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Yeltsin Awards Arctic Energy Contract to Russian Consortium

November 25, 1992 GMT

MOSCOW (AP) _ President Boris Yeltsin awarded the rights to develop a major offshore oil and gas field in the Arctic to a Russian defense industry consortium Wednesday, rejecting a bid by a Western group.

The decree gave the politically influential Russian Shelf Development Co., known by its Russian acronym ″Rosshelf,″ the right to explore and tap deposits off the Novaya Zemlya archipelago in the Barents Sea, Yeltsin’s press office said.

The areas set for development are the Shtokman natural gas field and the Prirazlomny oil field, both off the west coast of Novaya Zemlya. The area contains some 3 trillion tons of natural gas.

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Yeltsin signed the order after days of keen debate in the government over who should develop the fuel resources in the harsh area, which is near the former Soviet nuclear test site.

An admiral of the Russian navy went so far as to say on Commonwealth television this week that awarding the contract to foreign firms would constitute a threat to the nation’s security.

Rosshelf beat out the Arctic Star consortium of Western companies, which was backed by the U.S.-based Conoco International Petroleum Co., the Norwegian firm Norsk Hydro and the Finnish Barents Group. A Conoco official in Moscow refused to comment on the decision.

One of the principal reasons Rosshelf got the contract was that it would mean 250,000 jobs for Russians, according to the ITAR-Tass news agency.

The newspaper Izvestia reported Wednesday that Rosshelf had already secured $8.5 billion in credits from investment funds in Saudi Arabia and Taiwan.

Rosshelf plans to offer its foreign partners 49 percent of shares in the consortium to develop the Shtokman deposit, Izvestia said. The report did not say who the foreign partners were or whether they had been chosen.

In its successful bid, Rosshelf argued that most orders connected with the development will be given to Russian enterprises ″to preserve their technical potential,″ Izvestia said.

Despite the awarding of the contract to a domestic firm, Russia’s energy sector still is in dire need of foreign investment to halt the slump in oil production stemming from outdated technology and harsh climatic conditions.

Foreign investors are prepared to put about $60 billion to $70 billion in Russia’s oil industry, said Andrei Konoplyanik, deputy minister of fuel and energy.

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Rosshelf is a joint-stock company that emerged in Russia after Yeltsin ordered that state-owned companies - including those in the defense sector - be transformed into private enterprises. The government, however, still holds the controlling stakes in most of these firms.

Rosshelf owns defense-related plants, shipbuilding facilities, and prospecting and gas producing organizations. Among its holdings is Sevmash, which is Russia’s largest maker of nuclear submarines.

Yeltsin’s office said the decree ″is directed at securing Russia’s strategic interests in providing the country with energy resources and in the world fuel trade.″

The exploration of the Arctic deposits will ″give a powerful impetus to the conversion of a large group of military plants and provide enterprises in the Russian North with civilian orders, thus softening the dangers of unemployment,″ according to Yeltsin’s office.

Izvestia reported, however, that no real work will be started on the project in the near future because of the country’s dire economy and the low demand for natural gas in Europe, the main purchaser of Russian fuel.