BP has had a legendarily bad experience with its investments in Russia, but in some ways this has been a direct result of its decision to jump into a high stakes political game. Various news media are reporting on the company’s fall into fourth quarter losses (to the tune of $3.3 billion), and Forbes in particular is pointing to the hard hitting costs of BP’s gamble on Rosneft (a $517 million writedown) as well as its bruising fight with their partners in the TNK-BP fiasco.
Both problems show the strategic weaknesses of a corporation playing outside the margins of pure market logic, seeking to achieve political currency among interventionist states. Let’s go all the way back to look at how BP first got involved in Rosneft, first with its participation in a rigged auction for Yukos assets (the only foreign company which dared to sign up for the sham – that is until the Italians out-did them with an actual acquisition), and then its ill-considered investment of $1 billion in the first stock flotation of a Russian state company consisting nearly entirely of stolen assets. The warnings of potential conflicts resulting from these kinds of decisions were prolific.
Understandably, BP was led to believe that jumping into to bed with the state to help endorse its criminal actionsagainst the private sector would be of great assistance to them intheir fight for keep the Kovykta Field – which after seeing Royal DutchShell get put through the wringer on Sakhalin II, seemed like a goodidea. Guess what: it didn’t work.
You may remember that fateful trip of outgoing BP CEO Lord Brown to “pay homage” to Tsar Putin, and introduce his successor, Tony Hayward. BP’s relationship to Russia, it was clearly displayed, consisted of something more than just business, and if the Russians wanted investment in the energy sector to be guided by politics rather than market performance, property rights, and rule of law, then so be it, said the Brits.
But did this high level of access lead BP to overestimate their clout with the authorities, and underestimate the powerful relationships held with the Kremlin of some of the other partners of of TNK-BP in AAR, such as Mikhail Fridman? That has certainly been the speculation.
Perhaps after all these problems, we might see a change of policy? Doubtful, given who we have seen hired as a political consultant to TNK-BP. And now we even have the ECHR taking forward the Yukos case. Time for a rethink?