By John Helmer in Moscow
Mitvol ignores London and goes to US to explain Russian mining rules
Roald Dahl once wrote a comedy about a man whose mental powers included the ability to see through cards. Understandably, he spent his life slipping through casino doors, only to be evicted from the gaming table as soon as he was recognized.
Oleg Mitvol, the chief mine licence regulator of Russia, carries a remote computer device that enables him, he says, to see through cards — the reserve estimates, that is, of mining companies licensed to develop oil, gas, and hard rock properties in Russia. As a regulator, he’s in charge of the casino. When he turned down an opportunity in May to visit London to discuss Russian regulatory policy with UK regulators, that was because, Mitvol said, the Ministry of Natural Resources, to which Mitvol belongs, wasn’t ready.
This week Mitvol – official title, deputy chief of the inspectorate Rosprirodnadzor — is on a tour of the US market, along with two other officials of the Ministry – Igor Maidanov, head of the ministry’s international relations branch, and ministry spokesman Rinat Gizatullin. Gizatullin has been acerbically critical of Mitvol in public for months; in a clash over Irish junior, Ovoca Gold, last May, Zinatullin charged Mitvol with making a serious mistake, and each man called for an investigation of the other.
A brief Ministry press release, issued on August 29, disclosed that Mitvol and Gizatullin have kissed and made up. Together, according to the announcement, they are on a speaking tour of the US from September 4 to 7. They are to visit Boston, New York, Washington, and California. In a coy disclosure of who appears to be paying for the trip, the release says: “The working trip will take place under the invitation of public companies including Capital Research, American Century, Fidelity, UBS, State Street, Wells Capital, Victoria Asset Management, etc. During negotiations, the representatives of [Ministry of Natural Resources] will inform the representatives of the companies on features of the Russian legislation in the field of use of natural resources, and also about some results of work of the [Russian] supervising bodies in this sphere.”
Mitvol’s office and the Ministry were asked to explain the nature of the invitation, and why the US hosts appear not to include counterpart US Government regulators. Mitvol has declined to respond. A source in the Ministry told Mineweb that the US visit has the sanction of Minister Yury Trutnev. The precise details of the itinerary are not available, the source said, adding that Mitvol will be speaking in sessions that are “partly public, party closed”. There has been no response to the question – why is Mitvol briefing in private a group of companies which are not direct licence-holders in Russian energy or mineral development projects, and which are not – apart from UBS – well-known investors in Russia. What is well-known is that State Street offers ETFs, including gold and silver, and the group’s principal interest appears to be in portfolio investment and commodity price speculation.
In his past comments to Mineweb, and in recent interviews with The Independent and The Guardian in London, Mitvol has been especially critical of speculators, especially mining stock boosters. In The Guardian last week, Mitvol claimed: “In general the problem companies are those which grow up from zero during two to three years and reach a valuation of hundreds of millions of pounds.” One gold miner he did not identify by name had held its licence for several years but done “only one thing since then – collecting money on the London exchange from foreign investors. The only other thing it does: it changes the deposit development time frames every two years.”
He declined to say which companies particularly concerned him. “We will be working on all companies to implement certain arrangements to bring data into compliance with the state’s certified reserves figures.” As Mineweb has also reported, Mitvol has sharply attacked certain US auditors active in assessing Russian oil deposits. He has also called for greater co-operation between Russian and UK regulators of the share market.
The disclosure of Mitvol’s visit to the US this week triggered a revival of the charge of favouritism and arbitrary enforcement that have been publicly lodged against Mitvol during several high-profile licensing and asset fights; the best known of these has been the conflict between Gazprom and Royal Dutch Shell and its partners in the Sakhalin-2 gas field project; the most recent has been the conflict between Gazprom, British Petroleum and others over the Kovykta gas deposit.
A Moscow newspaper editorialized, referring to Mitvol, that “”market regulators apply the law differently for various companies. Market players and analysts in the sector already depend more on their sense of the signals being sent by the Kremlin and government than on the rules. Analysts trying to evaluate risk or predict the prospects of a certain company face a major problem — the rules are not just informal, they are also ephemeral…. The rules of the game in the oil and gas sector are corrected every few months. Most analysts were able to predict the outcome of the conflict over the Kovykta field based on past practice…There are, of course, some general rules that can be discerned by analyzing regulatory practices and the interests of companies close to the state. But it is better not to listen too closely to officials’ speeches to get a general idea of the informal rules in play. ”
In July, the London Independent reported: “It’s not clear what Mitvol’s motivation is. It could genuinely be a desire to protect the environment, but nothing in Russia is ever simple. It’s certainly not the money: while he says he is paid £1,000 a month, he is already a millionaire, having made a reported $20m from property deals. He insists he is not anti-capitalist, despite calling himself a communist (it’s good to cover all bases in post-Soviet Russia). “I have capitalist and market ideas but not bandit markets [ideas]. I will help to make a civilised market in Russia.””
Mitvol’s ministry was asked to clarify the claim about Mitvol’s money. “This question has to be addressed to him directly when he will be back, either through him or through his secretaries.” Mitvol’s office declined to secure his response while he is in the US.
This week, Minister Trutnev has also issued his own clarifications of the current Russian regulations governing the oil, gas and mining sector, the legislative form of which has been in drafting for several years; this is still being amended before the State Duma (parliament) can vote on it. In an lengthy interview with Moscow newspaper Kommersant, Trutnev hinted without conceding that there are policy reasons for leaving the current situation as it is. “The [new draft] law has been discussed with and accepted by the government, ” Trutnev said, “but at this stage the work has stopped. I have spoken about the monitoring system behind the performance of licence agreements. While we have such definitions as ‘’the licence is liable in case of fundamental infringements”, and importance is defined by an official in the region subordinate to [Rosprirodnadzor], the business is not protected. The official at any moment can come and say: “And you know, it seems to me that that your oil spillage under the fence is exactly a fundamental infringement”. But because any such action can be interpreted as incorrect or mercenary, the official is also unprotected.”
According to Trutnev, “we will decide in the next few weeks whether to go to the Duma with amendments or focus all our efforts on the new law. Amendments are less welcome as they only partly solve the problems. But to be honest, chances are nonexistent for the new legislation to be approved by the new Duma. I think this is something to work on for the next [Duma].”
Russia’s new parliament will convene in January, after elections scheduled for December 2 . But as presidential elections are scheduled to follow in early March, it is improbable that the Kremlin will put its imprimatur on the new regulatory framework until President Vladimir Putin’s successor takes his seat.
That extends the likely term of both Trutnev and Mitvol, as the latter may be explaining behind closed doors to his American hosts.