Rosnedra drafts legislative amendments to introduce concept of sovereign audit for mineral reserves
MOSCOW. June 1 (Interfax) - Russia's Federal Subsoil Resources Management Agency (Rosnedra) has drafted legislative amendments to introduce the basic concepts of a sovereign audit for mineral reserves, Dmitry Oleinik, adviser to the head of Rosnedra, said at the international forum "Innovative Technologies for Subsoil Use: Basis for the Economy of the Future" organized by Rosnedra and the State Commission for Mineral Reserves.
Oleinik noted that the government has tasked Rosnedra with ensuring the country's mineral sovereignty. First, this means developing new deposits more intensively in order to replace imports of strategic types of minerals. Second, this means accelerated involvement in the industrial development of the deposits of the distributed subsoil fund. These tasks require investment; therefore, it is necessary to provide Russian subsoil use with efficient access to both domestic and external capital markets in order to ensure the mineral sovereignty of the state.
"This is where we face the example of what centuries-old operations of Western countries mean by introducing their own levers for managing financial markets. In order to receive investment, a subsoil user must confirm its reserves by providing a bank with an audit report. There are several U.S. companies from Texas [DeGolyer and MacNaughton, Miller and Lents, Ryder Scott, and Netherland Sewell] in this area, and there are practically no alternatives to them. To such an extent, here is a real case for you, where a Russian subsoil user subject to sanctions applies for a loan at a Russian bank, and the bank requires the company to provide an audit report issued by one of the U.S. companies," Oleinik said.
Oleinik added that the situation is counterintuitive.
"It is quite obvious that we must have our own mechanisms for verifying reserves in the interest of investment. Therefore, the term 'sovereign audit' accurately reflects the essence of the matter. This is precisely the issue of ensuring the sovereign development of the industry, outside the control and pressure from foreign governments; and, more broadly, the issue of ensuring the mineral sovereignty of the state," he said.
Oleinik said that it is extremely important that Rosnedra be actively involved in developing the system jointly with the largest subsoil users, the presidential administration, the UN, and financial institutions.
"Today, we really see significant progress on all fronts. In terms of working with the regulatory framework, amendments to the law 'On Subsoil Use' and other regulations that establish the basic concepts of a sovereign audit have been drafted and submitted for consideration. In terms of international work, the UN Competency Centre for developing systems to manage reserves and to implement goals for sustainable development has been established in Russia upon the initiative of the European Commission in the UN, Rosnedra and Moscow State University," he said.
Oleinik emphasized that Russian subsoil users are not the only ones with no reason to depend on U.S. audit companies.
"We know why this dependence has arisen. When U.S. auditors provide access to the U.S. capital market, which is logical, though not entirely fair. However, Asian financial centers play an increasing role globally, and it is completely incomprehensible why a Nigerian subsoil user could not avoid an audit report signed by U.S. citizens when working with a Shanghai banker; and even more so, a Russian subsoil user," he said.
Oleinik raised the separate issue of banks that are auditing reserves.
"Banks are only intermediaries. For the system to be efficient, a buyer must be present in it, and it must take into account its interests. A strategic buyer of Russian mineral resources is located abroad. Therefore, the system for auditing reserves that we are creating must ensure international recognition of the reserves of Russian subsoil users. Therefore, creating an international system is the only way to resolve the task that we have set for ourselves, which is Russian subsoil users having access to international capital markets," he said.
Oleinik noted that, "The sense of an international system for auditing reserves is not to replace the U.S. in this area, but, rather, to rid this important mechanism from being influenced by third-party countries in order to provide each country with sovereignty in assessing its reserves and in accessing international capital markets."
"We are talking about the principles that are really important to the world, important to the producing countries, and it is quite natural that Russia would carry the flag. We are the ones that have the largest reserves and indisputable expertise in studying and accounting for them. Recreating the system on new principles would be a strategic achievement in the struggle for the sovereignty of producing countries over their own reserves. We have no doubt that the project for a system for auditing reserves based on new principles would interest a variety of countries, from those in the Eurasian Economic Union (EAEU), to the broad international community," Oleinik concluded.