Saturday, March 26, 2011

More on BP in Russia: Predicted Final Score: Russia ¾, BP ¼

Friday and Saturday’s papers brought more news of BP’s travails in Russia and, I think, a great deal of misinterpretation. Whatever the case, BP’s chances do not look good.

Background: BP signed a stock-swap deal with Rosnet (Russia’s largest state owned oil company) to jointly develop arctic reserves, splitting the proceeds fifty-fifty. BP’s other Russian partnership (TNK, for short), of which BP owns half (but lost management control to its Russian partners’ strong-arm tactics), sued to stop the BP-Rosneft deal as violating the BP-TNK shareholder agreement. A Stockholm arbitration court has placed an injunction on the BP-Rosneft deal. While the injunction is in effect, BP cannot proceed with the Rosneft deal, and more than a billion dollars of dividends from TNK operations are held up as well. TNK offered to substitute TNK for BP in the Rosneft deal, but BP vetoed this proposal (casting the sole negative vote). Confusing to say the least! If the TNK proposal had been adopted, the Russian side would end up with ¾ of the BP-Rosneft deal and BP with ¼.

Press reports picture this as a power struggle between two Russian sides – Rosneft as represented by its chairman (and Russian deputy prime minister), Igor Shechin, and BP’s Russian oligarch partners in TNK, led by banking mogul, Mikhail Fridman. The delay in the BP-Rosneft deal is pictured as a defeat for the Kremlin and a victory for the private oligarchs. If there were such a power struggle, it would be lopsided. If Putin really wanted to end the controversy, he need only remind his oligarch friends what happened to Mikhail Khodorkovsky.

The outcome of this “power struggle” seems clear to me. BP will have to back down and accept a ¼ interest. The “Kremlin” gets one half and the “rogue” Russian oligarchs get ¼, while bringing little to the table other than their ability to scuttle the deal. This is by no means a defeat for the Kremlin: BP will give in voluntarily, and Russia will only have to give up one quarter of its “national treasures” to foreign interests.

BP should have learned its lesson last time. It should know by now that only foreign companies obey Russian shareholders agreements and international law. If a Stockholm court rules against a Russian partner, the ruling will be ignored or a way will be found around it. BP, however, must abide by the law.

BP should also have learned that there is no one on the Russian side really concerned about the Russian national interest. With this debacle, Russia’s reputation as an international partner will suffer again, but no one really cares.

The lure of its reserves are such that another BP will step forward. The deal will make Russia’s oligarchs richer and more powerful and the Kremlin insiders will get their rewards. Moreover, the turmoil in the Middle East has driven up oil prices again; so the Russian budget is in better shape. Who really needs foreign money?

No comments:

Post a Comment