BP launches new venture in Russia

  • 2003-09-18
  • Henry Meyer
AFP MOSCOW - British oil giant BP launched its new multibillion-dollar joint venture in
Russia on Sept. 12 but said the success of the merger with the Russian oil
firm TNK depended on how the latter adapted to Western business practices.
BP Chairman John Browne said the deal ‹ the largest ever foreign investment
in post-Soviet Russia ‹ had made his company the world's second-biggest oil
and gas producer ahead of Royal Dutch/Shell by giving it access to massive
reserves in Russia.
But he underscored the scale of the task facing TNK-BP, into which BP is
sinking a total of $7.7 billion to acquire a 50 percent stake.
"Renewal for us in Russia will occur through technology and investment, but
also renewal through the development of transparency and good governance
which are at the core of a thriving market economy," he told reporters in
"TNK-BP is a symbol, and I hope it will become a model of the change and
progress that Russia is making," he added.
Russia, the world's second largest crude oil exporter after Saudi Arabia
with immense untapped oil and gas reserves, represents a major attraction
for foreign investors interested in the energy sector.
But the deal amounts to a major act of faith for BP, which got its fingers
burned in a 1998 oil investment that put it in the middle of a feud between
several Russian companies, including TNK.
The merger is also a huge bet on Russia, a nation where corporate governance
and other areas, such as environmental protection, fall well behind Western
BP's success or failure "will lie in how quickly it is able to close the
gaping hole between its standards and those of TNK," the London-based
Financial Times said in June after the deal was finalized.
TNK's major shareholder, Mikhail Fridman, did nothing to allay such
concerns, insisting that his company would continue to pursue its own agenda
despite the tie-up with BP.
"We are of course in coordination with our shareholder partners BP, but we
have our own strategy, interests and aims. We cannot pursue them without
BP's go-ahead, as they are a major shareholder, but this company was and
remains a separate player," he told the same press conference on Sept. 12.
Other difficulties stem from conflicts with powerful state-owned energy
The state-run oil firm Rosneft, which has a joint venture with BP in
developing oil and gas deposits in the booming Sakhalin region, in Russia's
Far East, is refusing to allow BP to fold its Sakhalin interests into
Gas giant Gazprom, meanwhile, is resisting plans to build a gas pipeline to
China from TNK-BP's giant Kovytka gas condensate fields in western Siberia,
as it would break its export monopoly.
"There are risks everywhere, that is the nature of global business. The
risks are here, but the relationships that BP has here are sound," Browne
The BP boss had reportedly personally agreed to the merger with TNK at a
meeting with Russian President Vladimir Putin.
Browne also downplayed a judicial campaign against Yukos oil tycoon Mikhail
Khodorkovsky, Russia's richest man, said to be engineered by secret service
elements in the Kremlin and which has alarmed foreign investors.
"So much of the events of the day have to be interpreted in the long-term.
Our long-term view of Russia is not changed," he said.
With plans to produce more than 1.3 million barrels of oil a day, TNK-BP
will be Russia's third-biggest oil firm, and the 10th-biggest private sector
energy group in the world.
BP's vice president responsible for renewable energies, Robert Dudley, is
the new entity's chief executive officer. The BP unit has a supervisory
board presided by Fridman, currently chairman of the Alfa group. Alfa and
Access Renova holdings, or AAR, is the holding company which owns TNK.