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The Russian Bear Chases Away Foreign Investment

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It looks like BP might get nipped by the Russian bear at Kovykta

From the Independent: Energy regulation: Exit, pursued by a Russian bear?

Kovykta, he [Putin] said, had reserves of 3 trillion cubic metres, equal to almost all the natural gas reserves of Canada. It was of tremendous importance to Russia. “But if the members of the consortium are doing nothing to meet licence obligations, how much longer do we have to tolerate this?” He acknowledged that there were many reasons for the delays. But, he said, “they knew about it when they bid for the licence; they knew about these problems and possible restrictions, and they nevertheless bought the licence”. BP, for its part, has been cautious in the extreme about making any public comment on the situation. And why should it? One interpretation of the pre-G8 postponement might be that representations are still being made, or that the Russian authorities are in disagreement. It makes no sense for the company to write off Kovykta until it absolutely has to – not least because the actual financial implications for TNK-BP, at least at this stage, are negligible. Although the value of the field, once exploited, could run to $20bn or more, the licence is worth almost nothing to the company under the terms and conditions that currently apply. Nor, strictly speaking, would the loss of the licence be a huge financial liability for BP. The company neither negotiated the deal nor paid for it; the licence came with TNK, having been negotiated long before BP came on the scene as part of the Nineties carve-up of Russia’s natural resources. None of this means, however, that the decision – when it comes – will have no significance. The reason it has been so keenly anticipated is that it is seen as a crucial indicator of Russia’s intentions towards foreign investment in general, and foreign investment in the country’s energy sector in particular. If, as expected, the licence is revoked, this will be seen as a negative answer to a host of questions that are, just about, still open. Is Russia really interested in foreign investment in its oil and gas sector? Is it ready to deal with foreign investors on terms that are consistent and regulated by a recognised system of law? And how far is foreign access to Russia’s energy reserves dictated by politics rather than economics? And if the answers to all these questions are also negative, will it then be time for the international oil and gas companies to conclude that they are unwelcome, cut their losses and seek opportunities elsewhere?