Streetwise Professor

Igor Sechin is playing Lucy with the football yet again:

Russia will seek opinion from foreign investors on proposed changes to laws needed to unlock the country’s lucrative oil, gas and metals reserves and woo back companies scared off by a decade of resource nationalism.

But investors should be under no illusions of gaining access to the Kremlin’s most prized assets and should offer asset swaps to gain a foothold in Russia’s mineral sector, influential Deputy Prime Minister Igor Sechin said on Tuesday.

Long-awaited revisions to tough Russian laws on foreign investment in strategic mineral fields should be ready by the end of January, when they will be presented to investors, said Igor Artemyev, head of Russia’s Federal Anti-Monopoly Agency.

And Putin chipped in too:

Putin, now prime minister, on Monday chaired a meeting of the government’s commission on regulating foreign investment.

“On our part, we will do everything necessary to create the best conditions for attracting capital to Russia,” Putin was quoted as saying on the government’s website, www.government.ru.

Russia, whose reserves of gold, nickel, iron ore and coal also rank among the world’s largest, argues that its largest deposits are of “strategic” importance to the country and thus off-limits to majority foreign ownership. This is unlikely to change in the near future, Sechin, an influential deputy to Putin, told Reuters in an interview.

He said Russia would not give up certain deposits, instead compensating investors if their exploration efforts discovered resources big enough to qualify as strategic.

“And if the existing licence and deposit are already strategic, it has that status and nobody can take anything away.”

He also proposed asset swaps as a means for foreign companies to secure greater access to Russian resources.

“There’s a good way for foreign companies to do this: exchange assets with Russian companies. There is such thing as parity but we tend to forget about it,” Sechin said.

Yeah, right.  Just another come on.  You give us assets that your courts will protect.  We’ll give you assets that . . . will protect if we feel like.

I see.  Foreigner makes a specific investment in exploration.  If they actually find something, the Russian government will take it and pay compensation.   But who decides what the compensation is?  I think we know the answer to that question.  I also think we know just how reasonable that compensation will be.

To be blunt, the content of the law is a secondary or tertiary consideration.  It’s enforcement of law in a way that protects property rights.  It’s not abusing laws (e.g., environmental laws, licensing laws, tax laws) as a means of expropriation.

Anybody who falls for Lucy Sechin and Putin is a complete sucker.

It is interesting, though, to see Sechin and Putin go all Eddie Haskell, acting all nice and stuff, in order to lure foolish furriners into their trap.  Given that the collapse in foreign direct investment has been a major cause of Russia’s well-below-world-average economic performance in 2009, they understandably have a desperate need to reverse that trend.  So far it hasn’t been working.  Perhaps investors are finally figuring out that Russia’s come hither look will change for the worse as soon as the country’s situation stabilizes.  Putin and Sechin may be at investors’ feet today, but watch out–they’ll be at their throats soon after they’ve put down their money.