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Russia, TKN TNK-BP and the rule of law

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Russia, TKN TNK-BP and the rule of law

Published: July 2 2008 03:00 | Last updated: July 2 2008 03:00

Business blog (John Gapper): Whatever expectations one has of the Russian government and civil institutions, they always disappoint. The abuse of tax and visa laws to eliminate BP’s hold on its Russian oil joint venture, TNK-BP, is the latest in a long line of doleful examples.

It has been obvious for some time that the rule of law does not apply in Russia to the international investors and companies that venture into the market in the hope of profiting from its natural resources.

Now comes news that the Moscow authorities, petitioned by BP’s Russian partners, with whom it has fallen out, are squeezing out BP executives by refusing them visas. It calls to mind the way in which Hermitage Capital Management and William Browder, its founder, have been harassed using visa and tax laws.

I feel a pang about BP because I wrote a column once asking whether it was wise to trust in its Russian joint venture and concluding that it was taking a reasonable chance. With hindsight, even my guarded optimism now looks naive.

It certainly does not seem that the ascension of Dmitry Medvedev to the Russian presidency and Vladimir Putin’s sideways move to become prime minister has improved matters.

Russia has always used as an excuse for its behaviour the argument that the way in which the oligarchs gained control of natural resources was unjust, which made it justified in seizing them back. But as time passes and the authorities show no evidence of becoming less arbitrary, that justification is wearing thin.

The question, of course, is whether economic self-interest will eventually lead the government to abandon such legal abuses for fear of sacrificing foreign investment. It might, but it seems unlikely to happen while the boom in commodities continues.

There is so much wealth tied up in Russian oil and minerals now that the country is financially strong enough to disregard the international outcry at its tactics. It will probably continue to find foreign investors willing to take the risk of having their assets stripped from them if they become inconvenient. I wish it were otherwise, but pessimism seems the most logical attitude to Russia’s business environment at the moment.

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