Major western international lending institutions have taken a strong interest in the former Soviet Union's oil and gas sector. This is due to the widespread belief that heavy industrial infrastructure is a key component of economic development, but equally the opportunity for major revenues generated in regions with low or no environmental and labour standards has produced strong interest among private firms.
It is clear that the western financing agencies are in a strong position with respect to the nations of the former Soviet Union. In the words of one official of the Overseas Private Investment Corporation (OPIC), "Companies now have a smorgasbord of opportunities. It is the countries [of the CIS] that have to be competitive in opening their markets."
The specific function of two of the main credit agencies involved in oil production in Russia (US Overseas Private Investment Corporation, and the US ExIm) is to enhance opportunities for American exporters. For example, on 27 September 1994, Exim announced the signing of nearly US$900m worth of agreements for US exports of oil and gas equipment to Russia.
OPIC, in addition, is charged with providing `political risk' insurance against expropriation, currency inconvertability, and violent upheaval.
Funding from these development banks and bilateral institutions also functions to insulate western oil companies from `normal' business risks. Gulf Canada reportedly purchased its share of KomiArcticOil for US$250m, but subsequently refused to put up any more than 10% of this amount. Gulf Canada will fund the other 90% with revenue from oil production in the Timan-Pechora region.
The EBRD, on the other hand, put up US$80m.
So while the EBRD expends public funds for Gulf's benefit--thus putting Russia further into debt to the west--Gulf itself minimises its risks by withholding its own contribution. This contributes to the unavailability of adequate funding for infrastructure upgrading.
Together, the protection afforded to the oil companies from business and political risk while operating in the Arctic regions of Russia is substantial. This does not mean, however, that no one has to pay. The Russian economy goes further into debt to western banks, and the Russian people are ultimately left with whatever actual costs may be incurred, such as oil lost into the Arctic tundra.