Will Medvedev's Russia tread more lightly on business?

The intense state scrutiny of private oil firm TNK-BP, now facing an environmental review, echoes Putin-era takeovers. The president-elect is reputedly more liberal.

Sergei Karpukhin/Reuters
Under fire: Russia's fourth-largest oil firm, TNK-BP (the 'THK' above is the Cyrillic spelling), was raided March 19.

Another private oil company, the Russian-British joint venture TNK-BP, is reeling under successive attacks by police and government agencies, in a pattern reminiscent of previous state-sponsored takeovers.

The continuing troubles for Russia's fourth-largest petroleum firm are fueling a debate over whether the imminent change of Kremlin leaders from Vladimir Putin to the reputedly more liberal Dmitri Medvedev holds out hope for genuine reform.

The answer to a key question – the future power dynamic between President-elect Medvedev and his presumed prime minister, Mr. Putin – is expected to come into focus at the ruling United Russia party's ninth conference Tuesday.

On the cusp of this upcoming transition, the case of TNK-BP – which this week faces a state environmental review at its biggest oil field – suggests that little has changed at the top so far.

Over the past five years, about a third of Russia's oil production has been effectively renationalized, often in legally murky ways, and accompanied by baldly partisan actions by state agencies.

Mr. Medvedev, who has been chairman of the state-run natural gas monopoly Gazprom since 2001, has raised hopes that this era might be coming to a close.

"Respecting private property should become one of the foundations of state policy," he said in a February speech. And he decried the wave of "raiding," in which private assets are purloined by a few favored businessmen, often with the aid of corrupt police and officials. "As before, the illegal seizure of businesses has a mass scale. I consider it necessary to quickly pass antiraiding laws," he added.

Raids find 'ID cards from the CIA'

Yet the events swirling around TNK-BP strike many observers as part of a Kremlin-sanctioned raid. On March 19, the company's offices were searched by police seeking evidence of tax evasion by a company that was bought out by TNK-BP several years ago. The next day the FSB security service announced that two Russian-American brothers, one a TNK-BP manager, had been charged with industrial espionage. The FSB announced that searches of TNK-BP premises had turned up "ID cards belonging to foreign military organizations and to the CIA." Within days the Interior Ministry forced the company to suspend 148 foreign workers due to visa problems. This week, the Natural Resources Ministry's environmental watchdog is to present its assessment of ecological management at Samotlor, TNK-BP's biggest oil field.

Created five years ago as a 50-50 venture between British Petroleum and three Russian billionaires, TNK-BP has only recently run into troubles. Last year, after the Natural Resources Ministry threatened to revoke its operating license over the Kovytka gas field for alleged environmental abuses, TNK-BP agreed to sell its 63 percent stake in the sprawling Siberian property to Gazprom. The deal has since been bogged down in negotiations, but is expected to be finalized this month.

"The searches of TNK-BP offices and other problems were a signal to the company's shareholders that the deal around Kovytka should be completed quickly," says Natalya Milchakova, an oil and gas analyst for Otkritiye, a Moscow-based brokerage firm. "The message is that TNK-BP should move to sell at a price that Gazprom likes, and not what the shareholders want."

Bid to give Gazprom more power?

Other experts believe the pressure may be aimed at forcing the company's Russian partners to sell their shares to Gazprom or state oil company Rosneft.

"Experience shows that when a state company takes an interest in a property, all methods of influence can be switched on," says Mikhail Krutikhin, an analyst with Russian Energy, a Moscow-based consultancy. "In the case of TNK-BP, these include the counterintelligence agency, the police, the environmental watchdog, the tax authorities, and the immigration service. That hardly looks like a normal business deal."

TNK-BP has insisted, however, that nothing unusual is happening. "I don't think you can draw a link between any of these events," says Marina Dracheva, a company spokesperson. She says the spying charges against one employee are an "individual matter," the environmental review routine, and the visa problems a bureaucratic glitch that's since been largely resolved.

But whatever the outcome for TNK-BP, the story has a familiar ring to it.

Five years ago the Kremlin took aim at Russia's most profitable oil giant, Yukos, and brought the company down with criminal charges against its main owner, Mikhail Khodorkovsky, and back tax charges of over $30 billion. Most of Yukos's assets have since been absorbed by Rosneft.

In 2006, a consortium led by Royal Dutch Shell was forced to sell half its stake in the huge Sakhalin-2 gas fields to Gazprom at what most analysts say was a steep discount, after the Natural Resources Ministry accused the company of inflicting $50 billion in ecological damage on the Pacific territory. After Gazprom took over, all talk of environmental abuses evaporated.

President-elect Medvedev

In an interview last month with the Financial Times, Medvedev sidestepped a question about the TNK-BP situation, but suggested state sector growth at the expense of private enterprise might be reined in. "I would like to say that the number of state companies ... should be exactly the number required to ensure the interests of all the country but no more," he said. "We of course will continue the course that Russia has taken toward creating a full-fledged private economy."

But some experts note that Putin made similar promises when he became president in 2000, but under him the number of bureaucrats in Russia has grown from 1 million to 1.6 million, according to official statistics.

"One of the top priorities must be for administrative reform, to curb this growth of bureaucracy," says Yaroslav Lissovolik, chief economist with Deutsche Bank in Russia. "Medvedev is of a different generation and background than Putin, and the potential is for more liberal policy."

Others argue that the high price of oil will continue to encourage state officials who find power a handy way to acquire private energy assets cheaply.

"If the oil price keeps going up it's very unlikely that Russia will become more liberal," says Yevgeny Gavrilenkov, chief economist with Troika Dialog, a leading Russian investment bank. "With so much easy money, it seems likely [bureaucrats] will continue fighting over it, and nobody will want to undertake the hard reforms."

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