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Financial Times: Alarm at Russia’s BP threat

By Catherine Belton
Published: June 1 2007 03:00 | Last updated: June 1 2007 03:00

A senior western diplomat warned yesterday that Russia risked further damage to its investment climate if it went ahead with threats to revoke today the licence of a key project for TNK-BP, BP’s Russia venture.

The diplomat said revoking TNK-BP’s licence to develop its vast east Siberian Kovykta gas field would cause “serious concerns about the investment climate” as well as raise questions about the sanctity of property rights and the proper separation of the executive and judiciary branches.

The comments came as Tony Hayward, BP chief executive, held talks with Alexei Miller, Gazprom chief executive, in Moscow yesterday.

Russia claims the Kovykta licence is in violation of production obligations. Analysts have said the pressure over Kovykta is part of a campaign to help state-controlled Gazprom win control over gas projects.

The analysts have said the onslaught parallels government claims of environmental violations by Royal Dutch Shell’s $22bn Sakhalin-2 venture that subsided soon after Gazprom bought control of the oil and gas venture on the eastern island last November.

But Gazprom ridiculed suggestions that it was seeking a similar deal with TNK-BP over Kovykta. Gazprom said it had not discussed buying a stake in Kovykta during the talks with Mr Hayward yesterday.

Russian officials have said Rosnedra, a licensing agency that is part of Russia’s Natural Resources Ministry, would “very likely” discuss whether to revoke TNK-BP’s licence when it convenes today.

But the agency said yesterday it could not say whether the issue was on the agenda or not.

Gazprom said Mr Miller and Mr Hayward had discussed “cooperation in global markets including in the sale of liquefied natural gas”.

BP declined to comment on the content of the talks and said Mr Hayward had travelled to Moscow to attend a TNK-BP board meeting.

Gazprom has repeatedly insisted it is not interested in Kovykta alone, but analysts say the field is crucial to Russian government plans to start shipping gas to China by 2011.

Analysts have suggested the pressure over Kovykta is part of a broader gambit to force TNK-BP’s Russian billionaire shareholders, led by Alfa Group owner Mikhail Fridman, to sell their stakes in the overall venture to a state-controlled venture such as Gazprom. The Russian shareholders have repeatedly denied they intend to sell their stakes.

TNK-BP has been unable to develop the field to supply Asian markets because Gazprom has consistently refused it access to its main trunk pipeline despite numerous offers from TNK-BP for it to take a stake in the project.

TNK-BP officials have said Gazprom has been blocking the talks because it is seeking to win control on terms below the market rate.

The western diplomat accused Russia of blocking Kovykta’s development, a move he called a “failure from the Russian side” as the field could by now be “making a major contribution to global energy security by supplying markets in Asia”.

He said one of the main reasons TNK-BP had been unable to meet the licence conditions of producing 9bn cubic metres of gas by 2007 was because it had been blocked from export markets, while local demand in the Irkutsk region was a fraction of that amount.

TNK-BP’s attempts to gain a legal clarification over its licence terms were dashed when a court in Irkutsk threw out its suit on Monday, claiming lack ofjurisdiction.

TNK-BP has said it will appeal against the move.

Copyright The Financial Times Limited 2007

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