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Financial Times: Russia gives TNK-BP ultimatum on Kovykta

By Catherine Belton in Moscow
Published: March 17 2007 02:00 | Last updated: March 17 2007 02:00

Yury Trutnev, Russia’s natural resources minister, yesterday warned that TNK-BP’s licence to develop the Kovykta gas field in eastern Siberia could be withdrawn and auctioned off to a Russian company.

Mr Trutnev said BP’s Russian unit, TNK-BP, would not have time to rectify breaches of its licence to develop the vast gas field in time for a May deadline.

“I don’t think they’ll be able to fix the violations,” he told Russian reporters during a trip to Luanda. “If they haven’t done it in the past several years, how can they do it in two months?”

Mr Trutnev insisted companies with a foreign-owned majority would be banned from bidding for the licence should it be revoked and then sold on at auction.

TNK-BP has been locked in a conflict with Russia about the development of the Kovykta field as the government has acted to tighten its grip on the energy sector.

Last November, Gazprom, Russia’s state-controlled gas giant, bought control of Royal Dutch Shell’s Far East Sakhalin-2 oil and gas venture following government pressure over alleged environmental violations.

The writing has been on the wall for TNK-BP’s rights to develop Kovykta since February when Mr Trutnev’s ministry gave TNK-BP three months to begin producing 9bn cubic metres of gas as its licence stipulates. The oil group insists the demand is impossible to meet, not only because of the short time frame but also because there is not enough local demand for that much gas.

TNK-BP’s Russia Petroleum unit produces only a fraction of that amount.

Other senior Russian officials have suggested in recent weeks that TNK-BP would be likely to lose its Kovykta licence, but Mr Trutnev’s comments yesterday marked a direct threat by the most senior official so far.

TNK-BP declined to comment yesterday but the Russo-British oil venture is understood to be still seeking ways out of the impasse, potentially by forging a broader alliance with Gazprom.

The state-controlled gas giant has so far been able to block the development of TNK-BP’s gas fields because it has a monopoly hold on all the important pipeline routes.

During a visit by Lord Browne, BP chief executive, to Moscow last month, BP discussed forming a joint venture with Gazprom for the sale of liquefied natural gas. A Gazprom official has said the talks could presage further co-operation between the companies.

BP has said the talks are still at a very early stage.

Copyright The Financial Times Limited 2007

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