The Rosneft takeover is ominous in almost every sense
Allegedly, everyone’s a winner in BP’s Russian deal. But thousands of investors in Rosneft, BP and Russia have their doubts. While the deal is undoubtedly great for the politicians, billionaires and oil men, the background clouds are ominous. Instead of divesting assets and withdrawing from direct participation in the economy, since Putin returned to full power, the Russian State is taking back control.
Bloomberg said this ‘comes as a relief for the embattled BP management’. I’m not sure about that. BP’s desperate liabilities position (thanks to Obamite hysteria in the US) has led it, in my opinion, to take silly risks in the last two years. This may be not so much relief as the thin end of the wedge.
BP’s (BP.LN) deal to sell its half of the TNK-BP Ltd. (TNBP.RS) joint venture to Russian state-owned giant OAO Rosneft (ROSN.RS) for around $27 billion in cash and shares will benefit BP’s creditworthiness, Moody’s said Tuesday. But the ratings agency said the sale didn’t warrant a change to how it grades BP’s debt. It just called the sale “credit positive”.
Further – as BP itself is quick to point out – although the company will get a whopping cash payout for TNK-BP, the proceeds from the Rosneft deal must be balanced against it no longer receiving the stream of dividend payments from TNK-BP, which was a major source of BP cash flow.
It’s the Kremlin’s intentions I find potentially less than honourable. Andrei Belousov, the Russian economy minister, insisted that the purchase of 100% of oil company TNK-BP by state company Rosneft did not mean the government was rethinking its commitment to rolling back state ownership of the economy. He just wasn’t very convincing.
Answering one hack’s question yesterday as to whether the government would still consider privatising Rosneft, he said, “There remains the possibility”. This didn’t exactly offer up fond memories of Thatcher.
We have to take this beyond the business context, and deep into geopolitical energy territory. Vladimir Putin is an ex-KGB agent and macho believer in the destiny of what was the Soviet Union. He simply doesn’t want the control of the country’s most valuable bargaining tool in the hands of mafiosas. In recent months, we have watched as – with growing speed – instability on the Eastern Med/Middle East axis has become the abiding obsession of every major power on the planet.
The days when the Soviet army could casually walk in and out of satellite countries have gone. Today, the control of cyber and energy resources is the big game in town: Rasputin won’t be privatising either of those soon.
I have been arguing consistently for two years now that anyone investing in Russia at any level – shares, futures, energy or property – needs their head examined. The place is a cross between the Wild West, 1930s Chicago, and 1960s Czechoslovakia. It is run by a megalomaniac. And it is massively overdependent on a fossil fuel which, technologically, is probably nearing the end of its energy hegemony.
So while BP may be relieved to have a lot of cash back, it still has a large interest in a sphere of influence where anything could happen – and probably will. Plus, of course, a big question remains for the Oilspiller General: whadda we do now?
Many are the unintended consequences of a vain American President looking for cheap popularity. We have just eleven days to find out whether he’ll be at it for another four years.
Today’s word thought: Soviet is a collective noun