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Russia: Pulling the Trigger on TNK-BP

3 MINS READApr 23, 2008 | 17:52 GMT
NATALIA KOLESNIKOVA/AFP/Getty Images
Summary
The Russian Federation is demanding about $250 million in back taxes from the holding company for Russian-British joint-venture energy company TNK-BP, Russian media reported April 23. The company has long been considered the next target in Russia's re-nationalization of its energy sector. Now the Kremlin has officially launched its attack.
A report issued April 23 by Russian-British joint-venture energy firm TNK-BP confirmed rumors that Russian tax authorities have charged the company about $250 million in back taxes and penalties for 2004 and 2005. The taxes — which range from income, value-added and land taxes to a mineral extraction tax — have been levied against TNK's smaller ventures, such as TNK-Nyagan and TNK-Nizhnevartovsk, as well as the company's Ryazan refinery. According to Russian media, the claims will be discussed out of court since they are aimed at ventures under TNK-BP's aegis. TNK-BP itself is expected to pay the remainder not covered by its daughter companies. TNK-BP was already under intense pressure from the Kremlin, but the company's situation worsened in March when Russia's Federal Security Bureau (FSB) raided the TNK-BP Moscow offices and arrested a high-ranking employee. At the same time, Russia's Interior Ministry charged the company with criminal tax-evasion, made threats over the visa status of its employees, and raised objections over alleged environmental abuses. The sudden deluge of taxes and legal penalties is by now a familiar phase in the process by which the Kremlin disassembles companies owned by foreigners or oligarchs. As TNK-BP is assimilated, its assets will become fodder for a clan war that is dividing the top echelons of Russian power. Oil behemoth Yukos was similarly swamped with fees and legal expenses worth billions of dollars that led to the company's demise in 2003.The dissolution of Yukos sparked fierce competition between Russia's two biggest state-owned energy companies, Gazprom and Rosneft. Though Rosneft ended up with the greater share of the spoils, Gazprom has since struck back, driving Royal Dutch/Shell out of the Sakhalin 2 oil field and pursuing other trophy energy projects. Now Gazprom is orchestrating the assault on TNK-BP, whose assets would double Gazprom's total oil production. Gazprom's assault on TNK-BP has two prongs. The first consists of acquiring its assets through "regular" business. In 2007 TNK-BP agreed to sell its share of the Kovykta natural gas field for $900 million and form a $3 billion partnership with Gazprom, which will ultimately make it easier for Gazprom to assimilate the company. The second prong in Gazprom's assault comes from federal and regional governments striking TNK-BP down with taxes and penalties. That is what is happening now. Gazprom has nearly unlimited access to the Kremlin's executive power — its former chief, Dmitri Medvedev, is about to become Russia's president. These ties mean that legal and regulatory pressure will remain high, forcing TNK to make deals with Gazprom on Gazprom's terms. Not coincidentally, the leader of Gazprom's export branch warned TNK-BP on April 23 that if it did not accelerate the Kovykta agreement, the Ministry of Natural Resources could withdraw its license to operate at the field. Russian President Vladimir Putin has maintained a balance between Gazprom and Rosneft for several years as the two companies ravenously strive to capture each other's assets. With Medvedev taking over the presidency in a matter of days — an immeasurable victory for the Gazprom faction — the competition could erupt into all-out war. Putin, who will become prime minister upon vacating the presidency, will find it much harder to rein in the two factions, and the great divide in Russian politics will grow even wider.

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