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THE WALL STREET JOURNAL: BP’s Russian Venture Is Raided by Police

Move Could Signal
Kremlin Pressure
To Cut in Gazprom
By GUY CHAZAN
March 20, 2008; Page A15

Russian police yesterday raided the Moscow offices of British oil giant BP PLC and its Russian joint venture TNK-BP Ltd., in a sign of rising Kremlin pressure on one of the largest and most-profitable foreign investments in the country.

Investigators from the Interior Ministry said they seized documents relating to a long-running criminal case against OAO Sidanko, one of the companies that was merged to form TNK-BP in 2003. Meanwhile, the ministry’s economic-crimes unit said it called in two TNK-BP employees for questioning.

A BP spokesman said the company is “cooperating fully with the authorities.” A spokesman for TNK-BP declined to comment.

Observers say the raid could be a sign of Kremlin pressure on TNK-BP’s Russian billionaire shareholders to sell out to OAO Gazprom, the state-run gas giant. A clause preventing them from exiting from the company expired in January, although they have consistently said they have no plans to sell.

A deal with Gazprom would mark the latest stage of a concerted campaign to expand Russian state control of the energy sector, often at the expense of foreign investors. In the past three years, bankrupt oil giant OAO Yukos was broken up and taken over by a state-run oil firm; Gazprom muscled into Royal Dutch Shell PLC’s flagship Sakhalin-2 oil and gas venture in the Russian far east; and last year BP sold to Gazprom control over a huge gas field in Siberia after months of pressure from government regulators.

Analysts say TNK-BP has long been on the Kremlin’s “to do” list. President Vladimir Putin has made it clear Western energy investors will be tolerated only as junior partners in alliances with state-owned companies. TNK-BP, a 50-50 joint venture between a large foreign oil company and a group of Russian billionaires, doesn’t fit that bill, even though Mr. Putin personally approved its creation.

“TNK-BP sticks out as an exception to the new rules of the game,” says Chris Weafer, an analyst with Uralsib, a Moscow bank. “It’s assumed we’re moving closer to a restructuring of TNK-BP’s ownership.”

Sidanko, the apparent focus of the investigation, was a midsize oil producer that was at the center of a vicious ownership struggle in the late 1990s between BP and a group of Russian tycoons led by Mikhail Fridman. The Russians got key units of Sidanko declared bankrupt and bought them on the cheap. BP, which owned 10% of Sidanko, fought hard to recover its oil fields but was finally forced to settle.

In 2003, BP teamed up with Mr. Fridman and fellow tycoons Len Blavatnik and Viktor Vekselberg to create TNK-BP, at the time the biggest foreign direct investment in Russia. The company remains the country’s third-largest oil producer and is responsible for one-fifth of BP’s total production.

Police said yesterday’s searches were related to a criminal case filed against Sidanko in 1999, which accused its owners of deliberately bankrupting the company.

A person familiar with TNK-BP said the police investigation appeared to be focused on a low-level TNK-BP employee and his brother, a contractor. They are the two who have been called in for questioning. He said the probe didn’t appear to be targeting senior executives in the company or the Russian shareholders.

Write to Guy Chazan at [email protected]

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