The Perfect Partner for Gazprom

Now serving cassoulet

Way back in December of last year, we blogged about a Wall Street Journal article which examined CEO of Total Christophe de Margerie’s bribery investigations and his “non-‘Anglo-Saxon'” approach to doing business deals with repressive regimes. Today, with their selection as Gazprom’s first partner for the Shtokman Field (see my comment), parts of this article resonate strongly:

Mr. de Margerie has gleefully acknowledged that Total overruled its own lawyers in negotiating with Saddam. He tweaks rival BP over its slogan “beyond petroleum,” saying Total is “beyond old petroleum practices,” i.e., willing to partner on less-advantageous terms with government-run oil companies and step away from its core competencies to help out with education, electrification, whatever host countries want. … Mr. de Margerie is certainly right that the world faces a challenge now that state oil companies run by regimes not known for their efficiency or honesty are increasingly monopolizing the world’s oil resources. Evidence is also mounting that Total’s solution is no solution at all.

True to this prediction, Mr. de Margerie attended the fawning meeting of the world’s leading CEOs with President Vladimir Putin about one month ago, and had this to say about Russia: “The president is very open and straightforward. … We’d like to invest more. We’d like to be more active with our partners.” If by “open and straightforward,” you mean consistent misinformation, and by “more active with our partners,” you mean becoming a technology vendor and negative-interest lender, then yes, Total really has discovered how to be the perfect partner for autocracies. And now today, the Financial Times reported the following on the deal: “Total’s ‘good partner’ strategy vindicated“:

The person familiar with the deal said Total had won favour particularly because of its flexible approach and willingness to take part in the special purpose vehicle that will be set up to develop the field, without taking part directly in sales of the gas. That fits with Total’s general approach, which contrasts markedly with the typical behaviour of US or even British companies. Where others might come to a country and seek to impose a particular way of doing business, Total is prepared to listen and adapt to local conditions. … Critics have argued that its strategy gives too much away. But its relative strength outside the developed world, where almost all the growth in world oil and gas production is coming, has put Total in a much better position for growth than its super-major peers. … Speaking to the Financial Times recently, Yves-Louis Darricarrère, Total’s head of exploration and production, said oil companies today had to learn to accept the consequences of resource nationalism.

This last comment by Yves-Louis Darricarrère opens up a whole series of extremely important questions. Sure, oil and gas companies must learn to adapt to local business models, but at what cost to society? It is very easy to talk about helping contribute infrastructure, building schools and research centers, and getting involved in other public-private partnerships with local governments as part of the flexible “good partner” approach. But what they have left out is that they are also being asked to ignore repression – be it in Saddam Hussein’s Iraq, Hugo Chavez’s Venezuela, or now in Vladimir Putin’s Russia. This isn’t really a debate about how investors impose foreign business models or demand such inconveniences such as contracts and property rights, but rather a question of what kind of political systems a “flexible” corporation like Total SA is helping to enable.