Johnson's Russia List
#7056
11 February 2003
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A CDI Project
www.cdi.org
#16
ANALYSIS-Major BP investment would endorse Putin's reforms
By Andrew Hurst
MOSCOW, Feb 10 (Reuters) - A major investment by British oil group BP in
Russia, if it goes ahead, would be a stunning endorsement of President
Vladimir Putin's reform policies little more than four years after the
economy was near collapse.
And it could signal a turning point in perceptions by many international
companies, which have shunned Russia because of its lingering image as a wild
country playing by its own rules.
"It's part of the first of many big transactions that will integrate Russian
companies into a global network. I think it's a precursor of other deals we
will see," said Stephen Jennings, chief executive of Renaissance Capital, a
foreign-owned investment bank based in Moscow.
Industry sources said at the weekend that BP plans to make a multi-billion
dollar investment in Russia that would give it a big stake in TNK
International, Russia's fourth biggest oil firm. BP in London on Monday
declined to comment on what it described as "speculation."
As part of the deal BP would swap an existing 25 percent interest in Russian
oil firm Sidanco for a shareholding in TNK, Sidanco's much larger affiliate
owned by the same group of Russian shareholders, the sources said.
If confirmed, the deal could prove to be the largest single foreign
investment since the collapse of the Soviet Union.
"It would certainly be the biggest one in modern history," said Jennings.
Despite four years of strong economic growth fuelled by a booming oil
industry, the country has lagged behind former socialist countries such as
Poland and Czech Republic in attracting foreign direct investment.
If BP does buy into TNK, it would also cement Russia's efforts to position
itself as a reliable West-leaning supplier of crude and a safe alternative to
the volatile Middle East.
"It...supports the line that the US-West is now actively trying to push
western involvement in the Russian oil industry so as to boost oil production
and make Russia a stable source of oil supplies," Tim Ash of Bear Stearns in
London wrote in a research note.
BP'S TOUGH TIME IN RUSSIA
The BP deal would be especially remarkable because the British company nearly
came to grief after it first invested in Sidanco in November 1997, when it
paid $571 million for an initial 10 percent stake.
The British oil company had to partly write down its investment after a
dispute with TNK, but the two sides settled their differences and BP raised
its stake in Sidanco last year and took management control.
"People look at BP as having had a tough time in Russia but they have a lot
of experience now. That makes it more powerful if they go ahead because they
are not going into this with rose-tinted spectacles," said Stephen
O'Sullivan, head of research at UFG finance house in Moscow.
A decisive foray into Russia, the world's second largest oil exporter after
Saudi Arabia, also has implications for how BP is regarded by its immediate
peers in the industry such as Royal Dutch Shell and ExxonMobil.
"In the oil industry it really throws down the gauntlet to some of BP's
international competitors. It has a big impact on the global pecking order,"
said Jennings.
Others international oil players may be tempted to follow suit in Russia.
"There will probably be more equity purchases (by foreigners)" said Ivan
Mazalov, an oil analyst at Commerzbank in London, but he added that
shareholders in private oil companies such as YUKOS and Sibneft may be in no
hurry to sell at a time when business is booming.
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