TNK-BP: Foul Play, or Beating the West at their Own Game?
It’s a little unnerving to think that 17 years of Russian history can be distilled into one bad 90s Swedish pop song.
Yet the struggles between business and the state, between Putin and Khodorkovsky, between liberals and siloviki, between the democrats and the Kremlin, far from being epic ideological battles between authoritarianism and freedom, do boil largely down to fights over ownership and, ultimately, money.
As Edward Limonov said, explaining the feebleness of the liberal opposition in Russia, “The Putin regime is a liberal regime, so it’s natural that liberals like Khakamada or Nemtsov do not seriously oppose it. Just look at Putin’s economic program: Low taxes, concentration of wealth in oligarchs’ hands, strict budgets. The Kremlin’s ideology is basically the same as that of Nemtsov’s and Khakamada’s, so of course it makes no sense to confront them as my organization does. They can only argue over the details of this liberalism, over who should own what”.
This should be kept closely in mind when looking at the TNK-BP spat.
It has been characterised in many Western outlets, and by BP’s Chairman, as a Russian bid to wrest foreign influence over energy resources. That may very likely be a welcome outcome for it, but at the moment, the Russian oligarch shareholders appear to be acting with full economic rationality. Ironically, it is the British side if anything that is exhibiting the more ideological traits, say the Russians, in forbiding TNK-BP from doing business with Cuba, Iran and Syria.
The oligarchs have accused the British of treating TNK-BP as a subsidiary of BP and preventing it from expanding in foreign markets where it could pose a competitive threat to BP. They also accuse Bob Dudley, the TNK CEO, of not presiding over the same asset value growth that rival firms like Lukoil have seen, and have said that they are not interested in selling their assets or transferring ownership to Gazprom.
At the same time, speculation remains rife that a sale to Gazprom is a long term intention of the Russian side and the government.
My point isn’t to disprove the fiction that saintly Western oil interests are getting raided by fat, balding Russian versions of Gordon Gekko, or rule following legitimates bullied by an autocratic state; whichever side you take on that issue, such a moralistic line of reasoning can lead only to misunderstanding, a kind of economic anthropomorphism. This dispute is nothing personal, just business.
To this end, Russian based American businessman and blogger Timothy Post has alerted me to a great article by Steve LeVine, Businessweek’s foreign affairs correspondent. In a refreshing antidote to a lot of economic jingoism we’ve seen in outlets like the London Times, LeVine gives a no-nonsense, dispassionate and incisive view of the confrontation as a straightforward business dispute.
“Is the latest oil drama in Moscow truly a rough, 1990s-style grab for assets, as BP has cast its dustup with the Russian oligarchs Mikhail Fridman, Viktor Vekselberg and Len Blavatnik?”, he asks.
“The short answer seems to be no”.
The oligarchs have stated — and I think it’s true — that they simply disagree with how BP has managed their joint company, called TNK-BP. As 50% owners of the company, they want a greater say in its operation, including an expansion overseas. And they want the current CEO, Robert Dudley, to be sacked. BP could simply accede to these demands, and get on with business. That doesn’t currently seem likely, one reason being that Sutherland could have difficulty climbing down after taking the altercation so personally. Short of such a concession, one finds two potential outcomes, neither of them pleasant for BP: In the worst case (for BP), the largest single block of its own shares — about 10% of them — will come to be owned by the four Russian oligarchs. That is one suggestion by the oligarchs — that the dispute be settled by an exchange of their TNK-BP shares for BP shares. In this scenario, BP has said that it would sell control of TNK-BP to a Russian state company, probably Gazprom or Rosneft. The takeaway from this outcome is BP culture could be forced to change by such assertive new shareholders. Imagine Carl Icahn on steroids. In the less unfavorable outcome, BP would cut its losses and sell out its half-interest in TNK-BP. The buyer again would be either Gazprom or Rosneft, and the price would be far less than the generally quoted market value of $20 billion-$25 billion. BP would argue that any sum above $7 billion — appoximately the price it paid for its share five years ago — would be gravy. But in fact, it would be fleeing a genuine fear of the first scenario. By its hands-off behavior, the Kremlin seems happy to watch BP twisting. Don’t look for assistance from President Dmitry Medvedev”.
It seems cultural factors may also have been at play. Russian business lacks some of the important myths and normative strictures that rose in the West during the100 years or so of paternalistic capitalism that reigned till the 80s, and the current crop of billionaire financiers are definitely of the Hieronymus Bosch school of business ethics.
For example, there is little value attached to certain concepts that had taken hold in the West, such as the necessity for competition, the avoidance of monopoly, and a strict dividing line between the private and state sectors. Business is viewed as necessarily ruthless, and any profit-maximising strategies are fair game.
In many respects, this no illusions school of thought may be a more honest vision of business in general. Attempts to humanise capitalism through norms or political pressure have consistently fallen to the wayside when directly confronted with profit maximisation, the central raison d’etre of any business. The run away success of Rosneft’s IPO on the London Stock Exchange, over the protests of George Soros and others about the ethics of buying into a firm that allegedly acquired Yukos assets illegally, is a case in point. The success of the South Stream pipeline in out-manoeuvring the EU’s Nabucco consortium through aggressive business tactics is yet another. Ironically, BP leadership would also actually welcome the sale of the Russian assets to the state gas giant.
Thus, when BP’s Chairman called the dispute “a return to the corporate raiding activities that were prevalent in Russia in the 1990s”, Mikhail Friedman, one of the Russian shareholders, accused Sutherland of casting “this as a conflict between a recognized, respectable Western company and wild hordes of Russian oligarchs who are trying to seize power through dirty methods”.
In a comment on Steve LeVine’s blog, Mr. Post writes the following:
The expression should read, “All’s fair in love, war, and the oil business.”
The West could have created an atmosphere of mutual benefit during the 1990’s when Russia was weak but instead the oil majors sought to use their leverage and take as much as they could get from a weak and desperate Russia. Their approach created a zero-sum playing field. Now that the Russians have found their footing and are playing as equally well as their Western counterparts, BP cries foul.
Can we take from this that the West doesn’t like to compete in games where their “opponents” are as strong and talented as they?
He may have a point. Indeed, the BP side’s public complaining over TNK-BP, though in many respects legitimate, does smack of sour grapes. When BP created TNK-BP in 2003, the new company was evenly split, 50-50, with no controlling stakes; unprecedented for Russian-Western joint ventures. At the time, Putin himself warned that that was a bad idea.
I am only speculating, but it seems that BPs original decision not to push for a controlling stake in the deal was grounded in the confidence that it could maintain informal dominance in the partnership. Now that capitalist-savvy Russians have beaten the Western giant at its own game, it’s no use crying foul.