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Daily Telegraph: Shell can take ‘comfort’: it’s not personal, just business

Business comment
By Damian Reece, City Editor
Last Updated: 1:20am GMT 12/12/2006

Royal Dutch Shell is coming to terms with an inevitable mugging at the hands of the Russian state. Luckily it is well used to such economic GBH having been pumping oil out of British waters for years. Gordon Brown is just the latest in a long line of Chancellors who have launched smash-and-grab raids on the industry using the equally effective, and only slightly less brutal weapon, of windfall taxes.

Grabbing a share of the profits of the global energy industry is a well rehearsed political manoeuvre that generally goes down quite well with large parts of the population. Russia is no paragon of democratic virtues but even if it was, I doubt Russian voters would have opposed their government’s campaign to extract a higher price out of Shell than the oil giant has so far paid for control of the Sakhalin-2 project, the world’s biggest liquified natural gas resource.

A UK government would have gone about extracting its pound of flesh differently, probably resorting to the very British way of heavy taxation plus regulation. The Russians are simply doing it the Russian way. Shell will get paid for ceding control to Gazprom, the Kremlin-controlled energy company, and will still retain a sizeable shareholding. Maybe Shell should have done things differently, structuring its original Sakhalin-2 deal to avoid being strong-armed by the Kremlin. But doing business in Russia always involves negotiating with the state and those negotiations always involve pressure. You can call it a conspiracy but in reality it’s business – Russian business.

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