The Russian roulette: Rosneft, BP, and the unknowns of Russian politics

7 Nov 2012 anna

TNK-BP, the British giant’s 50% joint venture with a group of Russian oligarchs, was bringing in about quarter of the firm’s production, and a lot of its political problems. BP’s solution: swap its shares in TNK-BP for cash and a near 20% stake in Rosneft, Russian state-owned company run by Igor Sechin, one of Vladimir Putin’s closest allies and ex- chief of staff, also known as the “Darth Vader of Russian politics“.

This week, together with Greenpeace and Fairpensions, we’ve released Russian Roulette – a briefing on Rosneft and the deal, aiming to give BP’s investors some background into the running of this company.

To be honest, collecting information on Rosneft’s practices a lot of the time involves processing, classifying, and summarizing the unknowns, rather than known facts. For example, Rosneft’s 2011 sustainability report includes a figure of 1066 tonnes (over 7000 barrels) of spilled oil through the year, noting dutifully that the figure “may be incomplete”. (By what order of magnitude? Why? Which subsidiaries failed to report?) The figure in the previous year’s report is 3737 (26000 barrels), bearing the same footnote. Before you get too excited by the near fourfold drop in oil spills, the change is due to a shift in accounting practices (where did they make all the oil disappear to?).

Environmental data in Russia seems to be becoming a more controversial and treasured commodity. The environmental regulator Rosprirodnadzor formed a special commission this summer to monitor what environmental information may be publicised and what is to remain classified concerning natural disasters. Similarly to other places in the world, a large company’s environmental record is further obscured through the use of the names of hundreds of subsidiaries. Only in regions with a high degree of civil society oversight, such as in Sakhalin (thanks to Sakhalin Environment Watch) is it possibly to draw up some sort of overall picture of environmental liabilities.

For investors, the worry here should be, how is BP going to square Rosneft’s exceedingly opaque environmental reporting and largely unaccountable practices with its own supposedly much more stringent procedures since Deepwater? Or is it going to hide behind Rosneft should anything go wrong in their Arctic operations?

See the briefing for more detail on the political management of Rosneft and more investor-focused questions.

My own challenge here is avoiding playing into the stereotype of Russia as a murky, mafia-controlled, cold and vodka-drinking version of the classic Orient. I hope to do this by being precise about the knowns and unknowns, as well as by foregrounding the work of Russian civil society. But is there something I’m missing?

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