Kommersant: US Investors Can’t Understand Russian Environmentalists

Oleg Mitvol says that investors’ negative attitude to the Russian government can be changed by more meetings.

Monday 10 September 2007

Russian environmental regulator Oleg Mitvol on Friday completed his tour to the United States where he met with America’s major investors. The deputy head of the Natural Resources Oversight Agency called the trip a success, but the businessmen had another impression. Several investment bankers said their clients are now considering leaving Russian markets. Oleg Mitvol, however, believes that investors’ negative attitude can be changed by more meetings with Russian officials.

The Russian Natural Resources Ministry announced the visit late August, saying that Oleg Mitvol would go to the United States to meet with the largest U.S. funds. Mr. Mitvol was accompanied by Igor Maidanov, director of the ministry’s international cooperation department and presser Rinat Gizatulin. The Natural Resources Ministry reported that the officials had met investors from Fidelity, Legg Mason, Julius Baer Investments, Capital Research, Old Lane, Newgate, Black River, Red Star, MCI, American Century, State Street, UBS and Wells Capital Management. The deputy head of the environment watchdog said he held “15 meetings a day.” Russia’s Alfa Bank was the one to send out invitations to the investors, Mr. Mitvol said noting that the bank did it voluntarily.

Despite his relatively inferior position in the government, Oleg Mitvol is one of Russia’s most high-profile officials. Last year, his Natural Resources Oversight Agency launched a highly public attack on the Sakhalin-2 project. Oleg Mitvol blamed foreign companies in the project for environmental violations and estimated damage to the environment at $30 billion. Foregin investors ended up selling control in Sakhalin-2 to Gazprom in late 2006. Ahead of Mr. Mitvol’s U.S. trip, his agency lashed out at several small public companies for drastically over-reporting the reserves that they show to investors compared to those recorded by Russian officials.

The environmental regulator had quite a tough dialogue with American investors. Mr. Mitvol told a meeting of U.S. investors that the days of “the Banana Republic” in Russia are “a thing of the past,” and said that Shell “was hurt by its own arrogance.” “The company failed to understand the changes that have taken place” in Russia, Bloomberg news agency reported quoting Mr. Mitvol.

Some investors viewed Oleg Mitvol’s words as a sign for further crackdown on foreign capital on the Russian market. A Kommersant source in Washington says the meeting with Mitvol “dumbfounded UBS people.” “They said that he was very aggressive,” the source noted. UBS press service in New York would not comment on the reports. UBS analysts said in their daily review that “the meeting may have a negative effect on the market’s attractiveness for foreigners who invest in Russian oil and gas markets (including independent and major companies).” A participant of the meeting said that the discussion led him to a conclusion that the outlook of a business in Russia is directly connected with its relations to the state, but it is nearly impossible to predict what relations with the government the company will build. An employee of a large investment company reported that some of its clients with stock holdings in Russian firms are considering selling their stakes.

Analysts agree that statements of governmental officials may influence stock markets. “Investors who bear are likely to use the opportunity, which will send quotations down for a while,” says Anatoly Gavrilenko, director general of the Alor investment firm. Mr. Gavrilenko, however, views the American trip as “personal PR move” by Mr. Mitvol who often come out with ringing statements. Western analysts, in their turn, consider Oleg Mitvol able to have influence on the situation. “Oleg Mitvol poses serious political risks for investors in Russia,” says Anders Aslund, leading Russia and Eastern Europe expert at the Peter G. Peterson Institute for International Economics in Washington.

Meanwhile, Oleg Mitvol says that he did not mean to scare out investors. Quite on the contrary, he encouraged them to invest in Russia. He said he had “told them about political stability and development for the next 25 years in Russia.” He also explained “how licenses are issued, how to apply for renewal, what the State Commission for Reserves is and why there is a difference in estimations of reserves.” “We handed out contact information and addresses of the State Commission for Reserves and the ministry to help companies verify any information,” the deputy administrator of the environmental agency told Kommersant. A participant of the meeting with Mr. Mitvol notes that the Russian officials also “added that he can recall any license.”

Mr. Mitvol did not fail to notice the investors’ somewhat hostile reaction. “It’s funny that people who make billions of dollars in Russia feel very negative about ours state,” the official says. “They must be grateful to the country where they have been investing and gaining profits for the past ten years.” Oleg Mitvol hopes to make amends for the “misunderstanding” by more meetings with investors. “Coming there twice a year is not enough,” he says. “We should organize it on a permanent basis. But the Natural Resources Ministry and Oversight Agency can’t make it on their own.” Russia’s environmental regulator says he will ask the Foreign Ministry’s help and adds that he is willing to meet with investors from other countries.

Denis Rebrov and Nailya Asker-zade, Moscow; Dmitry Sidorov, Washington

http://www.kommersant.com/p802772/r_531/Mitvol_Investors_Environment/