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#13 - JRL 6596
Moscow Times
December 11, 2002
World Bank Arm Pushes Political Risk Insurance
By Victoria Lavrentieva
Staff Writer
The risk of government intervention in the marketplace and the negative perception of Russia abroad are the main reasons foreign investment continues to decline, a World Bank agency said Tuesday.
"Current political risk in Russia is relatively low compared to other developing countries, but the perception of such risk among foreign investors remains high," Luis Dodero, vice president of the Multilateral Investment Guarantee Agency, said during a trip to Moscow.
MIGA was created in 1988 as a member of the World Bank group to promote foreign direct investment in emerging economies by providing insurance against political risk. It has insured 25 projects in Russia for a total of almost $600 million.
"We would like to do more business in Russia, and promote not only foreign investments in the country, but also support Russian investments in CIS countries," Dodero said.
According to MIGA, political risk means any intervention by the government into private business operations, which might take the form of discriminative tax policy, expropriation, nationalization or any measures that freeze assets of foreign investors. MIGA also insures against war and terrorism.
"Those foreign companies and banks that operate in Russia and were insured by MIGA were not affected by the moratorium on capital transactions installed by the Russian government in August 1998," Dodero said.
He declined to name the companies, but he said that MIGA is especially popular with foreign banks that have subsidiaries in Russia. For example, last year MIGA provided Raiffeisen Zentralbank Osterreich with a $57 million guarantee to cover the bank's $60 million subordinated loan to its Russian subsidiary, Raiffeisenbank Austria.
MIGA also provided a $26.2 million political risk policy to Canadian investors participating in the Julietta gold mine project in the Magadan region. It also insured Dutch Victory Oil, which is financing the development of an oil field in the southern Ural Mountains, for $100 million.
Dodero said MIGA usually covers 95 percent of an investment for a period of between 15 and 20 years.
To be eligible, clients must be involved in a project that creates jobs, promotes development and is approved by the Finance Ministry, he said.
Foreign investors said they were glad to see MIGA was looking to increase its activity in Russia.
"I think MIGA might be useful," American Chamber of Commerce head Andrew Somers said. "Political risk in Russia is much lower now, yet we have the Caspian pipeline example, which might lead to a virtual expropriation of property," he said. "To me this is a political risk, even though it might be driven by local economic interests."
The Federal Energy Commission is pushing for the Caspian Pipeline Consortium -- a multinational pipeline that carries Kazakh crude to Novorossiisk on the Black Sea -- to become a natural monopoly, which would give the government regulatory and tariff powers over it.
Somers said U.S. investors in the project, such as ChevronTexaco, say such a move would violate the terms of their investments that the Russian government agreed to.
MIGA said the CPC controversy is exactly the reason it is in business.
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