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US Says Russia Hampering Foreign Investment in Energy Sector


U.S. officials are calling on Russia to implement reforms aimed at promoting foreign investment in its energy sector. The officials testified before a Senate panel Tuesday.

Amid rising oil prices and expectations that global energy demands will increase in the coming years, a Senate Foreign Relations subcommittee considered prospects for increasing oil and natural gas exports from Eurasia.

"The United States may not become a primary, direct consumer of the oil and natural gas exports from Eurasia. But developing these reserves and bringing them to the world markets is a strategic, geopolitical, economic and energy interest for the United States," said Senator Chuck Hagel, a Nebraska Republican, who chaired the hearing.

Much of the focus of the hearing was on Russia, the world's second largest oil producer after Saudi Arabia, and the biggest source of gas reserves.

But the Russian government has made it difficult to get those reserves to markets, according to Karen Harbert, assistant secretary for policy and international affairs at the Energy Department. She says there are problems with business and investment climate, transparency, corruption and the rule of law.

"In Russia's case, companies are hindered from energy investment by high taxes and an undifferentiated fiscal regime that provides no incentives for hard-to-produce deposits," she said. "Resource development has also been hindered there by recent centralization of the energy sector. This centralization, particularly in Russia's case, is very problematic. It is fostering an opaque investment climate, it is decreasing competition, and it is also decreasing opportunities for qualified U.S. companies."

Paul Simons, deputy assistant secretary for energy, sanctions and commodities at the State Department's Bureau of Economic and Business Affairs, voiced other concerns. "Russian (energy industry) operators have made great strides to control certain aspects of the upstream and downstream activities, from exploration to transport. This has been somewhat troubling," he said.

Mr. Simons urged Russia to take steps to improve the investment climate in its energy sector. "We continue to remind the Russians that U.S. companies seek a stable and predictable commercial environment. They are calling for clearer, sounder operating rules," he said.

Assistant Secretary Harbert says the United States is working with Russia through a bilateral energy contact group to address such issues. In addition, she says, the United States and Russia have created a commercial forum to promote dialogue between representatives of American and Russian energy companies. That forum is expected to release recommendations in November.

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