Russia's untapped gold reserves are unlikely to become the El Dorado of the East soon despite Moscow's promises to liberalise the tightly-controlled sector, precious metals sources said on Wednesday.
Russia's Central Bank said earlier this week it was gearing up to create a domestic gold market via measures that would make it worthwhile for Russian commercial banks to finance mining.
But industry sources said the rules would do little to reform the world's fifth-largest gold producer with the world's third-largest reserves.
"It will take quite a while for commercial banks to take much of that market," said analyst Tony Warwick-Ching of CRU International in London.
The Central Bank's new rules would allow banks to trade gold domestically in a limited way through special precious metal accounts and to make and secure limited, gold-backed loans.
"Well, if after two and a half years, the central bank has come up with accounting procedures for gold transactions, then that is very good," said Yuri Kotlyar, acting chairman of the State Committee for Precious Metals and Stones (Komdragmet), whose functions are being reorganised.
"But this has nothing to do with creating an actual market, and that is what we need."
Russia's gold mines, even those run by foreign joint ventures, are required to sell their output to the state at fixed prices and are usually paid many months later.
The government, in a budget crisis and facing a tax revenue shortfall, has even less money this year to finance output and 1996 production will not better 1995's poor 125-132 tonnes.
Commercial banks financed only about five tonnes of output last year. Moscow has promised but done little to let banks with special licences take gold abroad to secure financing.
Analysts said Moscow feared losing control of its gold industry, which would be harder to track than other key sectors.
"The history of the (Russian) industry is partly driven by politics, not economics," said analyst Andy Smith of Union Bank of Switzerland in London.
Others said a tug-of-war for control was scaring investors.
The Central Bank, which shares responsibility for gold reserves with the Finance Ministry, wants more control over more gold reserves to support the rouble in the future.
But Interfax news agency quoted Deputy Finance Minister German Kuznetsov as saying the ministry, not the Central Bank, should have first crack at buying output and the state, not the private sector, should finance most mining.
Total, unspecified volume of Russian gold mined over January-September was nine-percent below year-ago levels, the State Statistics Committee said. Mining season ends in October as freezing weather emerges in Siberia and Russia's Far East.
And Russia will literally have to dig deep to tap its reserves. More than three quarters of Russian gold is in below-ground ore deposits.
More than half of all foreign-backed gold projects in the former Soviet Union are in Russia.
But none of the big ones, including the giant Sukhoi Log, the world's largest unmined reserve with a possible 1,800 tonnes, are at the production stage because of tax and royalty quibbles with the government.
-- Moscow Newsroom, +7095 941 8520
