July 3, 2009 / 9:52 AM / 10 years ago

CEOs use Obama visit to press Russia on rule of law

MOSCOW (Reuters) - U.S. businessmen are expected to use a Russia-U.S. business summit on Tuesday to press Moscow to rein in corruption and improve conditions for western companies operating in the country.

A trader sits at the MICEX stock exchange in Moscow in a file photo. REUTERS/Alexander Natruskin

But industry sources say they see little hope of major changes coming out of the summit, which will be held alongside a meeting between Presidents Barack Obama and Dmitry Medvedev.

“It looks like the Kremlin doesn’t really want this discussion and Russian business is not very keen either,” said one industry source.

Russia’s trade with the United States was worth just $36 billion in 2008 — the same amount as with Poland — and Americans rank only 10th on a list of direct investors.

U.S. businessmen say corruption, a weak rule of law and the bad experiences of some companies in Russia deter both trade and investment.

“Stability and sanctity of contracts — this is what worries us, given what happened to some Western firms in Russia,” said an industry source with a major U.S. firm.

Medvedev, like his predecessor and now Prime Minister Vladimir Putin, has promised to crack down on corruption.

But U.S. businessmen say they have seen no real change in an opaque system which tends to favor Russian companies.

And in a sign of unease about the business summit, industry sources say the list of executives who will meet Obama and Medvedev may be cut to 10 from each side from 18 and access for media may also be restricted.

They also said the meeting could be moved to the Kremlin from a luxury hotel, in a further indication that Russian authorities wanted to keep a tight grip on the talks. The Kremlin declined to comment.


The list of U.S. executives attending the summit will feature names familiar with the hazards of investing in Russia.

The chief executive of U.S. oil major Chevron, David O’Reilly, was close to buying Russian oil firm YUKOS before its owner Mikhail Khodorkovsky was arrested and sentenced to 8 years on what his defense described as politically motivated charges.

O’Reilly has kept his criticism of Russia low profile unlike his peer from ExxonMobil, Rex Tillerson, whose Sakhalin-1 project was banned from selling gas to China.

“There is no trust in Russia’s judicial system today, and that must change if it is to attract major foreign investment,” Tillerson told Medvedev at an economic forum last year. Tillerson is sending his deputy to Moscow for the Obama visit.

Some executives, though, will be keen to highlight successes, including James Mulva from ConocoPhillips with a $5 billion-plus investment in Russia oil major LUKOIL, and Indra K. Nooyi of PepsiCo, which will open the largest bottling plant in Europe near Moscow next week.

Aluminum major Alcoa’s chief Klaus Kleinfeld will also likely repeat previous pledges that Russia remains a strategic market for the company despite deep job cuts.

Kleinfeld picked up the baton from Tillerson at a Russian economic forum this year when he told Medvedev that red tape was stifling business as his firm had to submit 47,000 pages of documents to regional tax inspectors.

U.S. businessmen are also unsettled by Russia’s abrupt decision last month to quit 16 years of World Trade Organization accession talks to pursue a customs union with two former Soviet neighbors.

Resource-focused companies will be watching for any signs that Russia is more willing to open up its strategic energy deposits to foreign capital and expertise in the face of strained financial resources.

The summit between Obama and Medvedev is expected to focus on talks on cutting U.S. and Russian nuclear weapons and on helping Washington in Afghanistan.

A breakthrough at these talks would serve as firm evidence that both sides want to “press the reset button” — to use Washington’s phrase — on U.S.-Russia relations.

Reporting by Dmitry Zhdannikov; editing by Myra MacDonald

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