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BP: Roughed Up in Russia

The oil giant's problems with local authorities are mounting

In 2003, when BP (BP) teamed up with Russian tycoons to create the multibillion-dollar joint venture TNK-BP, President Vladimir Putin hosted a glitzy reception to toast the landmark deal. But now the welcome mat appears to be wearing thin. In recent months, BP's Russian operations have become the target of sustained pressure from the authorities, from visa difficulties to police raids.

It's yet another complex Russian tale. BP's troubles began in January, when the visas of 148 expatriate employees seconded to TNK-BP were declared invalid, preventing them from working for several weeks. Then, in March, police raided the Moscow offices of both BP and TNK-BP. Shortly afterward, Russia's security service arrested a TNK-BP manager for alleged spying. BP's problems escalated in April, when a little-known Moscow brokerage filed a court case in Tyumen, seeking to block BP's expat specialists from working at TNK-BP. The court, which has yet to deliver a judgment, has barred the employees from working in the meantime.

BP's problems with the authorities coincide with a public dispute between BP and its Russian partners at TNK-BP, Alfa-Access-Renova (AAR). That holding company represents the interests of three Russian tycoons, Mikhail Fridman, Len Blavatnik, and Viktor Vekselberg. In statements to the media, AAR has accused BP of neglecting the interests of the joint venture's Russian shareholders and has called for the resignation of its CEO, Robert Dudley. The group claims that BP is blocking TNK-BP's international expansion and using too many highly paid foreign specialists instead of Russian managers. In a public statement, BP rejected the claims, expressing "absolute confidence" in Dudley, a former BP executive.

Whatever the merits of the arguments, many Moscow observers see a connection between the raging shareholder conflict and the state's mounting pressure on BP. For months, Moscow has been buzzing with rumors that Gazprom, the state-owned energy concern, is preparing to acquire a majority stake in the company. If so, many analysts believe the shareholders may differ over who should sell their shares to Gazprom. Currently, BP and AAR each own 50% of the venture.

It wouldn't be the first time the Russian state has acquired control over energy projects. In 2006, Royal Dutch Shell (RDS.A) ceded control of its Sakhalin II project to Gazprom after pressure from the authorities. Yet it seems likely that BP's current problems stem mostly from the soured relationship with its partners. AAR declined to comment, but a source close to the company denies any collusion with the state. "BP has managed to damage its relationships with the Russian shareholders, with certain sections of the government, and certainly with Russian employees," says the source.

That's unlikely to be much consolation for investors nervously eyeing the conflict around one of the biggest foreign investments in Russia. The suspicion is that when relations go bad there, foreign investors have little leverage against local interests with strong connections.

Bush is BusinessWeek's Moscow bureau chief.

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