For many reasons, such as being the world's largest country,
possessing vast natural resources and having a population of over
150 million people, Russia possesses good opportunities of
investment for foreign companies. However, Russia also has a
dynamic, unique, challenging and, sometimes, difficult to
understand business environment that has caused problems for many
foreign firms. As a result, businesses tend to perceive doing
business in Russia more as a risk than an opportunity, and BP knows
this - its difficult experience in partnering with its Russian
counterpart illustrating this reality.
The TNK-BP deal: Focus on a Russian JV case
On September 2003, BP and a group of Russia-connected oligarchs:
Alfa Group, Access Industries and Renova (AAR), announced the
creation of a strategic partnership to jointly hold their oil
assets in Russia and Ukraine. As a result, TNK-ВР was created. This
was the largest foreign investment in Russia, a result of the
merger of Russian companies TNK, Sidanko and Onako with the
majority of BP's Russian oil assets. The company was 50% owned by
BP and 50% owned by AAR. Although TNK-BP's profits have risen from
US$2.7 billion in 2003 to $5.3 billion in 2009, the
partners in the venture quickly felt a palpable escalation of
The dispute and the spiral
The first signs of difficulty started in 2006, when prosecutors
from the Siberian town of Irkutsk demanded to suspend TNK-BP's
licence for the Kovykta gas field due to environmental reasons. It
was in 2008 that a more serious corporate dispute between BP and
AAR arose: the two major shareholders seemed to have differing
visions for the company's corporate governance structure and future
strategy. The friction increased when Western BP executives
experienced visa problems when wanting to travel to Russia, and Robert Dudley, the American CEO, was
accused by AAR of having violated Russian laws. (Hoyos, Crooks and
Due to these problems spiralling, Robert Dudley stepped down
from his role as CEO of TNK-BP in September 2008, at which point
AAR nominated Mikhail Fridman as interim CEO to replace him (TNK BP
website, 2012). Since then, an independent CEO, Maxim Barsky, was
appointed and officially took up the position in 2011. Since AAR
had increased its influence through the nomination of the new CEO,
some investors feared BP might lose its interest in TNK-BP.
Regardless of its weakened political influence; BP declared it was
still a good deal to keep its 50% stake since TNK BP represented
24% of BP's production and 19% of total reserves in 2007. In
January 2010, BP and AAR held their first joint media briefing
pronouncing that their tensions had dissolved and that TNK-BP had a
bright future ahead. Was this the reality?
Later, in January 2011, BP and Russia's state oil
company, Rosneft, attempted to form a strategic
partnership on Arctic development. However, in March 2011
the Stockholm International Arbitration court blocked the
BP-Rosneft deal because BP had previously signed a shareholding
agreement with AAR, which stipulated that TNK-BP would be the
primary corporate vehicle for BP's oil and gas operations in
Russia. The BP-Rosneft deal fell-through in August 2011 when BP was
replaced by ExxonMobil as Rosneft's strategic
foreign partner in the Arctic.
In June 2012, BP finally announced its plan to sell half of its
stake in the joint Russian venture, TNK-BP. Despite continuous
disputes between the two sides, this announcement came as a
surprise because BP had reiterated that it was not interested in
selling its stake, the joint-venture being a lucrative investment
for BP (Wedigier and Kramer, 2012).
Rosneft's boost with TNK-BP purchase - A fresh start for BP
By buying half of the stake in TNK-BP owned by the consortium
AAR and BP's half of the venture, Russian Giant Rosneft -which is
already the top oil company and the world's biggest producing
company - is about to be hurled into the premier league of
international oil majors with the equivalent of 4.6m barrels of oil
a day, way ahead of ExxonMobil. (Chazan and Belton, 2012). BP, on
the other hand, will be left with about 20 percent of Rosneft and
two seats on the Russian company's board, which will place it as
the second largest shareholder in the national energy champion.
This new agreement seems to bring with it a release for BP which
brings hope for a fresh start in Russia (BBC, 2012).
The agreement, which is now in the hands of Russian government
approvals, will give Rosneft extra cash flow ($4.8bn) to finance new explorations of
Russia's vast reserves to replace ageing and depleting fields. It
will also bring BP's technical expertise to its Russian
counterpart, quality needed by the government to demonstrate its
efforts to pursue privatisation and modernisation to its critics.
BP will receive $17.1bn in cash and, as mentioned before, almost 20
percent of Rosneft shares. In this deal, AAR will also get
The result of all this is that the negotiating power of AAR
businessmen could be weakened whilst BP will receive significant
funding and access to some of the largest untapped oil and gas
resources. For BP the deal represents an opportunity to remain in
Russia, allowing it to continue its exploration and exploitation of
the country's vast energy resources, including the Arctic region.
Finally, Rosneft will be able to tap into BP's expertise of
exploring under difficult and potentially risky conditions and most
important, it will benefit from a worldwide leadership
Overcoming these obstacles, BP might have learned how to operate
effectively in Russia. It seems that the initial difficulty of
understanding Russia's business environment could have become an
advantage and serves BP to create an entry barrier against those
who would be tempted to invest in this country.
Dealing with Russia is not simple. The restructuring of Russia's
political and economical systems since the end of Communism is
providing both opportunities and risks for foreign businesses and
FDI (Puffer, 1996b). Corruption undermining the function of the
state, in addition to the absence of rule of law, might become
pervasive. The influence of Western leaders is more limited now
than it was in the 1990s when Russia needed financial help.
Therefore one shouldn't try too hard to change the Russian system
but rather adapt to it when intending to do business (The
A great deal of literature has covered
many aspects of Russian-specific management and leadership. Kets de
Vries, Stanislav Shekshnia, Konstantin Kortov and Elisabeth
Florent-Treacy (2004) talk about "The New Russian Business Leaders"
to explain the intersection between individual leadership and
national character in post-soviet Russia. Alena V.Ledneva in the
"Unwritten rules:How Russia really works" (2001) describes the
informal practices that shape post-soviet politics and business.
Svetlana Khapova (2007) shows how Russia key career attributes
accommodates a different meaning compared with their original
Western meaning, and that these meanings are continuously changing
to reflect the current social, political and economic
environment. Ofer Feldman and Linda O. Valenty (2001), study
the ethical values in Russian education and family background as
well as the role and values of Russian leaders to explain certain
Russian behaviours in business. Sommer and Welsh and Gubman (2000)
also consider how Russian managerial values are developing in the
context of sweeping economics.
It wouldn't be bad for the leaders of BP, and of other companies
willing to do business with Russia, to pay attention to some of
these behavioural and cross-cultural studies for the sake of better
cooperation and understanding of how to deal with the bear.
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