Russia is important to world energy markets because it contains the world's largest natural gas reserves, second largest coal reserves, and eighth largest oil reserves. Russia also exports a significant amount of oil and natural gas to Europe and is the world's second largest energy consumer.

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RECENT DEVELOPMENTS

President Yeltsin's re-election in 1996, followed by his recovery from heart surgery, removed the uncertainty surrounding the future direction of Russia's economic reforms and boosted investor confidence. In 1996, gross domestic product (GDP) fell by an estimated 6 percent. This poor performance in 1996 was brought about by continued falls in industrial and agricultural output. Consequently, there are differing views on whether the economy will rebound in 1997, although many analysts forecast that the economy will rebound this year and show moderate growth through 2000. Due in part to a tight monetary policy, inflation was reduced to 22 percent in 1996, down from 130 percent in 1995, 200 percent in 1994, and 840 percent in 1993.

Domestic peace in Chechnya was reached in August 1996 after a 21 month conflict. Resolution of Chechnya's call for independence was postponed for up to 5 years. The peace agreement cleared the way for the July 1997 agreement on the rehabilitation of an oil pipeline that is expected to be used as the northern export route of oil from large oil fields in Azerbaijan en route to the Black Sea port of Novorosiisk. The accord will result in 100,000 barrels/day of crude oil flows from Baku, Azerbaijan to Novorosiisk beginning October 1 (provided pipeline repairs are completed by then).

Internationally, Russia has moved towards increased trade with former Communist rival China. The two countries signed a trade pact in June 1997 with the hope of increasing total trade between the countries from $7 billion annually to $20 billion by 2000. The trade agreement includes a natural gas project worth $4-$5 billion, a transportation agreement,and a general economic framework agreement.

Russia also reached an accommodation with NATO, another former rival. In May 1997, Russia agreed to NATO expansion to former East Bloc countries provided no nuclear warheads were to be stationed in these countries. As a result of this agreement, the Czech Republic, Hungary, and Poland were invited to join NATO in 1997.

In addition, Russia began closer economic cooperation with its former capitalist rivals, and in June 1997 Russia met as part of the Summit of Eight (the G-7 countries plus Russia). The Summit resulted in an agreement in principle for full Russian participation in the Paris Club, which will lead to further integration of Russia into the international economic community. The Paris Club, a group of major creditor countries, provides debt relief to developing countries that have encountered financial difficulties.

Cooperative agreements continued with the July signing of a non-proliferation agreement with the United States. The cooperation agreement expands the Materials Protection, Control and Accounting (MPC&A) Program which significantly increases U.S.-Russian non-proliferation cooperative efforts.

OIL

Russian oil production peaked at 11.4 million barrels per day (b/d) in 1988. Since then, Russian output has declined sharply to 6.4 million b/d in 1994, then more gradually to 6.0 million b/d in 1996. The dramatic production declines experienced since 1988 result from several factors, including natural reservoir depletion, insufficient investment, stalled implementation of tax reform, and poor technical management (such as the use of premature water injection). The bulk of Russian oil production comes from a small number of large fields, which has tended to aggravate falls in output. About 90 of Russian fields account for three-quarters of total output. In West Siberia, four large fields account for over half of the region's output. Tyumen Oil's division that operates the super-giant Samotlor field was responsible for roughly 35 percent of the production decline in Russia since 1988

Stabilization of output followed by gradual increases in production are expected for the next several years. The well workover program to revitalize old wells has resulted in a decline in the number of idle Russian wells over the past year, and production from joint ventures is gradually increasing as well. West Siberia now accounts for about two-thirds of Russian oil production, with fields in the Volga-Urals region producing less than one-quarter of the country's total output. Russia's Arctic region is a far smaller producer, but is the location of many Western joint ventures. Most of Russia's new oil developments are in West Siberia's Tyumen region as well as near Sakhalin Island in the Far East.

Petroleum Legislation and Related Issues

In December 1995, President Yeltsin finally approved a new production sharing agreement (PSA) law However, many Western companies have argued that the law does not provide adequate legal assurances to foreign investors. One of the main problems with the new PSA law is whether contracts with foreign oil companies are governed by administrative or civil law, under which international arbitration can be requested. In addition, the new legislation allows the Russian government to invoke a "force majeure" clause at will. Another issue of uncertainty with the new PSA law is the extent to which new fields will be offered under contracts to foreign companies.

A new list of fields eligible for development under PSA agreements has been drafted by the Duma lower house for consideration when deputies return in August. Prior to their summer adjournment, both houses of the Duma gave their approval to 7 fields to be developed under the PSA agreements. The list now has to be signed by President Yeltsin. The list includes only one filed open to foreign investors - the Prirazlomonye field being developed by Rosshelf, Gazprom, and BHP in the Barents Sea. The other fields include the Samotlor, Kransnoleninsk, and Romashkinskoye fields, and several fields off Sakhalin Island. However, several amendments to the PSA law are still being debated by the Duma. By some estimates, at least $60 billion worth of potential foreign investment awaits the passage of acceptable legislation.

Further moves towards reforms were made on April 24, 1997, when Russian President Boris Yeltsin named reformist First Deputy Prime Minister Boris Nemtsov to the additional post of minister of fuel and energy. Nemtsov, who has called for radical liberalization of the energy sector, replaced Pyotr Rodionov, who resigned in March.

Caspian Sea Legal Issues

Legal issues surrounding the Caspian Sea's resources revolve around whether development rights are governed by treaties signed between the Soviet Union and Iran and whether the Caspian is, by legal definition, a body of water affected by the Law of the Sea. Until recently, Russia had pressed for territorial rights extending only to the 12-mile territorial limit for each of the Caspian's five neighboring countries. In December 1996, however, Russia proposed that each of the Caspian's littoral states be entitled to develop unilaterally its resources out to a 45-mile limit. Beyond that limit, Russia proposed a "double tender," in which the Caspian's bordering states would have first rights in any development project. Azerbaijan, the country which already has signed several multi-billion dollar oil development deals with Western companies, rejected the new Russian offer, stating that, under international law, it has the right to all resources extending to the mid-way point of the Caspian, since it is a closed body of water. Despite the territorial disagreement, Russian oil companies have successfully farmed-in on a number of potentially lucrative deals with Azerbaijan, Iran, and Turkmenistan.

Russia's Integrated and Regional Oil Companies

After a reorganization and privatization process begun in 1993, the Russian oil sector now is divided between partially-privatized vertically-integrated companies, a smaller number of regional companies, and a number of remaining state-owned enterprises. Through an ongoing privatization process, 10 vertically integrated companies (VICs) had been established by early 1997. These VICs comprise Lukoil, Yukos, Surgutneftegaz, Sidanco, Tyumen Oil Company, Sibneft, Slavneft, East Oil Company, Onako, and Sibero-Uralskaya. The extent to which these companies are privatized varies. The state owns less than 17 percent of Lukoil, whereas its share holdings in the other VICs range between 19 and 51 percent. In addition to the VICs, state-owned oil assets have been divested and consolidated in four of Russia's autonomous republics: Tatneft (Tatarstan); Bashneft (Bashkortostan); Komitek (the Komi Republic); and Yunko (Chechnya). The remaining, predominantly state-owned enterprises include Rosneft, Transneft, and Gazprom.

Lukoil is the largest of the VICs in terms of production, with a recorded 1996 crude output of 1.1 million b/d and refining capacity of 470,000 b/d. It claims to have the largest proven oil reserves of any company in the world -- 10.77 billion barrels, according to an audit of its holdings. The estimate includes 7.927 billion barrels in Lukoil's main fields in Western Siberia and 2.85 billion barrels in European Russia. The company's natural gas reserves in European Russia are reportedly 1.0878 trillion cubic feet. In February, Lukoil and U.S. energy company Arco entered a $5 billion, 18-year joint venture to prospect for and develop oil in the former Soviet Union. Lukoil's share is 54 percent and Arco's is 46 percent. The venture, called Lukarko, plans investment of $400 million in 1997. Initial projects include a 5-percent share of the Tengiz field in Kazakstan, and a 12.5-percent stake in the Caspian Pipeline Consortium (CPC).

In May 1997, a final agreement creating the CPC was signed by project participants: Russia , Kazakstan , Chevron Corp., Lukoil/Arco Corp., Mobil Corp., Rosneft/Shell Corp., Oman, Agip SpA , British Gas PLC , Oryx Corp., and Kazakstan Pipeline Ventures, a joint venture of Kazakstan's state oil company and Amoco Corp. President Boris Yeltsin signed a decree in support of the CPC giving it a 16-year special exemption from rules mandating it must convert foreign­exchange revenues into rubles as part of a package of support for the venture -- on condition that the company reinvest its revenues in the project. The Russian government plans to transfer its 24 percent stake to Lukoil and Rosneft.

Russia's State Property Committee approved a plan to privatize Rosneft, the country's last major oil company still entirely in state hands. Rosneft was among the last of the integrated oil companies the government formed from once­independent production, refining, and marketing enterprises. In 1996, the company produced 261,000 barrels per day of crude oil and refined 95,000 barrels per day of crude oil.

Joint Ventures (JVs)

Due to the lack of clear-cut and favorable production sharing legislation, high taxes, and uncertain access to export markets, foreign direct investment in Russia's upstream oil sector in 1995 declined to $260 million, roughly half of 1994 levels. This decline continued in 1996, as many large companies scaled-down their intended investments. At present, it is mostly the smaller foreign oil companies, which are able to by-pass the bureaucratic approval process required for large projects, that are reaping limited rewards for their investments in the Russian oil sector. As of July 1997, there were 111 joint ventures (JVs) licensed to operate in Russia's oil and gas sectors. However, only about 35 of these are engaged in actual primary oil production. Just under one-half of these are in West Siberia. In 1996, foreign JVs produced roughly 310,000 b/d, or 5 percent of Russia's total output. Production by JVs in 1997 is expected to remain at a level comparable to that recorded in 1996. While some JVs are involved in new field developments, many ventures are focused on rehabilitation and technical services activities at existing fields.

Pipeline access to export markets is key to the profitability of the joint ventures. In 1996, over 60 percent of joint venture output was exported and sold at world prices (compared with roughly 20 percent for Russian companies). Several joint ventures had been given favorable treatment and had been able to export all of their output. However, this could change soon. The remaining favorable treatment for five joint ventures -AmKomi (Aminex PLC), Polar Lights (Conoco), SANK (O'Connor & Young Drilling), Chernogorskoye (Anderman/Smith and St. Mary Land & Exploration), and White Nights (Anglo-Suisse) - is set to expire in September. In addition, their favorable excise tax liability -currently $0.50/barrel -will increase n September to $0.93/barrel.

In July 1996, Russia abolished its crude export tax as required by the IMF to obtain credit for the recent $10.2 billion loan. However, despite this move Russia continues to be one of the most expensive operating environments in the world. High capital expenditures, operating costs, pipeline tariffs, and royalties are estimated to leave the Western JV partner with an average of 10 percent of gross revenues before taxes, which include a profits tax, a Value Added Tax, and miscellaneous fees. Consequently, many JVs have produced only token amounts of oil because Russian taxes historically are based on revenue and not on profit, and firms with negative cash flows can still acquire a tax liability. Also, taxes are assessed on projects and not on companies.

In October 1996, after 4 years of development, U.S.-based Occidental wrote-off its $105-million investment in its Parmaneft JV in the Komi Republic. Oxy's write-off was preceded by the departure of other foreign oil companies from Russia's oil sector. Several oil companies, including Saga and PetroCanada have pulled out of Russia, mainly because of the country's ambiguous and unfavorable legislation governing oil sector investment. Many of these companies were at the forefront of new investment after the break-up of the Soviet Union in 1991.

Oil Exports and Transportation

In 1996, Russian oil exports outside the former Soviet Union (FSU) were 3.1 million b/d, a rise of almost 20 percent compared to 1995 levels. Since 1991, Russian oil producers have shown a preference for increasing their hard-currency generating exports outside of the CIS. Most of Russia's non-CIS oil exports are destined for European customers, including the United Kingdom, France, Italy, Germany, and Spain.

The majority of Russian oil is exported via terminals in the Baltic and Black Seas. Black Sea exports must pass through the increasingly crowded Bosporus. Russian crude oil is also exported to Europe via the 1.2-million b/d capacity Druzhba (Friendship) pipeline. In both 1995 and 1996, the Druzhba pipeline operated at roughly 60 percent of capacity, with a throughput of just under 700,000 b/d. On average, Russia's 31,000-mile pipeline network similarly utilizes only about 60 percent of its 13 million b/d capacity. However, Russia has a number of plans to build new export terminals and pipelines and to expand capacity at several existing terminals because regional flow rates vary widely, and usage is at capacity in several key regions. The Baltic Pipeline System (BPS) is the largest new pipeline export scheme proposed outside of the Caspian region. The BPS project is being examined by a consortium of 10 oil and pipeline companies, including Amoco, British Gas, Conoco, Neste, Transneft, and Rosneft. The currently proposed plan would involve construction of a 150,000-b/d pipeline linking oil fields in the Timan Pechora region to Primorsk on the Russian Baltic coast. With possible capacity expansions, throughput on the line could reach 450,000 b/d.

Prior to 1995, oil exports were subject to a preferential quota system under which roughly 20 oil companies were provided tax breaks and special pipeline access via licensed middlemen. In March 1995, President Yeltsin abolished this system and allowed producers direct access to the Transneft pipeline system through the establishment of throughput allocations. In July 1995, this new law was amended to allow producers the right to resell their allotted pipeline space to trading companies. This second set of changes was accompanied by legislation allotting "coordination" of export terminal operations and crude oil markets to the seven largest Russian independents. In October 1995, a Federal Energy Commission (FEC) was established to regulate the new export system, provide pipeline access to smaller traders, and offer about 400,000 b/d of export capacity in competitive bidding. Under the new system, non-FSU crude oil shipments by oil companies, including Western JVs, theoretically receive priority access to pipeline space. Russia's integrated majors receive second priority for up to 35 percent of their output. Any remaining space on the pipelines is auctioned. Also, the quality of crude oil is tested at various points along the pipeline system, and price adjustments made for variations in quality. In 1996, however, high world oil prices resulted in decreased access for JVs and to Russia's export pipelines, as Russian majors vied for space through restricted export outlets.

In recent years, oil producers have also lost access to pipelines with the because of increasing volumes of state oil exports. Under this system, the Russian government funds special federal programs by buying oil at internal Russian prices, which are below international prices. The oil is then exported and sold at international prices, with the difference used to fund projects suggested by government officials. State exports are currently used to fund six programs: rebuilding of the Kremlin, fuel supplies to Chukotka, fuel supplies for Kamchatka, the Cuba RETS radio outpost and sugar for oil program, the Tu-324 jet plant, and the Yelabuga car plant. State exports of crude oil amounted to a quarter of all exports in 1996. If all state contracts originally signed for 1997 were fulfilled, state exports could account for almost 70 percent of all exports, leaving only 30 percent of pipeline capacity for producing companies. However, First Deputy Prime Minister and Fuel and Energy Minister Boris Nemtsov indicated that the state oil export program will be discontinued, with the proviso that a portion of oil company export receipts be used to pay state salary arrears. On July 9, 1997 President Yeltsin signed a decree ending state exports of crude oil in the future; the effective date could be in 1998.

In December 1996, Russia and China reportedly were close to signing a deal that would provide for the construction of an export pipeline linking oil fields in the Irkutsk region to China via Mongolia. A possible sea link to South Korea also is possible. The pipeline would have a target completion date of 2005.

International Activities

In March 1997, Iraq granted Russia most favored nation status to receive Iraqi oil exports in exchange for humanitarian goods. Of the first 37 contracts approved by the United Nations in the oil-for-food sale, 7 went to Russian companies representing almost 20 percent of the volume of oil in the sale. Iraqi Oil Minister Amer Rashid also announced the establishment of a new Iraqi/Russian oil company which will work independently of Iraq's national oil company, and reports that other agreements would be signed with France and China (Russia and France were Iraq's main arms suppliers before the Gulf War). An Iraqi Oil Ministry official reported that Iraq expects to earn more than $80 billion from its contract with Russia for the development of the West Qurna oil field in southern Iraq. The contract calls for 560 wells which will produce 4.4 billion barrels over 23 years. According to the official, the part of the field being developed with Russia has 11.5 billion barrels in reserves and the entire West Qurna field has reserves of 38 billion barrels. The official states that production will begin "soon" (initially about 250,000 barrels per day, increasing to 600,000 barrels per day).

In April, a senior Iranian oil industry official reported that Iran and Russia signed an agreement between a newly formed Russian consortium and the National Iranian Oil company (NIOC) for drilling in Iran's continental shelf; and an agreement between NIOC and the oil company of Tatarstan for cooperation in pre­extraction and post­extraction industries.

Refining

Russian refinery runs declined by 4 percent in 1996 to 3.44 million barrels per day. Refinery runs could have dropped even further, but crude oil export constraints meant that some Russian oil that could have been exported was limited to domestic markets. Many of these refineries are relatively unsophisticated and in need of modernization. In 1993, a 5-year refinery modernization program began with funding acquired from both domestic and foreign sources. However, a 1995 International Energy Agency (IEA) report, Energy Policies of the Russian Federation, stated that this modernization program spreads financial resources too thin and "lacks discrimination between viable refineries and those that probably will not survive the ongoing economic transition." Also, the IEA foresees Russian refinery throughput in 2000 of just over 3 million b/d, only 70 percent of Russian government forecasts. The Agency believes that existing capacity is adequate to meet Russia's near-term demand. Nevertheless, a number of upgrading projects either are underway or have been completed with Western assistance. The majority of these are targeted at increasing refining depth and secondary capacity. Russia has refinery export quotas similar to those for producers. These quotas allow refiners to generate hard currency for future investment.

NATURAL GAS

Since the break-up of the FSU, Russian gas output has fallen from a peak of 22.6 Tcf in 1991 to 21.2 Tcf in 1996. Production in 1996 was 1 percent higher than in 1995, and Western observers forecast a future rise in Russian gas production, which could reach 23 Tcf by 2000. The Urengoy, Yamburg, and Orenburg fields alone account for roughly 80 percent of the country's gas production.

Production from all of Russia's major gas fields, with the exception of Yamburg, is declining. Attention is now focused on new fields in the Yamal Peninsula and the Far East's Sakhalin region. Russia hopes to begin large-scale gas production at Bovanenkov in 1997, with projected annual output levels reaching 3 billion cubic feet per day (Bcf/d) in 2000. This output will be targeted at European markets via the planned 2,500-mile Yamal-Europe pipeline, which is anticipated to start-up in 1998 with a throughput of 475 million cubic feet per day (Mmcf/d). The billion line will consist of seven parallel pipelines running from Yamal to Frankfurt/Oder, Germany via Belarus and Poland . In November 1996, Russia and Poland inaugurated the first 65-mile segment of the $2.5-billion, 400-mile Polish segment. Initial throughput in the line, which is tied into Germany-based Wintershall's older pipelines, was 58 Mmcf/d. Eventually, Yamal pipeline gas shipments to Europe are expected to reach more than 5.5 Bcf/d by 2010. The cost of the pipeline could reach $40 billion. Additional financing for the project was received on February 28, 1997 when Gazprom agreed to the terms of an 8-year, $2.5 billion syndicated loan from 19 international banks to be backed by revenues from Gazprom's gas exports to Europe; Wintershall has also provided credits for the project.

Russian gas exports were equal to about 30 percent of its natural gas production. Of this amount, about two-thirds are destined for European markets and the remainder for CIS countries. Western Europe relies on Russian gas to meet about a quarter of its consumption needs. Even though shipments by Gazprom to CIS countries are relatively small and are partially subsidized, a few countries, such as Ukraine, Belarus, and Moldova, have amassed large arrears since 1993. In 1996, Gazprom estimated that it was owed the equivalent of $10 billion by CIS countries for past gas deliveries to both Russian and CIS customers. Over 90 percent of Russian gas exports to Europe run through Ukraine and the Czech Republic . However, the Yamal pipeline will allow Russia to by-pass its current shipment routes across Ukraine.

Gazprom controls more than 95 percent of Russia's gas production in the country's 100 largest fields, oversees eight production associations, owns and operates Russia's 86,000-mile gas pipeline grid, runs 26 trading houses and marketing joint ventures in 13 European countries, and controls one-fifth of the world's natural gas reserves. Gazprom currently is undergoing an extensive 5-year rehabilitation of its gas trunkline system, including pipelines and compressor stations. In late 1996, internal Russian estimates placed needed investment at around $12 billion. In December 1996, the EBRD approved a $225-million loan as part of a $300-million investment program geared towards rehabilitating Gazprom's pipeline network.

Several attempts have been made to reform Gazprom. Following President Yeltsin's October 1996 decree ordering a new gas pricing system, a new scheme was introduced in February, 1997 that differentiates gas prices by very broad geographic regions in order to reflect transportation costs (the maximum differential between regions is 10 percent). On April 28, 1997, Russian President Yeltsin signed a decree ordering sweeping reforms in the country's natural gas sector under which the government will retain its 40-percent equity stake in Gazprom indefinitely and work to strengthen Gazprom's international position and boost its share price. Gazprom will lose its monopoly right to develop new gas deposits (which instead will be allocated at tenders open to competitors), will offer equal access and competitive rates on its national pipeline network to all producers (giving oil and other companies the opportunity to compete in the gas business), and will be required to ensure transparency of its finances with detailed annual financial reports. Additional decrees were signed on May 13 and May 28 by President Yeltsin substantially increasing the state's role in managing Gazprom. In June, Russian President Yeltsin ordered cuts of up to 40 percent in natural gas prices for businesses that pay their overdue Gazprom bills in cash by the end of the year.

Several new international agreements were approved in 1997. Gazprom signed a $2.5-billion project in January 1997 to build the world's deepest underwater natural gas pipeline (about 6,900 feet below the surface) linking Russia and Turkey via the Black Sea. Turkey signed a $12 billion agreement in April to boost its imports of Russian natural gas (from the current level of 212 billion cubic feet) by 18 billion cubic feet in 1997, 71 billion cubic feet in 1998, 106 billion cubic feet in 1999, and 159 billion cubic feet in 2000. By the year 2001, Turkey's total gas purchases from Russia will reach 494 billion cubic feet per year. The gas will be shipped through the existing pipeline, which will be expanded by two new joint ventures which will invest $1.5 billion to add compressor stations and new stretches of pipe to double the capacity.

In April, Iran and Russia signed an agreement on cooperation in the oil and gas industries whereby Gazprom would invest directly in joint operations in the development of Iranian gas fields, production capacity, refining, liquidation, and transport of natural gas and associated extraction industries in the Persian Gulf and other areas. In June, agreements were signed to create a joint venture with China for gas exploration in Siberia that is expected to result in exports of almost 1 trillion cubic feet annually to China.

COAL

Coal accounts for roughly 20 percent of Russia's total energy supply. Russian coal production has declined since 1988, falling to 281 million short tons (Mmst) in 1996 - 3 percent below 1995 levels. The bulk of this production is used domestically, with the power sector consuming around 115 Mmst at present. Exports in 1996 were 28 million short tons - 10 percent of output. Foreign exports go mostly to Bulgaria, Italy, Japan, and Turkey. Although coal exports are not very profitable (because of transport tariffs and long distances from mines to export terminals), Rosugol (the national holding company for the coal sector) announced in October, 1996 that it would build a new 8.8-Mmst per year export terminal at Luzhskaya Bay on the Gulf of Finland by 1999.

Production fell sharply at the end of 1996 in large part due to labor unrest and strikes in the coal industry The most recent disturbance occurred in December 1996, when 200,000 miners staged a strike that effectively closed half of Russia's coal mines. The primary reason for the strikes was the inability to pay wages because consumers failed to pay up to 80 percent of their bills in 1996. The biggest financial problems were felt by the higher cost underground mines, with open-pit mines faring better. The bulk of non-payments came from electric power producers. Non-payments were partially compensated for by subsidies from the Russian government.

In December 1996, President Yeltsin signed a decree that will provide for the government's divestiture of its stake in a number of state-owned companies, including those in the coal sector. The decree authorizes the government to transfer management of the companies to a board of trustees, which will conduct the day-to-day decision-making of the companies prior to their eventual sale. In 1997, management of five coal companies - Bashkirugol, Vostsibugol, Krasnoyarsk Coal Company, Khakasugol, and Leningradslanets - will be transferred to trustees chosen through a tender held by the government. The five companies produce roughly 75 Mmst annually.

ELECTRICITY

Russian power generation fell by 2 percent in 1996, largely as a result of a weak Russian economy. The drop in domestic consumption was not made up through exports because power exports remain small. Since 1991, Russia has exported electricity almost solely to Finland and the former Soviet republics. Non-payment by customers has been a major problem for the power industry - a quarter of the heat and power delivered in 1996 was not paid for. This has led to an inability of power companies to pay for fuel to run their plants. Payments problems have been especially acute in central Russia, which relies on natural gas for almost 70 percent of its power production.

The Russian electricity sector is controlled by the Unified Electrical Power System of Russia (RAO EES Rossiya), a joint stock company which oversees the operations of the 72 recently privatized Regional Distribution Companies (energos). Russian officials estimate that the country will need $3 to $5 billion of new capital annually to carry out its capacity expansion plans. Most of Russian electricity consumption is by the industrial (60%), residential (10%), and transportation (10%) sectors. Reforms have been slow to come. In March 1997, the Dumas moved to protect the power sector from change by passing a bill limiting foreign ownership to 25 percent. In April, President Yeltsin signed a decree ordering sweeping reforms in the electricity and other sectors aimed at reducing rates and stimulating investment. First Deputy Prime Minister Boris Nemtsov indicated that the state would not break up the national supply network.

Russia contains 29 nuclear reactors with a total capacity of about 20 GW. Reactor maintenance and repairs have been delayed because of lack of funds. Safety issues are an ongoing concern, especially with regard to the 16 relatively old, unsafe RBMK (light-water-cooled, graphite-moderated) reactors of the design used at Chernobyl. Even with scarce financial resources, Minatom, the Ministry of Atomic Energy for the Russian Federation, is planning to add 15 GW of nuclear generating capacity by 2010. However, little work has been done on new reactors, except for the Kalinin 3, Rostov 1, and Balakova 5 VVER-1000s (pressurized light-water-moderated and cooled reactor). Minatom also is testing nuclear reactors from submarines for use in Russia's northern regions, which do not have easy access to electricity.

COUNTRY OVERVIEW
President: Boris N. Yeltsin
Premier: Victor S. Chernomyrdin
Independence: August 24, 1991 (from Soviet Union)
Population (7/96E): 148 million
Location/Size: Eurasia/6,592,850 sq. mi., slightly more than 1.8 times the size of the United States
Major Cities: Moscow, St. Petersburg, Yekaterinburg, Irkutsk, Murmansk, Yakutsk, Vladivostok
Languages: Russian, others
Ethnic Groups: Russian (81.5%), Tatar (3.8%), Ukrainian (3%), and 100 other nationalities (11.7%)
Religions: Russian Orthodox, Muslim, other
Defense (6/95): Army (1,520,000), Air Force (130,000), Navy (200,000), Paramilitary forces (280,000)

ECONOMIC OVERVIEW
Currency: Ruble
Market Exchange Rate (7/11/97): $1 = 5,776 rubles
Gross Domestic Product (GDP - in 1987 dollars) (1995E): $242.8 billion
Real GDP Growth Rate (1996E): -6%
Inflation Rate (1996E): 22%
Current Account Balance outside of the Commonwealth of Independent States (CIS-see below)(1995E): $12 billion
Monetary Reserves (gold and hard currency)(1994): $12.4 billion
Merchandise Exports outside CIS (1995E): $64.3 billion
Merchandise Imports outside CIS (1995E): $41.6 billion
Trade Surplus outside CIS (1995E): $22.7 billion
Merchandise Exports within CIS (1995E): $13 billion
Merchandise Imports within CIS (1995E): $13.1 billion
Trade Deficit within CIS (1995E): -$0.1 billion
Major Export Products: Oil and oil products, natural gas, wood, metals, chemicals, military hardware
Major Import Products: Machinery and equipment, chemicals, consumer goods, grain, meat, sugar
Major Trading Partners: Europe, North America, Japan, former Soviet Union (FSU), Cuba, others
Crude Oil Export Revenues (extrapolated from Russian Government estimates)(1996E): $15.3 billion
Refined Product Export Revenues (extrapolated from Russian Government estimates)(1996E): $6.8 billion
Natural Gas Export Revenues (extrapolated from Russian Government estimates)(1996E): $14.9 billion
Total Oil and Gas Export Revenues/Total Export Revenues (1996E): 24%
Total External Debt (1995E): $130 billion
(Note: the CIS includes all former Soviet Union (FSU) countries except Estonia, Lithuania, Latvia, and Georgia)

ENERGY OVERVIEW
Fuel and Energy Minister: Boris Nemtsov
Proven Oil Reserves (1996E): at least 50 billion barrels (varies depending on method used to calculate reserves)
Oil Production (1996E): 6.0 million barrels per day (b/d)
Oil Production Capacity (1996E): 6.4 million b/d
Oil Consumption (1996E): 2.5 million b/d
Crude Refining Capacity (1/1/96): 6.7 million b/d
Net Oil Exports outside FSU (1996E): 3.1 million b/d
Net Oil Exports within FSU (1996E): 0.4 million b/d
Major Oil Customers: CIS, Europe
Natural Gas Reserves (1996E): 1,750 trillion cubic feet (Tcf)
Natural Gas Production (1996E): 21.2 Tcf
Natural Gas Consumption (1996E): 14.4 Tcf
Natural Gas Exports outside FSU (1996E): 4.4 Tcf
Natural Gas Exports within FSU (1996E): 2.5 Tcf
Coal Reserves (1995E): 220 billion short tons
Coal Production (1996E): 281 million short tons (Mmst)
Coal Consumption (1996E): 274 Mmst
Electricity Generation Capacity (1994): 199 gigawatts
Electricity Production (1996E): 848 terawatthours

ENVIRONMENT OVERVIEW
Total Energy Consumption (1995): 26.8 quadrillion Btu
Energy Consumption per Capita (1995): 180.6 million Btu (vs. 331.8 million Btu in U.S.)
Energy-related Carbon Emissions (1995): 435.2 million metric tons (9 percent of the world total)
Carbon Emissions per Capita (1995): 2.93 metric tons (vs. 5.42 metric tons in U.S.)
Major Environmental Issues: Radioactive contamination of food and water supplies, acid rain, airborne industrial pollution, leakage of oil products, greenhouse gas emissions

ENERGY INDUSTRY
Organization: Rosneft (former State oil company tasked to manage state shares in independent oil enterprises); Nafta Moskva (State crude exporter); Transneft (State pipeline company); Gazprom (former State gas producer); Roskontrakt (State supply organization)
Major Producing Oil Fields: Samotlor, Romashkino, Mamontov, Fedorov, Lyantor, Arlan, Krasnolenin, Vatyegan, Sutormin
Major Oil Terminals: Novorossiysk (Black Sea), Ventspils (Latvia), Odessa (Ukraine), Tuapse (Black Sea),Klaipeda (Lithuania)
Oil Export Pipelines outside FSU: Friendship (Druzhba)(1.2 million b/d nominal capacity)
Major Oil Refineries (1/1/96 capacity-b/d, mid-1996 utilization rate-%): Omsk (566,000, 56%), Angarsk (464,000, 56%), Nizhniy Novgorod (438,000), Grozny (390,000, N/A), Kirishi (388,000, 83%), Novo-Ufa (380,000, 40%), Ryazan (362,000, 31%), Yaroslav (359,000, 33%), Novo-Kuibishev (309,000, 65%), Perm (279,000, 77%), Ufaneftekhim (251,000, 79%), Salavat (247,000, 53%), Moscow (243,000, 60%), Ufa (235,000, 62%), Volgograd (188,000, 89%), Saratov (177,000, 29%), Orsk (159,000, 56%), Achinsk (147,000, 48%), Ukhta (127,000, 61%), Samara (120,000), Nizhnekamsk (120,000), Komsomolsk (117,000, 12%)
Major Foreign Oil Company Involvement: Agip, Amoco, Arco, British Gas, British Petroleum, Chevron, Statoil, Conoco, Exxon, Mobil, Maxus, Neste Oy, Norsk Hydro, Marathon, McDermott, Mitsubishi, Mitsui, Occidental, Royal Dutch/Shell, Texaco, and Total
Major Joint Venture Oil Exporters (1996E, exports in b/d): Conoco (Polar Lights -26,600), Canadian Fracmaster (Yuganskfracmaster - 13,800), British Gas (KomiArcticOil - 20,100), Occidental (Vanyoganneft - 12,500), Canadian Fracmaster/PanCanadian (Samotlor Services - 9,000), Mieko (Mekamineft - 7,500), Philbro/Anglo-Suisse (White Nights - 12,300)
Major Producing Gas Fields: Urengoy, Yamburg, Medvezh, Orenburg, Severo Urengoy, Vyngapurov
Gas Export Pipelines outside FSU (Capacity): Brotherhood (Bratstvo), Progress, and Union (Soyuz) (1 Tcf each); Northern Lights (0.8 Tcf), Volga/Urals-Vybord (to Finland) (0.1 Tcf), Yamal (under construction)
Major Coal Producing Basins: Chelyabinsk, Donetsk, Kansk- Achinsk, Kuznetsk, Lena, Moscow, Pechora, Raychikhinsk, South Yakutia, Taymyr, Zyryanka

Links to other sites:
Latest EIA Detailed Annual Data (1994)
1997 CIA World Factbook - Russia
U.S. International Trade Administration, Energy Division
U.S. Department of Energy's Office of Fossil Energy's International section - Russia
EIA Privatization Report - Russia
EIA Privatization Report (power) - Russia
BISNIS - the Department of Commerce's Business Information Service for the Newly Independent States

The following links are provided solely as a service to our customers, and therefore should not be construed as advocating or reflecting any position of the Energy Information Administration (EIA) or the United States Government. In addition, EIA does not guarantee the content or accuracy of any information presented in linked sites.

Russian Oil and Gas Industry
Lenenergo

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File last modified: August 5, 1997

Contact:

Erik Kreil
erik.kreil@eia.doe.gov
Phone: (202)586-6573
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URL: http://www.eia.doe.gov/emeu/cabs/russia.htm