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Financial Times: Blair criticised for voicing Russia fears

Royal Dutch Shell was forced last November to sell control of its $20bn (€15bn, £10bn) Sakhalin-2 oil and gas venture to state controlled Gazprom following a government pressure campaign over alleged environmental violations. BP’s flagship Russia venture TNK-BP is being threatened with the loss of its licence to develop its east Siberian Kovykta field over licensing violations. Many observers see the move as part of a wider gambit to force TNK-BP’s Russian shareholders to sell control to a state-controlled energy group, such as Gazprom.

Privately, western diplomats say the government campaigns against TNK-BP and Shell reflect arbitrary actions by the Russian government, which, they say, is not acting in the interests of the Russian people but in the interests of small group of individuals. They say such moves are undermining Russia’s investment climate and thus its future sustainable growth.

THE ARTICLE

By Catherine Belton and Neil Buckley in Moscow

Published: June 11 2007 18:40 | Last updated: June 11 2007 18:40

British business leaders have criticised the UK prime minister for expressing concerns over the investment climate in Russia even as Moscow steps up moves to take control of energy assets belonging to foreign companies.

At an investment forum in St Petersburg over the weekend, where dozens of global chief executives paid homage to Russia’s growing economic might, Hans Jörg Rudloff, the chairman of Barclays Capital, said the British government was mistaken when it expressed public concern last week over the growing risks of investing in Russia.

“Their approach looks unbalanced,” Mr Rudloff said. “Russia’s transition to a market economy has been successful and cannot be undone.”
On the eve of G8 talks with Vladimir Putin, Russia’s president, Tony Blair, the UK prime minister, warned that western companies could shun Russia unless it shared western democratic values.

Peter Hambro, executive chairman of Peter Hambro Mining, an Aim-listed company with extensive interests in Russia, on Monday said Mr Blair’s comments “ran the risk of being damaging” for British business interests in Russia, before adding: “I’m not sure how much attention is paid to him with eight days to go.”

Mr Hambro said “There has been a serious amount of trouble in the last two or three weeks here with the [UK foreign office]. Mr Blair’s position is very different to that of business.”

There were few dissenting voices from the denizens of global business attending the forum over the weekend that included the heads of Deutsche Bank, Citigroup, Chevron Corp, Royal Dutch Shell and BP.

Royal Dutch Shell was forced last November to sell control of its $20bn (€15bn, £10bn) Sakhalin-2 oil and gas venture to state controlled Gazprom following a government pressure campaign over alleged environmental violations. BP’s flagship Russia venture TNK-BP is being threatened with the loss of its licence to develop its east Siberian Kovykta field over licensing violations. Many observers see the move as part of a wider gambit to force TNK-BP’s Russian shareholders to sell control to a state-controlled energy group, such as Gazprom.

Privately, western diplomats say the government campaigns against TNK-BP and Shell reflect arbitrary actions by the Russian government, which, they say, is not acting in the interests of the Russian people but in the interests of small group of individuals. They say such moves are undermining Russia’s investment climate and thus its future sustainable growth.

Mr Rudloff called these concerns “unbalanced and exaggerated” and said they “did not reflect the reality of investing in Russia”. He said Russia’s moves to consolidate state control over strategic sectors of the economy “did not seem out of the way of how OECD countries acted in the past and still act today in establishing and keeping control of a handful of national champions”.

The returns on investing in Russia have soared as Russia’s oil wealth has filtered down into a consumer boom. But, privately, diplomats have warned the bonanza could soon end should oil prices fall.

Amid the growing firestorm over Mr Blair’s comments, Tony Brenton, the UK ambassador to Russia, on Monday sought to clarify his remarks. “The Prime Minister noted only that when companies choose where to invest, they look not only at commercial opportunities but also at questions such as transparency, predictability and the rule of law,” he told Russia’s Interfax news agency.

Speaking at the forum, Tony Hayward, BP’s new chief executive, praised Russia for its move to the market but stressed the benefits he believed BP’s investment in TNK-BP had brought to the economy. He indicated BP would like the company’s structure to remain as it is.

“TNK-BP has many special characteristics. It is 50-50, not 50 plus one share,” he said.

Copyright The Financial Times Limited 2007

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