#30 - JRL 2006-252 - JRL Home
Moscow Times
November 9, 2006
Editorial
These Signals Are Less Than Transparent [re: TNK-BP Rospan Unit]

Confidence in the business climate took another hit this week when prosecutors called for TNK-BP's Rospan unit to be stripped of its license for a gas field in west Siberia. The damage has been done whether or not the request ends up proving justified.

This is the case because of three basic factors constantly at play in Russia's energy sector: significant state ownership, a general lack of transparency and serious concerns over the fair and consistent application of the law.

The state-ownership issue arises in the form of Gazprom, with which Rospan has been involved in a tug-of-war over pipeline access for gas produced at the field. Gazprom has been pressing TNK-BP's owners for a share in another, bigger field -- east Siberia's Kovykta -- and for a stake in TNK-BP itself. Interestingly, prosecutors are currently acting on a request filed by a State Duma deputy from the pro-Kremlin United Russia faction.

Perhaps a better idea of the inner workings of Gazprom would ease concerns about what is going on, but the gas giant ranks near the bottom of company transparency indexes in a country where business dealings are famously opaque.

Top all of this off with the possibility of a conflict of interest on the part of prosecutors who, just like management at Gazprom, work for the state, and you have fertile ground for conspiracy theories.

Revoking the license could strip $3 billion from the value of TNK-BP. With increasing talk that the Russian shareholders in TNK-BP are looking to sell, Gazprom is in perfect position to get a bargain.

This suggestion would strain credibility if not for the history of Yuganskneftegaz, which was purchased by state-owned oil major Rosneft for $9.3 billion. The price was based on valuations of the company that took into account its share of back taxes owed by its parent company, Yukos. Subsequent rulings by the Federal Tax Service have cut the bill for Yuganskneftegaz to a quarter of what it was when Rosneft bought it. That money goes straight to the company's bottom line.

All of this suspicion over the prosecutors' motives is, of course, based on conjecture. The prosecutors might be doing their jobs in ensuring that TNK-BP has filed the documents necessary to retain the license. (A TNK-BP representative said that all of the paperwork was filed months ago, but the company has heard nothing back.)

With the conflicts of interest for the main figures in the story and the lack of transparency in the system as a whole, however, it's hard to fault investors for having some serious doubts.