Oil, oil everywhere…

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In just the last two days, two articles have pointed to growing pressure for greater state control of energy resources. In Brazil, the state-owned oil company Petrobras (subscription required) has been pressuring the country’s Congress to change the rules of the game to its benefit. Currently, foreign oil companies bid in auctions for exploration rights, paying a combination of an upfront fee and royalties on any discoveries. However, a huge discovery last year by Petrobras has upped the stakes. Petrobras wants to force all new explorations to be carried out as joint ventures, a la Venezuela and Nigeria.

A case in Russia is also pointing to continuing pressure for state control of the energy industry (subscription required). TNK-BP, a joint venture of British Petroleum and Russian-owned Alfa-Access-Renova, has seen a falling out between its foreign and Russian shareholders. The details of the case are truly convoluted, but the main contention is this: The shareholders of Alfa-Access-Renova would like to sell their shares to one of the state-owned oil companies, but they need to achieve a takeover of TNK-BP before handing the joint venture over.

Partly lost in the thicket of details is the way the Russian shareholders have been attempting to push out foreign management. One of the Russian executive directors of TNK-BP simply failed to request work permits for most of the foreign executives. According to one source cited in the article:

The [current] permits will expire and then it’s game over. All the foreigners will
be out of the company and the Russian shareholders win.

If you’ve never had the pleasure of trying to obtain any kind of visa for Russia, it is something you should attempt at least once. I once had to apply for a visa in the Russian consulate in Milan. When I turned onto the street where the consulate was located, I was greeted with what at first looked like a street protest. It turned out the apparent protest was only the first in a series of “lines” to obtain a visa. The only way I made it through this first line—and I use “line” in the loosest possible sense—was with the help of a Russian woman I had run into on the metro and had asked for directions. She was also heading to the consulate and helped me get through the bureaucracy. I would not have left Milan with a visa that day without her help.

The TNK-BP fiasco points to the absolute importance of reducing the regulations that entrap businesses. While many rules and regulations in Russia can be circumvented with the right amount of money, they are still on the books, waiting to be employed in situations like this. Although streamlining the application for work permits would not have prevented the TNK-BP debacle, it certainly would have made it more difficult for the Russian shareholders to strip BP of its stake. Russia ranked 106 in the 2008 global rankings of the ease of doing business, behind both India and Brazil. I wonder where it will end up next year?      

Update: The intrigue continues. The FT reports on the continuing TNK-BP dispute in a cover story, and the BP chief warns that Russia needs to demonstrate its commitment to the rule of law.

Update II: It looks like BP will be pushed out of Moscow because they are being denied work visas.


Ryan Hahn

Operations Officer

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