Western companies are not the only ones having problems doing business in Russia.
Russia's own oil and gas production associations are facing a deepening crisis over state intervention.
Viktor Paliy, general director of Russia's Nizhnevartovskneftegas, told a London conference the transfer from state owned to joint stock od companies is throwing up problems.
"The state has said that Russia's production associations are autonomous," Paliy said, "yet it retains the right to distribute 80% of what we produce to consumers."
Paliy said production associations have so far received no clear idea from the state of their precise role. They do not know whether their job is simply to sell oil or whether they have a duty to keep a customer base supplied.
"Also," Paliy said, "by taking 80% of production the state is using us as suppliers. But the state does not consider how to pay us for supplies."
FREE CREDIT
Alexandre Cherkasov, general director of Russia's Permneft production association, said customers are receiving oil although they can not pay for it.
"We are effectively providing interest free credit," Cherkasov said. Yet producing associations can not stop supplies because they are tied hand and foot by government rules.
Paliy predicted 400-500 million bbl of oil will be consumed this year in the former Soviet Union without payment. In February, production associations had total production of 6.3 million bbl of oil, of which 1 million bbl will be "lost" through nonpayment.
"Government should at least try to pay for our oil," Cherkasov said. "We are meeting our requirement to produce, yet because of bad debts to government we cannot pay our contractors. This is embarrassing."
Cherkasov said if government payments do eventually come through, 6 months late, rampant inflation will mean the producer receives only a fraction of the original sale value.
IDLE WELLS
"Some people have said we should not supply to buyers who cannot pay," Cherkasov said. "Yet if we do not keep supplying we have to close down production. I already have 1,400 wells standing idle."
Government "liberalization" and partial deregulation of oil prices last year meant revenues went up almost fourfold. However, cost of resources went up 11 times in the same period, while cost of services went up 24 times.
"Because of this, Nizhnevartovskneftegas booked 15 billion rubles of losses last year," Paliy said. "And the situation is even worse for gas. The price is fixed at a level 11 times lower than the cost of production."
Paliy said the absurd pricing policy, coupled with strangulation by taxes and Russia's financial crisis, are "...this year piling on the problems of last year. Oil we are now sending to customers who cannot pay needs to be sold abroad. Otherwise, the system will fail apart."
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