Business in Russia: Nothing but a Roulette Wheel

The Guardian exposes more of the horrors of doing business in Russia (note well that George Soros used to be an ardent Russophile — right up until the he actually got some experience in country):

Just two months ago in this column we quoted George Soros’s view of Russia as “a country that does not hesitate to use its monopoly power in devious and arbitrary ways”. Mr Soros was referring to letting the state-controlled Rosneft list in London, but his view was also a good description of events that had just unfolded at the huge Shell-led Sakhalin-2 project. Just as the state-controlled Gazprom was agitating to buy a 25% stake in the $20bn (£10bn) venture, Shell lost its operating licence on environmental grounds. Yesterday, as if relations between Russia and the UK were not strained enough, the Russian Natural Resources Ministry was at it again. This time it was Peter Hambro Mining in its sights.

With no notice the Russians threatened to withdraw five of the Aim-listed group’s exploration licences, wiping 20% off its value, although the shares regained some composure and ended down 14%. As with Sakhalin-2, the man wielding the big stick was Oleg Mitvol, deputy chief of the Rosprirodnadzor natural resources watchdog, a wealthy businessman-turned-civil servant.

Peter Hambro Mining has been something of a success story in recent years. Peter Hambro, of the banking dynasty, has built PHM into one of Russia’s biggest gold mining groups and the company has thrived as the gold price has risen to 25-year highs. It has ambitions to boost production from 250,000 ounces to 1m ounces by 2009 and, with costs currently at only about $150 per ounce, could be highly profitable.

Until yesterday Hambro had insisted his company was protected because it had hired Russians and given them shareholdings. Uppermost among them is deputy chairman Pavel Maslovsky, once a missile specialist and part of the Soviet old guard, who has a 23% stake worth nearly £200m. In the last election, Maslovsky was the personal representative to the president, Vladimir Putin, in the Amur region. There are also several former Russian civil servants on the books who deal with local and government relations.

Last night Hambro was still trying to ascertain what PHM had done wrong. Of the five licences, he said, only two would have an impact as PHM had recently sold its interest in the other three. PHM has 54 licences and the two affected are not production sites, but Mitvol’s action, and his threat to inspect every one of PHM’s other facilities for similar environmental violations, will hit corporate confidence and investor sentiment.

The west is pouring billions into Russia and companies from every sector involved will be worried. The fear that Putin’s Russia might tear up and rewrite contracts has moved from energy to mining. Where next? Marks & Spencer in Moscow?

2 responses to “Business in Russia: Nothing but a Roulette Wheel

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