Russian Thievery

in Russia

The Russian government’s threat to suspend licenses for two giga-billion projects by TNK-BP, in part owned by BP (BP) and Royal Dutch Shell (RDS-A), is not uncharacteristic of Russia and its very short term thinking. The Russian government argues that it is based on environmental concerns. Nothing, I repeat nothing, in Russia gets done based on environmental concerns. The government simply wants to muscle in on a larger stake in the projects.

Russia feels like it has an upper hand in any negotiation as commodity prices and demand are on its side, plus it is becoming less dependent on the rest of the world as it is swimming in cash. This arrogance raises a political risk premium that foreign companies have to factor into their models by raising the risk premium when deciding to invest or not to invest in Russia.Since commodity prices are very high, rates of returns are high enough to cover the increased cost of capital. But commodity prices will not be scratching the sky forever.

Maybe I am just too cynical and TNK-BP really is trying to pollute poor mother-Russia… nah, if Gasprom was doing this the government would be laying a red carpet under its pipelines to make sure that its executives don’t get their feet wet.

Leave a Reply