Moscow, 14 April 1997 (RFE/RL) - The recent collapse of several large gold-mining operations around the world has had a direct, adverse influence on investments in mining operations.
And, now, along comes Sukhoi Log. Located in the hills of Russia's Irkutsk oblast, it is the world's largest unmined gold deposit. After five years of testing and one year of matching Soviet geological surveys with new ones, the size of the gold reserve is exact and undisputed. It seemed nothing could go wrong -- until early this month, when the Supreme Arbitration Court of Russia ruled the entire five-year-old corporate structure for mining Sukhoi Log, including an estimated $60 million in foreign investment, "null and void."
The timing of the decision could not have been worse. Global investors were suddenly faced by the prospect that their investments in Russia could be made worthless at a stroke.
For Russia's government, the court ruling is deeply embarrassing. For one thing, the court directly challenges rulings and decisions made by officials who now command the heights of the Russian economy -- Anatoly Chubais, who headed the State Property Committee in 1992 and is now First Deputy Prime Minister; Alfred Kokh, Chubais' successor at the Committee and Deputy Prime Minister; Pyotr Mostovoi, a deputy chairman of the Committee in 1992, first deputy chairman today, and head of the Federal Bankruptcy Agency.
After a week of daily inquiries to each of these officials, not one has been willing to respond to the court ruling, and to the unravelling of decisions they and their subordinates made.
The court ruling also comes at a terrible time for the goldminers employed by Lenzoloto, the company whose legal status has been cancelled by the Arbitration Court. They aren't being paid. No pay, no work, no gold. The Russian treasury, which was emptied of its gold last year, can't be refilled. If mine investment continues to fall, as it has been doing in Russia for the past five years, gold production this year will be worth less than diamonds, less than platinum and palladium.
These precious metals and gems are the last brake on the Russian treasury's drop into insolvency.
The Arbitration Court's task was to judge the formation of a joint venture and a privatization process, according to the laws in force at the time. The Court hasn't accused Star Mining Co. of Australia, Lenzoloto's foreign investor, of intentional wrongdoing. There is no suggestion in the court's judgement of fraud or deception.
One thing, however, is missing in the legal analysis. The court has ruled that the company formation in 1992 was in violation of Russia's Law on Privatization. But Lenzoloto and Star argued that the Law on Foreign Investment applied, and that everything that had been done conforms to its provisions. In short, there was in 1992, and there still is, a conflict of laws.
This isn't addressed in the Arbitration Court's 13-page judgement. If two laws are applicable, but lead to different outcomes in practice, the court cannot be the place to resolve the ambiguities and contradictions. That's the job of the Government, and ultimately Russia's Parliament. Nonetheless, the court has imposed a massive civil penalty on Russian miners and a foreign company for a fault that is political in origin. Unless there is a quick and clear political response, the loss of confidence will produce an even heavier penalty for the treasury.