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Sunday Telegraph: Dancing with the Kremlin

Sunday 1 April 2007

You could almost feel sorry for Tony Hayward, BP’s chief executive in waiting. Before even starting the job he was catapulted into a diplomatic dilemma this month that makes Tony Blair’s efforts to negotiate with Tehran look like a walk in the desert.

The intimidating venue was the Kremlin, where Hayward was introduced to president Putin by BP’s outgoing chief executive Lord Browne. Four years ago when Browne first took BP into Russia with an audacious bid for TNK, the balance of power looked rather more even: Russia desperately needed Western industry expertise to kick-start its moribund energy sector. Political cover from Downing Street promised BP a fair crack at the whip.

But since then relations have turned sour. The violent seizure of national oil assets at Yukos was followed by the dismissal of Shell from similar joint ventures in Sakhalin. Now BP desperately needs to stay on the right side of Putin if it is to avoid being squeezed out in similarly brutal fashion.

In the circumstances, Browne and Hayward could be forgiven for wanting to be helpful, but TNK-BP’s role in the auction of some of those Yukos assets appears to have overstepped in the mark. By pulling out almost as soon as the auction started, to make way for a rival bidder backed by the Russian state, the suspicion left is that this was an exercise in legitimising the auction process rather than a serious desire to push BP even deeper up to its neck in Russia.

Given how uncomfortable many institutional shareholders felt when Yukos assets were re-sold in London during last year’s flotation of Rosneft, it is no wonder some are uncomfortable to see BP playing its own role in the distasteful affair now.

The other thing that has changed since Lord Browne first went to Russia is BP’s reputation as a paragon of corporate virtue. In the wake of the damning US safety investigations, the last thing Hayward needs is to be portrayed as a Kremlin stooge.

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