Author: Kim Iskyan

ROUNDUP:  RUSSIA

By Kim Iskyan

In mid-January, Russia’s key national oil company, Rosneft, and BP sealed a deal to swap shares and to jointly develop major oil fields in the Arctic.

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Falling: Siberian oil output

Under the deal, Rosneft will own 5% of BP and BP will own nearly 10% of Rosneft. The Russian company forged the link because it lacked the technology and management expertise to tackle some of the most promising and largely untapped oil fields in the world, something it needs to do in order to maintain Russia’s overall levels of oil production as output from fields in western Siberia continues to decline. BP, in turn, gains access to fields that would, for political reasons, otherwise be beyond its political reach, while substantially increasing its exposure to the Russian government and investment environment. Indeed, just days after the deal was signed, BP’s Russian partners in Russian oil producer TNK-BP took the Western oil producer to court, claiming that BP had reneged on its obligation to involve TNK-BP in any new Russia ventures.

On the eve of Russian president Dmitry Medvedev’s trip to the World Economic Forum in Davos in late January, a suicide bomber allegedly from the North Caucasus killed 35 people in the international arrivals lounge of Moscow’s largest airport. Unlike previous incidences of terrorism in Russia, this one appeared to be directed at the international community. Any additional attacks that appear to explicitly target foreign nationals or assets would almost certainly have a negative impact on already weak investor sentiment toward Russia. In the aftermath of the Moscow attack, Medvedev was quick to blame lax airport security.

In the first transaction of the Russian government’s much-touted privatization program, the Kremlin sold a 10% stake in state bank VTB to portfolio investors for $3.3 billion, reducing the government’s shareholding to 75%. The deal reversed a share issuance made by VTB during the global economic crisis to pave the way for a massive government recapitalization of the institution. In the run-up to the transaction a handful of other, nonstate, IPOs were withdrawn due to a lack of investor interest. The state is expected to sell a stake in VTB’s larger rival, state retail bank Sberbank, later this year, although that sale, too, may be postponed to next year. Also on the block in the anticipated three-year privatization program is a small stake in Rosneft.