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Gulf-Times (Qatar): Russia is no longer safe haven for BP

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Published: Wednesday, 21 March, 2007, 08:38 AM Doha Time 

If the damning report into BP’s failing safety culture was not enough bad news this week, now the Russians are coming.

The oil and gas giant has told investors that it could be forced to share the lucrative joint venture, TNK-BP, with a government-controlled energy group, likely to be Gazprom or Rosneft, by the end of the year.

BP owns 50% of the business, which reported pre-tax earnings of more than $11bn for 2006, and the other half is controlled by private Russian entities.

The announcement comes after Royal Dutch Shell was forced to sell 51% of its Sakhalin-2 oil and gas project in eastern Russia to Gazprom last year – a move that was seen by the industry as a signal that President Vladimir Putin wanted to rein in foreign involvement in its booming energy sector.

The sum involved was $7.45bn but was believed to be significantly below the market price.

For BP, the Russian business has been vital to the company’s growth and senior executives have been quick to downplay the significance of the sale for fear of spreading more doom and gloom among embattled shareholders.

However, the prospect of dealing directly with the Kremlin is likely to be a stern test for BP’s management in Russia and recent rows over the Kovykta gas project in Siberia do not bode well for a long and happy relationship.

The government has indicated that it wants to transfer ownership of part of Kovykta to a Russian company believed to be Gazprom following a fall-out over whether new gas pipelines should travel to Russia or China.

BP has put forward a strong economic argument that China should be the destination, but it is hindered by the fact that Gazprom controls the pipelines into Russia.

It is a local difficulty BP can certainly do without, having had to endure yesterday’s public pummeling by the US Chemical Safety and Hazard Investigation Board (CSB) over the 15 deaths and 500 injuries sustained at the Texas City refinery two years ago this week.

The head of the CSB gave a warning on Monday of the extent to which BP would be hung, drawn and quartered when she said she was ‘absolutely terrified’ of its safety standards following the investigation of America’s worst industrial accident in a decade.

The details are likely to cast a shadow over the departure in the summer of BP chief executive Lord Browne and give his successor Tony Hayward a baptism of fire because the company’s safety record will continue to be scrutinized wherever it does business.

BP’s plight has had worldwide implications and many a chief executive could have been heard to mutter ‘there but for the grace of God go I’ because all energy ‘super majors’ contribute to the damning industry statistics.

In 2006 seven BP employees died while working for the company but 37 died at Shell. Deaths at the Anglo-Dutch company were also lower than the numbers recorded at ExxonMobil, which normally sets the industry safety benchmark.

However, such minor detail will be of little interest to BP this week.

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