Former U.S. Secretary of State Colin Powell told an international investors' conference in Moscow that Russia must observe the rule of law, if it hopes to attract the capital needed to further develop the country. Peter Fedynsky reports from Moscow that investments will become critical in Russia's vital energy sector.

Russian television selected a brief soundbite from an interview with former Secretary of State Colin Powell in which a translator quotes him as saying that Russia has succeeded in attracting foreign investors and will likely continue to do so.

But in an address journalists were not permitted to record, Mr. Powell told a large international investors' conference in Moscow that Russia must observe the rule of law and fight corruption if the country is to lure more investors.

Andrei Dementiev

Russia's Deputy Energy Minister Andrei Dementiev spoke only business. He told the same investors that the growth of his country's GDP in recent years has outpaced expectations. He also expressed confidence in new export markets for Russian energy in the east and in Europe.

Dementiev says that when fully developed, the northern European gas pipeline will allow delivery of gas not only to traditional Russian clients in Central Europe, but also to new markets in Scandinavia and Great Britain.

Leonid Fedun

But Leonid Fedun, the vice president of Russia's Lukoil petroleum company, says drilling for oil is becoming technically more difficult and expensive, which could cause a period of slow growth, even stagnation in Russia.

Fedun says Russia no longer has any developed and proven oil fields. Today, he says, all Russian oil companies - government and private - will need to invest gigantic amounts of money just to maintain the current annual production level of 10 billion barrels.

Fedun estimates that sum to be $300 billion, which will require foreign investment.

Another oil company executive, Peter O'Brien - an American investment banker who is now vice president of Rosneft, Russia's largest oil company - agreed with Secretary Powell's linkage between the country's ability to draw foreign investment and its commitment to the rule of law.

Peter O'Brien

"Management at Rosneft continues to work on what we can do to improve return on capital to our shareholders," he said. "And in order to do that, to the extent we are operating in a marketplace, which allows us to buy goods, sell goods, develop projects on a more predictable basis, the lower our cost of capital will be, the more efficient we will be able to be, and the greater chance we have to contribute to the growth and development of Russia."

O'Brien says Russia has made progress on the corruption issue since he first came to the country 15 years ago. But he notes that the Russian people are just now beginning to see the results of that progress.