More Russian roulette for BP's Dudley
By Vladimir Socor
Rosneft's Kremlin-led breakthrough into German oil refining this month has been
accompanied by a sudden global expansion of the Russian half in the TNK-BP
joint venture, again at the expense of its partner British Petroleum.
Both Russian moves capitalize on BP's financial liabilities from the Gulf of
Mexico oil spill disaster and on Moscow's special relationship with Venezuelan
President Hugo Chavez. The Kremlin is now using these opportunities to
coordinate a series of oil and gas asset transfers to Russia and its energy
companies.
Chavez and a BP delegation headed by the new CEO, Robert Dudley, paid
back-to-back visits to Moscow during October 15-19. The Chavez visit resulted
in handing over Venezuela's 50% stake in Germany's largest oil-refining
conglomerate, Ruhr Oel, to
Rosneft, at a deeply discounted price. BP is the other 50% stakeholder in Ruhr
Oel and had the preemptive right to buy Venezuela's stake, but was unable to do
so. Instead, BP must sell assets to raise cash for compensating oil-spill
damages in the US to the tune of US$30 billion.
The Kremlin, Chavez, and BP have accordingly struck several agreements in a
triangular process, which Russian President Dmitry Medvedev and Prime Minister
Vladimir Putin have brokered. BP is selling oil and gas production assets in
Venezuela and Vietnam to the Russian side of the TNK-BP parity venture. BP has
also started negotiations on selling production assets in Algeria to the same
Russian shareholders.
Thus, BP has agreed to sell its stakes in the Boqueron, Petroperija,
PetroMonagas, and Desarrollo Zulia Occidental (DZO) projects in Venezuela, as
well as a vertically integrated operation in Vietnam (two offshore gas fields,
pipeline, power-generating plant), for an aggregate sum of $1.8 billion.
In addition, BP is negotiating the price of its stakes in Algerian projects for
sale to its Russian partners. Those projects include the Rhourde El Baguel
oilfield (rated as Algeria's second-most prolific) and the Salah, Amenas, and
Bourarhet gas projects (all in southern Sahara).
The buyers are Alfa-Access/Renova (AAR), a consortium headed by four Russian
billionaires (Mikhail Fridman, Viktor Vekselberg, Leonard Blavatnik and German
Khan) who jointly hold the Russian 50% in the TNK-BP joint venture.
According to TNK-BP executive president Fridman, these transactions signify the
company's "expansion into global energy markets". During the Chavez visit, the
energy ministries of Russia and Venezuela signed a memorandum of understanding
on support for the transfer of BP's assets in that country to these new owners.
In parallel with the asset transfers, Russia and Venezuela signed agreements of
intent to create joint ventures with AvtoVaz (for car assembly), Novoship (oil
shipping), and Inter RAO UES (for gas-powered turbines) in Venezuela. The
Kremlin typically coordinates such package deals, giving Russian companies an
edge over competitors for access to energy resources. Moreover, Putin
underscored Chavez's role in "opening Russia's access to Germany, that is the
EU", in the oil sector through Rosneft.
Arms deliveries are a further incentive, massively in Venezuela's case. On this
occasion, Putin informed Chavez that Russia will shortly deliver an additional
arms consignment, including a batch of 35 tanks, in line with orders placed and
partially pre-paid by Venezuela. The latter has completed a plant to
manufacture Kalashnikov guns in the country and is now building a plant for
Kalashnikov spare parts and ammunition, according to Chavez.
The Venezuelan president now requested S-300 surface-to-air missiles from
Russia, eyeing the units that Moscow had earlier earmarked for Iran. According
to Russian estimates, Chavez purchased slightly more than $3 billion worth of
Russian arms during 2003-2009, and has placed orders worth $3.4 billion in
Russian arms for the period 2010-2013. While in Moscow, Chavez praised Medvedev
for promoting the bilateral relationship, including arms deliveries, "with the
same resolve" as Putin had done during his presidency.
Moscow regards the asset transfers just agreed with BP and Chavez as a complex
form of cross-investment, the favored means to create long-term dependencies.
Meanwhile, BP's own experience in Russia illustrates the risks of such
dependencies.
BP had reconstituted its Russian joint venture, TNK-BP, in 2003 despite the
abuse suffered earlier from its Russian partners. Those partners, the Russian
authorities, and Gazprom combined to force the Kovykta project to a standstill
and ultimately to insolvency. They sought to pressure BP into ceding stakes to
Russian companies in some BP flagship assets, such as the liquefied natural gas
operation in Trinidad & Tobago, or Ruhr Oel (the latter goal now
accomplished).
In 2008, BP's Russian partners and Russian police used crude forms of
harassment to force changes on TNK-BP's board and replace its CEO at that time,
Robert Dudley. They forced him first underground and then out of the country.
It now befalls him to negotiate asset transfers with Moscow and some of the
same partners, this time as BP's new CEO, with a daunting legacy from the
preceding top management of the company.
Vladimir Socor is a senior fellow and long-time senior analyst with the
Jamestown Foundation. He was formerly a senior research analyst with Radio Free
Europe/Radio Liberty in Munich, and is a specialist in the non-Russian former
republics of the USSR, CIS affairs and ethnic conflicts.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
