Foreign companies which suffer unfair treatment at the hands of Russian judges, customs agents or politicians will be able to seek full compensation from the government under a pioneering insurance programme. The Federal Centre for Project Finance, an agency of the Russian government, is to offer "non-commercial risk" insurance in conjunction with the World Bank designed to indemnify foreign lenders against "government performance and force majeure".The initiative is designed to force the government to seek to resolve disputes with politicians and officials when conflicts first arise. Failing that they will be referred to international arbitration and any compensation payments will be deducted from the federal budget.It could help boost Russia's volume of foreign direct investment, which remains extremely low in a reflection of continued suspicion by companies over the country's unstable regulations, taxes, and legal system. In the first six months of this year, investment was just $1.9bn, down 25 per cent on the same period of 2001. The programme comes at a time when foreign states' export credit agencies remain reluctant to indemnify business with Russia, and the costs of borrowing remain high partly because of the political risks.The "non-commercial risk guarantee" will begin by offering insurance for projects in the coal and timber industries - two of the government's top priorities for economic restructuring.Mikhail Kozlov, director of the guarantee management directorate of the Centre, said up to six projects were being seriously considered, and that between two and four were likely to be signed up by the end of this year. He said there were also already discussions for other one-off large-scale guarantees in the oil, gas and diamonds sectors, and in relation to energy trading under the terms of the Kyoto environmental protocol, at least one of which could be ready for signing within the next 18 months.He indicated that the guarantees may cover Russian investors, as long as they make loans which come from offshore entities. Under conditions imposed by the World Bank and its International Bank for Reconstruction and Development, direct equity investments will not be covered, but he indicated that quasi-equity could be.The insurance is likely to charge an annual premium of 1.5 per cent of the value of loans. It will cover loans up to a duration of 10 years, of between $1m and $10m each, up to a total of $200m. The policy was inspired by a successful $100m 1997 pilot project covering loans to Sealaunch, the joint US-Russia offshore commercial satellite launcher, which on two occasions led to conflicts that were resolved by the centre without the need for reimbursement. Andrew Jack