European Community studies plan to match Western capital, Soviet oil


LONDON -- On the one side there's Western Europe, technology-rich but energy-poor and dependent on the turbulent Middle East for most of its oil.

On the other side there's the Soviet Union, energy-rich but technology-poor, sitting on a wealth of oil and natural gas but too chaotic and backward to extract them efficiently or sell them profitably.

In the middle is Eastern Europe, suddenly cut off from its cheap Soviet oil, poisoned by its sulfurous coal and too poor to afford the energy it needs for development.

It has the trappings of a marriage made in heaven, or at least in the Netherlands.

Acting on a Dutch suggestion, the European Community is studying the creation of a European Energy Community that would use Western money and technology to find and drill for Soviet oil, which would then be sold in the West. The idea was officially endorsed last month at the 12-nation EC summit in Rome.

Western companies have been loath to invest in the Soviet Union, despite its energy riches. The reason is the economic and political chaos there, the dispute over which governments -- central or provincial -- have the right to sign contracts and the fear that a political shift could wipe out an investment overnight.

The Dutch plan calls for the Kremlin and other Eastern European governments to grant concessions to Western companies. Such concessions traditionally confer a semi-sovereignty that, though not guaranteeing Western companies against loss or risk, would "guarantee non-intervention by governments in the market mechanism," according to Dutch energy official Wim Rullens.

For the Western Europeans, an Energy Community would mean a new source of energy, replacing their reliance on the Middle East and the expensive and dwindling reserves in the North Sea.

For the Soviets, it would mean injection of new technology and help in developing what may be their most valuable asset.

For the Eastern Europeans, it raises the possibility of subsidized energy supplies until they can get their economies on their feet.

For all, the idea offers an economic route to political unity. Dutch Prime Minister Ruud Lubbers, who first presented the plan last summer, said a European Energy Community could "serve the same purpose as the Coal and Steel Community after the Second World War."

The Coal and Steel Community sought to unify Western Europe's key coal and steel industries, weaving them so closely together that another war would be economically impossible. Its formation was the first step toward the European Common Market.

Dutch energy officials said the first Soviet response has been "very positive." They said a European energy conference might be held in the second half of the year, with the United States, home of most of the big oil companies, to be invited.

"The energy sector of Eastern Europe, and I include the U.S.S.R., is in desperate need of massive foreign investment if a regional economic crisis is to stand any chance of being averted," said Humphrey Harrison, director of Harrison Energy Associates Ltd.

But Mr. Harrison notes that private companies are not rushing to invest there because of the "political uncertainties which come from unresolved political upheavals."

In agreement, the Lubbers plan says that private companies and banks "will only invest if governments offer sufficient guarantees." That is the point behind the concessions.

The Soviet Union is the world's leading oil producer, and its oil exports provide most of its foreign currency earnings.

But its major fields in Siberia and the Caspian Sea are played out or nearly ruined by years of wasteful drilling. Rich reserves remain in Siberia, but most are in the permafrost areas in the north, where frozen ground year-round makes drilling particularly difficult.

Western experts say Soviet equipment is at least 20 years out of date, keeping the nation from exploiting its riches. But Western companies have been kept out -- in the past by Soviet laws on foreign investment and now by their own fear of political &L; instability, as Mr. Harrison noted.

BOne important question is the political control over the reserves, that is, whether the companies should deal with the Soviet Union under its president, Mikhail S. Gorbachev, or with the Russian republic under its president, Boris N. Yeltsin, an opponent of Mr. Gorbachev's. Siberia is part of the Russian republic.

Officials at the International Energy Agency in Paris said that the only long-standing Western investment in the Soviet Union has "gone sour." That was a petrochemical plant being set up near the Caspian Sea by a U.S.-Italian-Japanese consortium led by Occidental Petroleum Corp.

Two other Western ventures were announced this year. One is a joint venture involving Chevron Corp. in the new Tengiz field near the Caspian, and the other is a production agreement in which a French company, Societe Nationale Elf Aquitaine, will explore and produce in Siberia, taking the risk and profits but paying the Soviets rent for the land.

That is similar to the concession system, used for years in the Middle East before members of the Organization of Petroleum Exporting Countries took over the drilling. Traditionally, major Western companies set up concessions and did all the work, exported the oil, handled the refining and paid the countries rent and royalties. Within the concessions, the Western companies were virtually sovereign.

The Lubbers plan suggests a revival of the concession system in the Soviet Union, with Western nations even buying pipelines "where this proves necessary."

The plan envisages East-West cooperation not only in oil and natural gas but also in energy-saving methods for Eastern factories, in the safe use of nuclear energy and in the linkage of national electricity grids.

"An energy community could play a useful role because, on the one hand, it would ensure the transfer of capital and technology and, on the other, it would safeguard stability and the relationship between supply and demand," Mr. Lubbers said.

Energy-saving methods could help clean up Eastern Europe, disastrously polluted by years of waste, and could cut Soviet energy use so that the Soviets would have more output to sell abroad.

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