BP chief to meet Putin under Yukos shadow
His name may be taboo in the Kremlin, but jailed Yukos oil company founder Mikhail Khodorkovsky will hover in spirit over a meeting tomorrow between President Vladimir Putin and BP Chief Executive Lord Browne.
The jury is still out on whether the dismemberment of Yukos, once Russia’s biggest oil company, and Khodorkovsky’s criminal trial are Putin’s punishment for the political activities of a robber baron or a crude asset carve-up by powerful Kremlin players.
But most agree the resulting economic uncertainty has cast a dark cloud over Russia.
Browne is expected to seek assurances from Putin the cloud will pass. After all, his Russian joint venture – TNK-BP – has been aught in the fallout.
The company has been slapped with a back tax bill for nearly $1bn (€764.4m) and faces the prospect of being shut out of the country’s biggest oil field auctions as the state haphazardly cements its influence over strategic sectors of the economy.
BP has been burned in Russia before. After investing $500m (€382.2m) in the Sidanco oil group in 1997, it threatened to pull out of Russia altogether when Sidanco was stripped of its main production asset in an apparently rigged bankruptcy auction two years later.
So when TNK-BP was signed into existence under the gaze of Putin and British Prime Minister Tony Blair with an $8bn (€6.1bn) investment in August 2003, the tie-up was heralded as a sign that Putin’s Russia was a stable place to do business after more than a decade of elbows-out capitalism.
Two months after the signing, investment bankers were rationalising the gunpoint arrest of Khodorkovsky and parallel tax probe against Yukos as a one-off: retribution for the tycoon piling his vast wealth behind opposition parties in the run-up to 2003 parliamentary elections.
If only it had been so neat.
Fast-forward nearly two years and Browne is coming to Moscow looking for explanations as the woes of TNK-BP appear emblemaic of the post-Yukos business uncertainty.
The Yukos affair set off a wave of tax probes at other companies and is blamed for stunting economic growth from 7.3% to 7.1% at a time when Russia’s main export commodity, oil, was fetching record prices.
Browne “will probably try to get an explanation of … how this can happen with all Putin’s blessing of BP’s investments,” said Zarko Stefanovski, an oil and gas analyst at the Aton investment bank.
Acknowledging at a meeting with businessmen in March that things were getting out of hand, Putin ordered his government to push through laws that would limit the taxman’s scope for delving into companies’ tax history.
The tax inspectors seem undeterred by Putin’s comments. The Vedomosti daily newspaper reported yesterday that the Federal Tax Service had appealed to the Constitutional Court to lift a three-year statute of limitations on back tax probes.
Browne will also likely quiz Putin on his plans for the country’s unexplored oil riches, which analysts say are as unclear as the whims of the tax authorities.
In a clear step toward cementing state control in the oil sector, Mineral Resources Minister Yury Trutnev announced earlier in the year that no foreign-controlled companies would be able to participate in the auctions of “strategically important” oil fields.
As a 50/50 owned Russian-British company, TNK-BP would be shut out of some of the most promising sales unless it is willing to pump cash into a company it would not control.
While Browne will have the opportunity to air his grievances to the Kremlin, Khodorkovsky has watched the destruction of his oil empire from a Moscow jail cell.
Facing charges including embezzlement, tax evasion and fraud, even his lawyers expect him to receive the maximum 10-year sentence when the judge hands down her ruling next week.
“Everything we’ve seen so far suggests they’re going to throw the book at him,” said Roland Nash, head of research at the Renaissance Capital investment bank.
