04
First person
RUSSIA INDIA REPORT
BOOKMARKS
www.shell.com
IN ASSOCIATION WITH ROSSIYSKAYA GAZETA
The Shell company global homepage
www.sakhalinenergy.ru/en
THE ECONOMIC TIMES SATURDAY, JULY 5, 2008
Sakhalin project official web site
www.gazprom.com
OAO Gazprom official web site
Shell in Russia
Jeroen
FOUNDED
Van der Veer
1907
TOTAL REVENUES
$355,783m
Chief executive of Royal Dutch Shell
In the late nineteenth century, Shell’s predecessor
company established relations with Russia. More re-
cently, Shell has been one of the main direct foreign
investors into the Russian economy. Shell projects
include Sakhalin II on Sakhalin island together with
‘To prosper further, Shell
OAO Gazprom, Mitsui and Mitsubishi, and the de-
velopment of the Salym oil fields (Khanty-Mansi au-
tonomous okrug), jointly with OAO NK Evikhon, a
subsidiary of Sibir Energy. Shell accounts for 20pc
must develop new
of Russia’s motor oil imports, marketed through a
large distribution network across the country from
Kaliningrad in the west to Vladivostok in the east.
It runs its own retail chain in the European part of
win-win situations’
Russia. Shell is also one of the biggest customers for
Russian oil.
T
O FROM PERSONAL ARCHIVES
1911
PHO
Shell acquired major Russian oil companies owned by
the Rothschild family. As a result, Shell took control
over 20pc of Russia’s oil industry.
Jeroen van der Veer has had suits, Shell agreed to sell its According to van der Veer,
‘There are no easy
alent to providing electricity to
1920
a bumpy ride since taking controlling stake to Russia’s oil majors will be compelled to 24 million homes.
Shell lost its Russian assets when property was na-
over at Royal Dutch Shell in
CV
national gas supplier, forge positions of excellence countries. If there Fantastic potential indeed,
tionalised. During WWII, Shell actively participated
2004. He was appointed in Gazprom, for $7.5bn. The from their new minority stake- but does the famously upright
in lend-lease supplies of petroleum products to the
inauspicious circumstances Dutch-British company re- holder roles. For Shell in par-
were, everybody
Dutchman not think Shell’s
Soviet Union.
and his first task was to mained a minority shareholder ticular, this will centre on their
would go there. But
corporate ethics will inevitably
deal with the fall-out fol- with 27.5pc, with Mitsui and project management skills, op- pay a price for life in Russia?
1983
S
TI
lowing an embarrassing Mitsubishi owning the remain- erational excellence and, most Is Russia’s idiosyncratic le-
Shell opened a representative office in Russia. Nine
V
O
we work in Russia
overestimation of the com- ing 12.5pc and 10pc respec- importantly, investment in gal system really manageable
years later it registered a lubricants distributor in
pany’s proven reserves. tively. Soon after the deal, the technology. “The key element
because we can
for a company like Shell? Van
Russia, Shell Neft.
O, RIA NO
lawsuits were dropped and of this win-win situation is to
work within our
der Veer gestures before
things seemed to return to stay one step ahead with new speaking: “There are no easy
OLIVER CARROLL normal. technologies,” explains the
business principles’ countries. If there were, every-
MOSCOW “It was very difficult, very Dutchman. “Last year, for in- body would go there. What we
Dossier Sakhalin
challenging, and I learnt a lot,” stance, we invested $1.2bn in need is a tailor-made approach
His bold response to the crisis says the softly spoken Dutch- research and development. No
‘The state will
for every country, but we will
Current ownership structure
– a programme of reform VLADIMIR FEDORENK man. “As a businessman, I do state company is spending only go somewhere if we can
which included the merging of not talk about hard breaks, but anything similar.”
always like to have
work within our business prin-
of Sakhalin II project
the company’s two constituent
NATIONALITY
it’s true to say we were under As one of the few heads of ciples. And the reason that we
parts into a single company
DUTCH
huge pressures. It was very oil corporations ready to pre-
a hold on its crown
are working in Russia means
and governance structure – led difficult to explain, even in the dict a resource peak of “easy”
jewels. But non-
we can work within our busi-
to internal tension before it
AGE
media, that we felt we were oil and gas by 2015, van de ness principles.”
was considered a success.
60
doing a good job. After many Veer has channelled much of
energy companies
Moreover, he explains, Shell
Then came the well-publi- months of negotiations, we this new R&D money into un- have spent much time building
cised problems with the com-
CIVIL STATUS
created an opportunity to take conventional energy produc-
are remarkably
in measures against corruption.
pany’s flagship Russian project,
MARRIED, THREE
the project forward. Let me tion, notably extraction from
satisfied with the
At Sakhalin II, there already
Sakhalin II.
DAUGHTERS
stop there.” the difficult but voluminous have been several cases of peo-
Sakhalin, an island east of Does the Shell CEO envisage “oil sand” fields in Canada.
progress they can
ple and contractors being dis-
Russia and just north of Japan,
Jeroen van der Veer leads the
any repetition of the episode, The company is also under- missed for transgressions of
until recently played an in-
executive team and is account-
especially in light of a new taking six sustainability trials make in Russia’ this code. “I regret that it is still
significant role on the world
able for business performance
Russian law on foreign invest- for biofuels, focussing on how necessary, but it is the reality of
stage. For those who knew of
and implementing strategy. He
ment which limits foreign in- these fuels compete with food, the world.” He seems to enjoy
it, the island was viewed only
was born in Utrecht in the
vestment in “strategic” areas the use of water and their car-
‘I like it that both
saying this, however.
with foreboding, synonymous
Netherlands in 1947. He has
of the economy? “If the gov- bon implications. Perhaps the Despite the ominous prob-
SOURCE: SHELL
with the tsarist gulag system
two degrees – one in mechani-
ernment wants to do introduce most exotic sounding of these Vladimir Putin and lems Shell have faced over
and an unforgiving climate. In
cal engineering from Delft Uni-
this, that’s fine and is within its experiments involves a Hawai- Sakhalin, van der Veer’s mes-
The first offshore drilling rig in Russia has been pro-
his 1895 work documenting
versity and another in econom-
rights to do so. But we need to ian algae farm, which is being
Dmitry Medvedev
sage to other potential investors
ducing oil since 1999. Sakhalin II is one of the largest
Russia’s far-eastern outpost,
ics from Rotterdam University.
know which projects and pos- developed for a diesel product.
have very solid
into Russia is far from negative.
oil and gas projects in the world, tapping 10pc of the
writer Anton Chekhov de-
He joined Shell in 1971 and
sible projects for the future “It’s early days, but if we can “In the energy sector, the state
Sakhalin region’s estimated 45bn barrels of oil and
scribed Sakhalin as “hell on
worked in in the Netherlands,
will be covered by the rule and find a competitive way to experience and will always like to have a hold on
gas reserves. The project brought Russia $600m in
earth”.
Curacao and the UK. In 1984,
where the rule does not apply. grow, then this feels attrac- its crown jewels. That’s our pro-
direct income by the third quarter of 2007; it employs
The discovery of huge hy-
he returned to Shell Nederland
My nightmare is that we start tive,” says van der Veer. “The
insights into our
fession. But if you speak to non-
25,000 people. Local incomes have grown by 500pc.
drocarbon reserves, however,
as manager of Corporate Plan-
with a project we think does main advantages of using al-
industry. That feels
energy related companies, you’ll
The 40-year project is expected to yield $50bn to
changed Sakhalin’s status. In
ning, and then of the Pernis re-
not fall under the rule, and gae is first of all that it grows see they are remarkably satis-
Russia’s federal coffers alone: and that is based on an
the late 1990s, it even took on
finery in Rotterdam. After co-
halfway it turns out that it is quickly and, second, you only good to us’ fied with the progress they can
oil price of $34 per barrel.
an international dimension as
ordinating Shell businesses in
under the rule.” need seawater.” make in Russia.”
the struggling Yeltsin adminis-
Africa and Canada he became
Accepting that interest More traditional renewables And what of the recent elec-
tration looked abroad to devel-
managing director of Shell
from national governments in such as wind and solar energy tion of Dmitry Medvedev as
op domestic energy produc-
Nederland in 1992, leading a
energy production the world will be in the Shell mix too, President? “Both Vladimir
Statistics
tion.
major reorganisation. In 1995,
over is a trend likely to contin- though the technology for the Putin and Dimitri Medvedev
Shell obtained a controlling
he moved to the US as presi-
ue, van der Veer believes oil time being remains too expen- [from his time as head of
Dynamics of Russia’s oil production
stake in the larger of the two
dent and chief executive of the
corporations must adapt their sive for consumers: “Today, Gazprom – RIR] have a very
major projects begun at the
Shell Chemical Company. He
focus in order to prosper fur- what we see is that consumers good knowledge of the energy
and exports (million tonnes)
time, negotiating special terms
was appointed group manag-
ther: “The role of Shell and oth- might be prepared to pay a bit industry. This is an advantage.
in order to navigate Russia’s
ing director in 1997.
er corporations is that they more, but certainly not a lot I think on the highest level we
then myriad legislation and tax have to make sure they create more. We have the technology,
SHELL
say we expect more of the
regime. Over the course of new win-win situations. To put but we still need research to same, but more of the same in
Vladimir Putin’s first term,
lar of the new President’s blue-
it differently, we all have to make the product viable.” the direction of reform.
however, it became clear that
print to return Russia to a po-
change our business model. Van der Veer is visibly excit- plex – and Russia’s first – LNG “As a matter of fact, I per-
its favourable conditions were
sition of strength.
State companies now have the ed at the prospect of transfer- (liquified natural gas) plant. On sonally like it that both gentle-
unlikely to hold. Control of the
In 2006, following a period
upper hand on reserves. They ring these innovations to Russia. completion, this will provide men have very solid experience
nation’s energy reserves, it
of uncertainty, alleged viola-
are in a much stronger position Already, at Sakhalin, Shell is de- enough gas to satisfy 8pc of the and insights into our industry
seemed, was an important pil-
tions and the threat of law-
than 20 or 30 years ago.” veloping the world’s most com- world’s LNG demand, the equiv-
–
.
That feels good to us.”
Oil production, domestic and export
CEOs tout the financial climate
eign investment goes predomi-
nantly into the commodity ex-
sales, including gas condensate
traction sector. Between 2004
and 2007, FDI in the resource-
based sector was US$26.4bn,
CONTINUED FROM PAGE 1 for their business in Russia. lack of skilled staff, and the discounts the investments in row will be less stable than the or 40pc of the aggregate inflow
Investors were most wor- complexity of the tax system. the resource-based sector, Russia of today. in the same period.
Senior business executives have ried about corruption, insuffi- In general, foreign investors whose returns are negatively At the end of 2007, Russia’s The survey was conducted
a rather positive impression of cient legislative transparency, feel that the risks associated impacted by very high tax cumulative volume of FDI between the end of March and
the Russian investment climate. administrative barriers and a with operating on the Russian rates. amounted to US$103bn (ac- mid-May 2008. The survey
Those who took part in the lack of judicial independence. market were lower than those A very strong majority of re- cording to Rosstat data). Last was commissioned by FIAC
study say that Russia has Several executives said they they anticipated when they en- spondents believe that Russia year Russia received US$27.8bn and was conducted by Rain-
.GKS.RU
achieved a great deal, though were “very” or “extremely” tered it. Russia’s return on in- will be more stable (61pc) or in FDI, twice that of the previ- bow Insight.
more needs to be done. The sur- concerned about worsening in- vestment is higher than in oth- as stable (31pc) as it is today. ous year. In just a few years,
–
vey’s main conclusion is that in- frastructure. Other problems er developing countries, and in Only 8pc of respondents Russia has become one of the For full text of the survey,
vestors see excellent prospects included political interference, fact much higher when one fear that the Russia of tomor- largest recipients of FDI. For- visit www.rbth.rg.ru
SOURCE: WWW
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