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Daily Telegraph: Putin turns up heat on BP in gas row

President Putin Daily Telegraph pik

(Mr Putin’s remarks are a clear signal that TNK-BP will be forced to cede control of the Kovykta project)

By Russell Hotten, Industry Editor
Last Updated: 2:33am BST 05/06/2007

Moscow’s impatience with BP’s Russian joint venture reached the very top of the Kremlin last night when an exasperated President Vladimir Putin joined in criticism of the company’s failure to fully exploit a massive gas field in his country.

Mr Putin’s remarks are a clear signal that TNK-BP will be forced to cede total or partial control of the valuable Kovykta project as part of what is seen as a plan to re-nationalise Russia’s energy assets.

TNK-BP owns 62pc of Rusia Petroleum, the company that controls the licence to operate the Kovykta field, which has enough gas to satisfy the world’s needs for a year and the potential to be a massive revenue-earner for both BP and Moscow.

Russia’s environmental regulator has complained for months that TNK-BP breached its licence by delaying bringing the gas field on stream. Yesterday, Mr Putin echoed those criticisms. “If the members of the consortium are doing nothing to meet licence obligations, how much longer do we have to tolerate this?” he said.

Last week, Russia’s licensing agency, Rosnedra, delayed a decision on whether to revoke the licence, blaming the complexity of the issue. TNK-BP says there is little point in boosting gas production because it is prevented from improving the pipeline network needed to distribute it, and Rosnedra wanted more information.

However, after pressure put on Royal Dutch Shell last year to relinquish control of the Sakhalin-2 gas project to the state-controlled Gazprom, most observers are resigned to seeing TNK-BP suffer a similar fate at Kovykta.

Rosnedra’s delay was interpreted as a strategy to avoid the Kovykta issue coming up at this week’s G8 summit in Germany and an economic forum to be held in St Petersburg. But Mr Putin made no attempt to calm fears, telling reporters: “I would like to stress that the field has reserves of three trillion cubic metres. To understand its importance for our country, it is equal to almost all reserves of Canada.

“We can talk about many reasons here, including access to the pipeline system. But they [TNK-BP] knew about it, when they bid for the licence. They knew about these problems and possible restrictions, and they nevertheless bought the licence,” Mr Putin said.

TNK-BP had hoped to export Kovykta gas to China but says it was forced to cut productions after Gazprom, which controls Russia’s pipelines, banned the plan because it has its own rival project to supply China. Mr Putin said this was a bad excuse for underproduction.

Yesterday, in a sign that TNK-BP is resigned to seeing its control over Kovykta reduced, Robert Dudley, the joint venture’s chief executive, said: “We have always wanted Gazprom to work with Rusia Petroleum. We remain optimistic about an agreement with partners.”

BP earns about a quarter of its revenues in Russia and a tenth of its profits. When BP’s former chief executive, Lord Browne, took the company into Russia it was hailed as far-sighted move. Moscow was selling the right to exploit its energy resources to overseas companies when the oil price was low. With the price having soared, analysts say Moscow wants its resources back in state ownership so that the government can maximise earnings.

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