BP taking steps to protect its operations in Russia

These days the Russian government has much greater power to control the oil industry and lay down the rules of the game

BP CEO John Browne will be holding talks with President Putin in Moscow this week, The Financial Times reported citing its own sources. The head of one of the world's largest energy companies is concerned about the problems facing British Petroleum in Russia. BP was already denied access to several tenders for the development of large oil and gas deposits in Russia. The Russian authorities offered no explanations whatsoever. Experts believe that tax claims to BP-TNK totaling nearly $1 billion could be the last straw.

The Russian government has become a top player on the Russian oil market in the last year. Now two state-controlled companies i.e. Gazprom and Rosneft are producing up to 20% of all Russian oil. These days the government has much greater power to control the oil industry and lay down the rules of the game.

BP had experienced problems in Russia long before the tax claims were brought against TNK-BP. Those problems were mostly related to the acquisition of new oil fields by TNK-BP. “The tax claims to the tune of 26 billion rubles obviously became the last straw to the British,” says Maria Radina, an analyst with the investment company Finam.

Speaking at the Russian Economic Forum in London last week, Robert Dudley, head of TNK-BP, admitted that “the investment environment has worsened in Russia since 2003 and now it is more difficult to keep abreast of the latest trends in the Russian economy.” According to Mr. Dudley, TNK-BP ran into real trouble in Russia over the last few months. A few tenders for large Russian oil and gas deposits were put on hold because TNK-BP was on the list of bidders. Sources in the Federal Agency for Management of Resources confirmed the information. After buying a 50% stake in TNK and Sidanko, the British also invested around $5.3 billion in the joint oil and gas projects in Russia, and they intend to continue the expansion by acquiring new deposits of oil and gas. But until now the Russian authorities have not allowed the British to go ahead with the plan. “It is understood that the Russian government wishes to hold control over Russia's strategic resources, but fears relating to the lack of investment transparency in Russia may become a reality unless a list of such strategic resources is in place,” said Mr. Dudley.”

“BP is going to lobby its interests in Russia at the political level because the Brits spent too much money in Russia,” says Maria Radina.

Fyodor Chaika