BP in trouble in Russia

by | Jun 5, 2008

There’s a great story in the FT today by Catherine Belton, who I’ve always rated as the best foreign journalist in Russia. She’s something of a workaholic, and is so dedicated to her job that it made the rest of us look like part-time dilettantes.

Her story charts the deeping problems of BP in Russia. BP owns 50% of a joint venture, TNK-BP, with three Russian oligarchs, called Mikhail Fridman, Viktor Vekselberg and Len Blavatnik. The venture was signed in 2003, amid great fanfare, was personally blessed by Tony Blair and Vladimir Putin, and was seen as a sign of Russia having taken a step up to a new level of business maturity, reliability and, well, civilization in short.

Five years on, things are looking rough. The problem is that the Russian state wants to get involved in some of TNK-BP’s biggest projects, and maybe take a stake in the company itself. BP is quite keen to get Gazprom involved, because it would make things politically easier, and wants the Russian oligarchs to sell their stake to Gazprom, making the new company Gazprom-BP.

But the Russian oligarchs don’t want to be told what to do, not by the Russian government and certainly not by BP. They’ve felt left out of negotiations between BP and Gazprom, and now they’re starting to get rough. What’s happening now is effectively a civil war between the Russians and BP within TNK-BP.

One of the Russian managers was meant to apply for permits for the 150 western managers in TNK-BP, but he applied for less than half of them, so half the foreign managers may have to leave Russia in July. The Russian shareholders are also trying to install managers loyal to them on the board of subsidiaries. And, above all, they’re trying to get the CEO of TNK-BP, an ex-BP guy called Robert Dudley, to quit.

BP have refused to fire Robert Dudley, so now Dudley has found himself called in as a witness to a criminal investigation on tax evasion at a TNK-BP subsidiary. Hey, that’s how they roll out there.

If Dudley is forced to resign, and the foreign managers lose their permits to work in Russia, then BP is in real trouble. It will suddenly find itself with very little control over the company, and with little protection against the oligarchs embarking on a merry spree of asset stripping. TNK-BP is fairly crucial to BP’s plans – it accounts for 24% of its production, and the majority of its replenished reserves and future production.

The question is, what will the Kremlin do? Putin told Le Monde last week that he always had his doubts about the merger: “I told them [BP] ‘Don’t do it. Agree to one of you having a controlling stake. They will always have frictions over who is the boss.'” Doesn’t sound good for BP.

But if they were forced out or robbed, that would be a real blow for Russia’s image as a civilized place in which to do business. As one foreign manager at TNK-BP tells Catherine: “I’ve been here five years, and sometimes you forget. There have been alot of improvements. But really you have to remember it’s a jungle still.”


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    Jules Evans is a freelance journalist and writer, who covers two main areas: philosophy and psychology (for publications including The Times, Psychologies, New Statesman and his website, Philosophy for Life), and emerging markets (for publications including The Spectator, Economist, Times, Euromoney and Financial News).

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