 'return to normal' after the 1998 crisis. This prompted Jean Lemierre, President of the EBRD, to ask: “What normalisation?” observing that, in any “civilised country”, banks should provide the finance to lead industrial recovery. According to Christopher Granville, analyst at Moscow-based investment bank United Financial Group (UFG), this exchange is significant in that it illustrates the continuing foreign perception that Geraschenko has outlived his usefulness as (post-1998) crisis manager and that he has now become a barrier to necessary reforms - in much the same manner as in his earlier stint as Governor of the Central Bank of Russia (CBR) in 1992-94. Kasyanov did at least drop another hint that the government would ease restrictions on foreign access to the banking system: something on which the CBR has been dragging its feet. Assessing the value of such investment, however, remains difficult and complaints over the slow move to international accounting standards (IAS) was greeted with the usual answer: that there are a lot of accountants to train. Those senior government officials present at the meeting received well-deserved criticism from representatives of western oil companies interested in PSA, over a number of issues. A key concern is the long-running saga over the separate Tax Code chapter on PSA taxation, which has been bogged down in arguments with the Finance Ministry. Kasyanov maintained his conciliatory tone, by promising automatic consultation on this tax issue with potential western PSA partners. On the subject of general delays in the PSA process, German Gref, Economics Minister, having won a turf battle to gain control of this issue within the bureaucracy, characteristically promised grand legislative plans to fix all problems, rather than focussing on key detailed issues (tax, cost recovery regime), where the urgent need really lies. He did, however, respond to criticism from various western companies that new licensing rules and additional bureaucracy contradicted the government's declared policy on deregulation. In this respect, he undertook to ensure that the offending government resolutions were repealed.

Article ID: 2534