The Moscow Times: Chief of BP urges Western countries to open up to Russian investment

(BP CEO Tony Hayward)

By Miriam Elder (Moscow Times)
Monday, June 18, 2007

MOSCOW: The new chief executive of BP, Tony Hayward, issued an impassioned appeal Monday for Western markets to open up to Russian investment, backing a cause espoused by President Vladimir Putin even as officials threatened to revoke a license for BP’s flagship Russia project.

“When Russian companies want to make foreign investments, they should be encouraged to do so on a level playing field,” Hayward told an investment conference in Moscow.

Hayward’s latest trip to Russia, his third in as many weeks, came just days after environmental officials threatened to revoke a key production license for the company’s Russia unit, TNK-BP.

The natural resources minister, Yuri Trutnev, said Monday that his office would decide this week whether to withdraw from TNK-BP the right to develop the giant Kovykta gas field in East Siberia.

“I think it will be over during this week,” Trutnev said, the Russian press agency RIA-Novosti reported. “It’s a technical question, all the work has been done.” The ministry’s licensing agency is due to meet Friday, a ministry spokesman, Rinat Gizatulin, said.

TNK-BP stands accused of failing to fulfill production quotas at the field. The company, half owned by BP and half by a trio of Russian oligarchs, has been producing less than 1 billion cubic meters, or 35 cubic feet, rather than the 9 billion cubic meters, or 317 cubic feet, required by the license, feeding small local markets in the absence of an export pipeline to China.

Critics say the pressure on TNK-BP is part of a Kremlin-driven campaign to ensure that major oil and gas projects include a government-controlled partner.

Gazprom has said it is interested in buying out TNK-BP’s Russian partners – Mikhail Fridman, Viktor Vekselberg and Leonard Blavatnik – when a clause allowing them to sell opens at the end of this year. The wrangling over Kovykta, a huge but largely undeveloped field, is seen as part of those negotiations.

Hayward said talks with Gazprom on entering the Kovykta project were “ongoing, detailed and robust.”

He declined to provide details on how the deal with Gazprom would look, but his repeated appeals for “reciprocity” prompted speculation that BP could offer the state-run gas giant equity in some of its foreign projects.

The Gazprom spokesman Sergei Kupriyanov said that there was “no change” in the status of negotiations.

Deputy Prime Minister Sergei Naryshkin told the conference Monday that a much-delayed new subsoil law limiting foreign investment to 49 percent in so-called “strategic sectors” would soon be debated by lawmakers. Yet analysts say the rules of the game were spelled out late last year, after Shell and its Japanese partners sold a majority stake in Sakhalin-2 to Gazprom after pressure from environmental authorities.

No Western oil major has entered Russia since BP teamed up with the shareholders of Tyumen Oil to form TNK-BP in 2003.

“Like all Western oil companies who are investing in Russia, BP is trying very desperately to create feel-good factors and let the Russians know they understand they’re here as minority partners and that they don’t own the place,” Eric Kraus, manager of the Nikitsky Fund, said.

Hayward devoted a large part of his speech to urging Western markets to adopt “fair rules of the game” to Russian investment.

“That means,” he said, “Europe, Asia and America being open to investment by Russian companies, just as Russia has opened up its borders.”

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