Ruminations on Russia

Jerome a Paris from the European Tribune believes that Being Angry with Russia is Pointless.

We are talking, of course, about Russia's latest pointless public relations failures; Shell in Sakhalin 2 and TNK/BP in Kovytka(?).

I was asked yesterday by a UK-based investment banker with little Russia experience whether there was a positive spin that could be applied to the Shell news.  The answer to whether the story can be spun is simple - no.  But there is nuance behind both acts.  Nuance does not bare spin, as it cannot be explained in 30 second sound bites.

Those of us who do business in Russia however, have every right to be angry.  Not because the act is necessarily wrong; but because it is using a sledge hammer to crack a delicate nut.  The levers being pulled to pressure both Shell and TNK-BP to achieve other commercial goals are overt and selective.  Sakhalinmornneftegas, a Rosneft subsidiary in Sakhalin (as its name would suggest), is a significantly worse polluter than Shell and is still very active.

You could tell a story that Khordokhovsky, should have been brought down and that it was a one off.  Explaining Yukos was more problematic - but the Khordokhovsky umbrella left it as a one off.  Shell and TNK-BP, that's a two-off from the very start.  And as with Yukos its a selective use of the “law” to favour the State and certain individuals.

Russia has some very real concerns regarding Sakhalin 2.  Shell, as operator, has not negotiated in good faith over GAZP's acquisition of 25% and other related asset swaps.  In particular, it pulled some very cheap negotiating stunts earlier in the year.  Just about the same time as the budget was mysteriously doubled.  Whilst there are clear economic justifications for increased costs (steel and other commodity prices increasing) the timing of the announcement was very poor negotiating.  PSA's work by allowing the operator to recover its costs first before paying an ever increasing amount to the host nation.  Simplistically, it would be fair to say that increased costs have little impact on Shell's returns - other than the time value of money.  They have a significant impact on Russia's take - albeit that increased oil price should mean that the Government's share kick's in earlier than previously forecast.

Russia, on the other hand, whilst it may not like the PSA's it was forced to accept when oil prices were 4 times lower than they are now, has to accept that a contract is a contract, and not just the opening clause in a re-negotiation.  The pretend use of environmental regulations is transparent nonsense.  The real-world translation of the environmental agency's response is;

We gave you a environmental permit to operate in 2003.  However, it appears in hindsight that we did not do our job properly.  We are thus revoking your permit whilst we redo our job. Who knows what the outcome will be, and whether we will do it properly this time.  Oh, and by the way it's your fault that we did not do our job properly.

The BP-TNK deal is all to do with valuation of the Alfa/Access Industries stake in BP-TNK.  Whereas there is little opportunity for personal enrichment in the Shell/Sakhalin deal, you can be absolutely sure that the (Louis Vuitton) begging bowl is  center and foremost in the BP-TNK deal.  Does not seem that BP investing in the Rosneft deal bought it many favours.

[composed and posted with ecto]

Technorati Tags: Corruption, Gas, GAZP, Oil, Rosneft, Russia, Sakhalin2, Shell