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Financial Times: TNK-BP gas field development faces suspension

By Arkady Ostrovsky and Carola Hoyos in London
Published: September 21 2006

Russian prosecutors have threatened to suspend an exploration license for TNK-BP, the Anglo-Russian joint venture, to develop Kovykta, the massive gas field in Eastern Siberia.

A source familiar with the situation said prosecutors in Irkutsk, the capital of Eastern Siberia, demanded that a local agency for natural resources suspend TNK-BP’s licence on environmental grounds and for failing to fulfil terms of the licence.

The source close to Rusia Petroleum, a holding company formed to develop Kovykta of which TNK-BP owns over 60 per cent, said prosecutors cited the company’s failure to bring the field on line in accordance with the agreed timetable.

TNK-BP said it had not received any communication that its licence was about to be suspended. The company on Monday started the construction of a pipeline from Kovykta to Irkutsk to satisfy the licence requirement that local gas deliveries begin by January 1 next year.

However the broader development of Kovykta field, which could supply gas to China, has been effectively blocked by Gazprom, the state gas monopoly, for several years. This was despite TNK-BP’s offer to Gazprom of a majority stake in a holding company to develop the field. Analysts and consortium partners now worry that a further delay in the project could close the window of opportunity to supply China, which may turn to liquefied natural gas supplies and coal instead.

The move by local prosecutors is seen as the latest action against a foreign investment project in Russia and follows a threat by Russian authorities to halt work at Royal Dutch Shell’s $20bn Sakhalin project.

The move against TNK-BP comes at a time of intense speculation that Gazprom is interested in buying out Russian partners in the TNK-BP venture.

Rosneft, the state oil company, is also believed to be interested in taking a stake in TNK-BP.

BP’s partners in the joint venture are Alfa Group, headed by an oligarch Mikhail Fridman, and Access/Renova, an alliance of investment companies headed by Leonard Blavatnik and Victor Vekselberg.

Few observers doubt that their stakes will be taken over by either Rosneft or Gazprom over the next two years as the Kremlin expands its interests in the energy sector.

The $14bn joint venture between TNK and BP was created in 2003 before the Kremlin began to take control of the country’s energy sector. Since then, however, it has limited the participation of foreign companies to minority stakes.

The move by Russia’s prosecutors is seen as a way to put pressure on BP to give up its majority control of TNK-BP or provide Russia with access to markets in the US or China, were BP already has a strong presence.

Kovykta field was one of a big incentives for BP’s move into Russia when it bought 50 per cent of TNK.

Copyright The Financial Times Limited 2006

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