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The Times: Gazprom chief hints at wider deal with BP

June 11, 2007
Steve Hawkes in St Petersburg

Gazprom, the Kremlin-control-led gas giant, has signalled that it wants to strike a wider deal with BP over its future in Russia as part of any agreement regarding the $20 billion (£10 billion) Kovykta gas project.

Alexander Medvedev, Gazprom’s deputy chief executive, said that, while he was still hopeful a compromise could be reached over the Siberian field, the Russian group was also interested in projects involving other interests BP holds in the country.

Speaking at the XI International Economic Forum in St Petersburg this weekend, Mr Medvedev said that the two sides had “recently“ looked close to sealing a deal.

He added: “Like any two companies with an upstream psychology, it’s not easy to find joint projects with mutual strategic benefits, but we are sure that these companies have potential to find a joint business.

“Subject to the strategic vision and commercial terms to be agreed upon, I don’t exclude that we could find a solution.”

Analysts say that the current dispute over Kovykta, where TNK-BP may lose its licence in a dispute over production levels, is a thinly veiled attempt to force the joint venture to cede majority control to Gazprom on agreeable terms. Without Gazprom’s approval, an export pipeline that would bring the dramatic rise in Kovykta’s production to levels desired by Russia’s Ministry of Natural Resources will not be built.

Mr Medvedev said it was no secret that Gazprom would like to be involved in the Sakhalin 4 and Sakhalin 5 offshore fields run by BP and the Kremlin-backed oil group Rosneft.

Mr Medvedev also hinted yesterday that Gazprom was near a deal that would increase its presence in the UK.

Tony Hayward, in his third visit to Russia since becoming BP’s chief executive last month, would say only that talks with Gazprom were “continuing”.

In an energy round table at the forum, Mr Hayward said that BP remained committed to Russia, but hinted that it would like the structure of the joint venture with TNK to remain as it is. He said: “TNK-BP has many special characteristics. It is 50-50, not 50 plus one share, and it is genuinely a Russian company with 70,000 staff – less than 200 are non Russian.

It is part of our long-term commitment to Russia.”

Business leaders from around the world agreed that Russia had the potential to become one of the world’s top five economies by 2020, an aim revealed by Sergey Ivanov, Russia’s First Deputy Prime Minister and one of the favourites to succeed President Putin.

Mr Ivanov said that Russia, currently tenth in the GDP list, well behind Britain and France, would invest billions of roubles in civil aviation, nuclear energy, telecom services and technology to end its “addiction” to natural resources.

Mr Ivanov’s optimism was backed by Michael Klein, head of global banking for Citigroup, who forecast that Russia would become one of four “pivot” economies in 2020, alongside the US, China and Germany. Mr Klein added: “Who would have said 11 years ago that this economy would be generating $1.3 trillion a year, the equity market would be up 2,000 per cent and the country would have the third-largest nest egg of foreign currency reserves in the world?

“Who would have predicted that companies such as Gazprom, Sverbank and Rusal would be more valuable than BP, Deutsche and Alcan?”

President Putin told the forum that the world’s financial institutions needed radical change to reflect the rising economic might of Russia and other emerging markets. New international financial architecture was required to replace an “archaic, undemocratic and inflexible” system, he said.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article1913015.ece

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