Today the European Commission is expected to discuss proposals for developing a long-term strategic energy partnership with Russia following exploratory talks about importing oil and gas.

Last month Mikhail Kasyanov, the Russian prime minister, visited London and tried to encourage Western oil and gas companies to take advantage of new production sharing agreements (PSAs). Yet western energy companies remain wary of Russia's investment climate, and are asking how much it has changed, if at all.

Before the 1998 crisis, Russia's oil sector assumed portfolio investors could fund development, an assumption that Glen Waller, director of the Petroleum Advisory Forum (PAF), rejects.

"Portfolio investment is like a yo-yo this year: completely speculative," he says. The finance involved is also too small to develop new fields, he adds.

Other experts agree. "Until 1998, Russian oil companies felt that the country could develop its oil sector alone and didn't need PSAs, but the crisis triggered a sense of reality that they needed a stable legal system to attract foreign investors," says Isabel Murray, an International Energy Agency analyst.

The Russian government has also recognised the need for change. After a Confederation of British Industry meeting on September 19 in London, Mr Kasyanov promised UK investors his administration would simplify PSA legislation for foreigners seeking to develop Russia's oil and gas reserves.

Western investors treat the new laws, which have languished in the Duma, as a precondition before substantial investment can begin again in Russia's oil sector.

Mr Kasyanov admits current PSA laws are flawed. "In previous administrations, the government resolved PSAs capriciously, and not on the basis of strict legislation," he says.

Western companies have responded favourably to the new initiatives. Both Exxon Mobil and TotalFina Elf told the FT the developments were "encouraging".

Mr Waller says the industry believes the government is listening to western oil companies at last. "There is political will to move forward," he says. "The question is just whether it can be translated into action."

But there is a sense that this represents Russia's last chance to get the legal framework right. Stephen O'Sullivan, head of research at Moscow's United Financial Group, warns of stark consequences if the government fails to offer foreigners favourable terms again.

"Our understanding is that the western oil industry will give it one final shot with a letter to Putin explaining that if their requirements are not met, their interest in Russia is finished."

John Capps, president of Conoco Russia, says: "President Putin wishes to create a pro-business environment. This was evident from his appearance at a recent Sakhalin PSA conference. He endorsed PSAs, and charged minister Gref to make it happen. The business community in Russia has a champion at the top, and now the only question will be the speed of change.

"Decisions still require agreement between many ministries, and this slows the process. For our industry, the government has set a date of year-end for the act on normative cost recovery. This will define how the investor recoups costs and is at the heart of the PSA laws. So we'll just have to see."

Russian oil and gas contributes more than 10 per cent to its GDP and over half its tax revenues. The pickings are rich. Russia has 49bn tonnes of oil equivalent in proven reserves alone.

But over the past decade, the sector lost finance as western groups abandoned Russia for more friendly regimes in West Africa, the Far East, Latin America, or other former Soviet states.

A 1998 PAF report quantified the loss to Russia's treasury by analysing the cash influx that six of 24 proposed production sharing agreement projects with foreign companies would have brought, had they been concluded as agreed in 1996.

According to the so-called multiplier effect, PAF calculated that some Dollars 2.5bn in direct and indirect government revenues would have flowed in by 1998, Dollars 3.1bn by 2000, and Dollars 64bn by 2008.

For the western companies that have toughed out the transition, the choice of Russian partner is clearly critical to success or failure.

Anglo-Dutch group Shell and Germany's biggest gas importer, Ruhrgas, negotiating with gas monopoly Gazprom, have fared better than BP, which wrote off Dollars 200m of its Dollars 571m investment in oil company Sidanco. BP then had to wrangle with Russian oil company TNK over Sidanco's most prized assets in a bankruptcy dispute that is being settled only now.

While the oil groups have committed themselves cautiously, service companies such as Norway's Kvaerner and Schlumberger of the US have flourished in Russia by providing technologies to rehabilitate old fields.

But Mr Waller says raising production by bringing marginal fields onstream is not a sustainable strategy. He says Russian oil production has fallen from a 550m tonnes peak to 310m tonnes forecast for 2000. "In the longer term, Russia can only replace (falling) reserves with big new fields. And they need western companies for that. On average, it costs Dollars 10bn to bring new fields onstream."