A Kremlin-drafted bill that envisages transferring control over natural resources to the state has thrown Moscow business elites into uproar as they accuse the government of stabbing them in the back.
Advocates of the bill say defining ownership of natural resources will allow the state to use profits for its own poorly financed programs, passing the benefits on to Russian residents. But some market analysts say capital flight out of the country — which has only recently slowed — will increase markedly if the bill is passed.
The natural resources sector has produced most of Russia’s billionaires since the demise of communism just over a decade ago. But clouds have been gathering: Earlier this year, President Vladimir Putin admonished investors and operators, saying "some companies … in the natural-resources sector … are ready to sell their reserves and increase their capitalization at the expense of the state."
The bill, released last week, proposes replacing licensing to extract natural resources — the current official permission obtained by private companies — with a concession agreement which allows the state greater control over resources once private companies are harvesting them. Market watchers say this step will inevitably lead to nationalization of resources.
"This is not nationalization. The main aim of this document is to define the point in the production cycle when state-owned natural resources become the property of private companies," said Dmitry Kozak, the deputy head of the presidential administration, which proposed the new bill.
However, a group from the Russian Academy of Sciences has told the government to consider renationalizing natural resources so all citizens can gain from these assets, Interfax reported.
These proposals — part of an ongoing process to overhaul the current law on natural resources — are to be submitted before Oct. 1, as the Cabinet plans to send a unified version of the new bill to the State Duma for adoption in the winter session.
Though Interfax did not identify the group’s members, their recommendation echoes a similar view expressed earlier this year in national media by Dmitry Lvov, an academic and director of the Institute of Economics, an influential think tank affiliated with the Russian Academy of Sciences.
"If the major part of our national income is generated not by labor and capital but from rents on natural resources, then these assets should not be made a subject for private entrepreneurship, which channels revenues to only a select few. Rather, the assets should belong to all Russians," Lvov told the national daily, Pravda.
Unlike the Soviet government, which owned everything, the Russian government does not have its own private company dealing in natural resources. Instead, it holds blocking or controlling shares in various joint-stock companies that sprung up during the loans-for-shares privatization schemes of the "era of wild capitalism" in the early ’90s.
"A law to make the state the sole owner with rights of exploitation on these resources, and making concerted efforts to forestall any further attempt to sell government’s stakes in this sector, would be a big step forward in correcting the situation," Lvov argued.
He called on the government to draft a national income policy, in which a part of revenues from natural resources would be shared equally among all Russians. "By all our calculations, every Russian will be able to get a least $1,000 per year, a feat that would serve better to strengthen the [Russian] Federation."
But all these statements were previously unnoticed, and the Kremlin-orchestrated proposal to change the status quo in the extraction and marketing of gas, oil, coal and other natural resources seems to have taken the Moscow business establishment by surprise. The now-rich controllers of these resources — or their de facto owners — seemed to think such government control was a thing of the past in Russia.
Most people contacted by the Russia Journal either refused to comment on the issue or said they had no knowledge of the bill, though several local media outlets have run detailed reports on the issue. Those that did comment said such thinking, in the current economic and political setting, borders on the surreal.
"I don’t think renationalization, as recommended by this group or in the bill, will be possible today in Russia, because owners of private companies will not just give up their properties," said Vladimir Bobulyov, a public relations executive at Tyumen Oil Co., one of Russia’s oil majors.
"It seems these people have poor knowledge of what is going in the sector, because there is nothing to renationalize. These resources currently belong to the government," an influential metallurgy magnate said on condition of anonymity.
Private companies now temporarily lease the rights to extract resources, refine and market them. The government receives geological taxes for granting those rights, in addition to collecting traditional company taxes and other royalties, Bobulyov said.
"The geological tax depends on the type of resources, their location, duration of the lease agreement, difficulties in their productions, the amounts of reserves and several other factors," he added.
It’s generally acknowledged that private companies are more effective than government-owned companies in any business undertaking, the magnate said.
"Besides, I think the government is currently gaining more from the natural resources’ proceeds through taxes and other royalties from the enhanced productivity in the privately owned companies without getting involved in the extraction and production processes," he added.
Industry spokesmen contend that other models on mining natural resources, such as those in the Gulf regions where revenues from natural resources are evenly shared among the government, its citizens and investors, are not suitable for Russia.
"This is because oil production in Russia has its own specifics. Generally, Arab oil, apart from being of higher quality than Russia’s, it is also easier and, therefore, cheaper to extract. These features make their oil easier and more profitable to market," Bobulyov said.
Currently, Russia has its own scheme, a production-sharing agreement that allows all the parties involved in the oil-production process, including the government, to get its fair share of the extracted oil and use it as they see fit, he added.