All You Need Are Friends - BP and Rosneft
This entry was posted on 7/12/2006 2:19 PM and is filed under Russian Equity Investments.
There are two types of systems in the world, relationship and rule based systems. Relationship systems like China’s are economically less efficient than rule based systems. One of the reasons is that a relationship business is based on a relationship. By definition, relationships (guanxi in Chinese or svyazi in Russian) are concern with interactions between people. These change. Often. Rules are more static. Just because you have a good relationship with one person based on prior dealings or favors does not mean that your relationship capital will last beyond that person’s life or ability to help you. When the personnel changes you may have to start from scratch.
BP just agreed to a 2 billion dollar strategic investment in the Rosneft, a company mostly owned by the Russian government. BP has a Russian joint venture, TNK-BP. TNK-BP needs new licenses to develop its Kovykta field in East Siberia. It also needs Gazprom to build a pipeline. Gazprom of course is also a creature of the Russian government’s oil empire.
To get Gazprom’s cooperation and the licenses for the Kovykta field. It is a reasonable assumption that BP will have a better relationship with the Russian government if it antes up $2 billion to invest in the Russian governments latest ploy to get foreign capital to finance its energy ambitions. But that is the problem. It is a $2 billion bet on a relationship, a reasonable assumption, a hope, that the Russian government might be grateful. On the other hand, if the Russian government changes its mind or as new leaders have different priorities, BP’s $2 billion investment there are no rules to guarantee a return. I guess the oil business has a different definition of acceptable risk.
July 12, 2006
William Gamble
EMERGING MARKET STRATEGIES
Internet: xgamble@cs.com
http://www.emergingmarketstrategies.com/
