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BP’s Russian Prisoners

More from the blog archives relating to BP’s Russia experience.  The following was originally posted on March 19, 2008.  Last we heard, the brothers were convicted of espionage – their current status (in detention? suspended sentence? exile?) is unknown.

tnkbp032108.jpgAlexander Zaslavsky and Ilya Zaslavsky, two brothers, both dual U.S.-Russian citizens, have found themselves arrested this week, prisoners of the Russian government under charges of “corporate oil espionage,” and at the center of what might be the next forced partial nationalization of an oil company, pawns in the deepening UK-Russia diplomatic spat, or both or neither. What seems clear is that no one believes the government’s straight story on this case, further eroding the credibility of the procuracy (not that there was too much left beforehand).

Perhaps the first sign that triggered widespread speculation and conspiracy theories was the fact that Russia’s normally subservient and docile television media was allowed by the Kremlin to play up the arrests as a lead story. In such a tightly controlled and censored media market, whenever a story like this makes it to TV, it is meant to send a message – much like the arrest of the gas mobster Semyon Mogilevich or even the neat and tidy trial of Alexi Frenkel for the murder of central banker Andrei Kozlov. There is certainly far too little information available about the brothers and the state’s plans to take over TNK-BP to jump to conclusions, but it is understandable why so many are floating their own theories.

Even UralSib’s Chris Weafer,the man of the golden quote, pulled no punches in characterizing thearrests as a threatening prelude to expropriation – much like the asset grab the Kremlin pulled against Royal Dutch Shell: “Thisis another example of the way the Kremlin negotiates … This is asimilar approach to what we saw with Sakhalin-2. … It looks like theyare upping the pressure to get a deal,” he said.If it was an escalation of a political row between Russia and the west”that would raise a lot of questions for other companies in foreignhands.”

Perhaps Weafer spoke too soon. Just one day after the rumor millscalled the attack on BP the next Sakhalin siege, here comesenvironmental inspector Oleg Mitvol today, announcing the beginning of a new investigationinto TNK-BP’s SamotlorNeftegaz production unit, which is developing thefirm’s biggest Samotlor field. Mitvol usually doesn’t investigate anycompany that the government doesn’t wish to acquire (and then theenvironmental problems tend to immediately disappear once Gazpromcontrols the project), so now the pressure is really on: a perfect,Yukos-like trifecta of office raids, arrests, and bureaucraticharassment. All they need now is to slap TNK-BP with some invented backtaxes, and Gazprom will have the company hand over fist.

The Russians trying their best to de-politicize the spy case, arguingthat it is not related to the previous British Council spat. Dumamember Pavel Krasheninnikov told Interfax: “Ibelieve this case does not have any political background. We should notlook for political motives, we should look for proof of the people’sguilt or innocence.” Call me a cynic, but there is no such thing as an apolitical arrest of foreign spies.

TNK-BP has also reacted with a statement refuting the accusations that they employed a corporate spy to gain an unfair advantage over the competition: “Weare a Russian company and we work successfully on a fair commercialbasis with many other Russian companies — both State and privatelyowned. We operate within the Russian legal framework and we do notcondone illegal activities, nor do we rely on unfair competitivepractices. The company has never countenanced or supported any actiondesigned to contradict or damage the interests of Russia.

As we learned from the spy wars and the increasingly public clan disputes during the transition to Medvedev, there have been reports that corruption entrepreneurs within the Kremlin are taking advantage of the little time they have leftunder Putin’s outgoing regime to “velvet reprivatize” everything insight while they still can. For many bureaucrats, the upcoming Medvedevpresidency brings some some uncertainty, despite Putin’s assurances ofcontinuity, and therefore it is conceivable that the move against TNK-BPmight have been rushed forward by those within the Kremlin positionedto benefit the most from squeezing the company. An alternate and lesslikely theory is that a partial nationalization of TNK-BP to force agolden share over to Gazprom may be an attempt to discredit the nextpresident.

BP has remained almost unbelievably amicable in its negotiations. In February, BP chief Tony Hayward saidWe remain optimistic, not stupidly optimistic, but optimistic that something good will come of it” and CEO Robert Dudley said “Weunderstand what we can contribute to Russia, and we believe TNK-BP hasmuch to offer as a partner to Russian government and to the statecompanies.

It remains less clear whether or not the private Russian owners ofTNK-BP, Mikhail Fridman, Leonid Blavatnik and Viktor Vekselberg, havebeen similarly jovial about the situation, but there’s no doubt thatthis side enjoys many more points of leverage within the Kremlin to makethings happen. The real fight most likely isn’t the beef between theUnited Kingdom and the Kremlin, but rather between these three men and the Gazoviki. However, if a major stake in TNK-BP is going to be cut somewhere, one of the two parties will have to take the hit.

For now, all eyes are fixed on the Duma, which today approved the second reading of the new legislation on foreign investmentin so-called “strategic” sectors, which could cover more than half ofRussia’s GDP. If Friedfman and co. can hold their positions, thenlikely a change in this law would be the fastest way for the Russians toseize the golden share in TNK-BP, as well as that of ConocoPhillips inLukoil.