Baby Ace: BP and other British firms in Russia could face a backlash from the Kremlin if they get caught up in a spat over Ukraine, warns investor

Friday, March 14, 2014

BP and other British firms in Russia could face a backlash from the Kremlin if they get caught up in a spat over Ukraine, warns investor

By

Rob Davies

BP and other British firms could fall victim to the wrath of the Kremlin in a stand-off with the West over Ukraine, a former major investor in Russia has warned.

Investors have pulled £27billion out of Russia so far this year, according to Goldman Sachs, 60 per cent more than in the first quarter of 2013.

The withdrawals have been fuelled by fears that Russia is set to annexe Crimea, triggering a full-blown war with Ukraine.

Safety: Is a company like BP safe? Browder said:

Safety: Is a company like BP safe? Browder said: ‘BP is not safe at all. They will look for ways to harass BP’

And Bill Browder, whose Hermitage Capital fund was kicked out of Russia in 2006 after accusing officials of theft, said investors were right to pull their money.

‘If you own shares in a company or property in Russia, you own it conditionally until someone powerful decides to steal it from you,’ said Browder.

‘Now you have a situation where Putin decided to steal another country.’

He said any decision by EU states to impose sanctions on Russia could see the Kremlin retaliate against firms such as BP, despite its 20 per cent stake in state-backed energy giant Rosneft.

‘BP is not safe at all. They will look for ways to harass BP,’ said Browder.

He also criticised BP boss Bob Dudley for striking a deal in Russia, considering that he fled the country in 2008 after a row with the firm’s oligarch partnership in former joint venture TNK-BP

Group Chief Executive of BP: Bob Dudley has been criticised for striking a deal in Russia, considering that he fled the country in 2008 after a row with the firm

Group Chief Executive of BP: Bob Dudley has been criticised for striking a deal in Russia, considering that he fled the country in 2008 after a row with the firm’s oligarch partnership in former joint venture TNK-BP

‘It’s amazing that Bob Dudley, after going into hiding in fear of his life, would now go back and become a minority shareholder in this country.’

Oil industry sources said BP’s investment in Russia could suffer if Rosneft is hit with sanctions and also said Browder’s warning that the Kremlin could turn on BP was not alarmist.

BP’s Rosneft stake contributes about £600million to net profit each year, a relatively small portion of last year’s £9billion profit.

But the partnership is the biggest strategic milestone in Dudley’s tenure at BP (up 0.15p to 478.65p) and is seen as a gateway to potentially lucrative projects for the future, such as Arctic exploration.

Reports from Russia said the Kremlin had begun drawing up legislation to seize assets from Western companies in case it is hit with sanctions.

Other British firms with a large presence in Russia include Barclays Capital and inter-dealer broker Icap (down 12.4p to 392p), while BP’s rival Shell also has operations there.

London has also come in for heavy criticism, particularly in the US, for providing financial services to Russian billionaires without asking questions.

Browder has fought a long-running campaign against the killers of his former lawyer Sergei

Magnitsky, who died in a Russian jail after uncovering evidence of theft by officials.

And he urged the government not to listen to lobbying efforts against targeted sanctions from British firms with wealthy Russian clients.

‘A lot of people in London are profiting from blood money in Russia, so there’s a whole community of people who don’t want that tap cut off.’

‘The people who’ll be lobbying against that [sanctions] will be mostly the banks. Do we need to bail them out with our morals as well as our money?’

‘How much is it worth to sell our integrity? We’re not so poor that we can’t stand up for our principles, which is that we shouldn’t allow criminals to use London to launder their money.’

‘Targeted sanctions are quite effective, especially if they include Putin.’

Browder said any sanctions against London’s Russian oligarch community might also cool the market for upmarket housing and collectables.

‘You could find that property prices in London level off and contemporary art prices come down at Sotheby’s. I’d imagine it will be easier to charter a private jet too.’

It came as Goldman Sachs said investors were rushing for the exit door, pulling £27billion out of Russia in the first since the beginning of the year, 60 per cent more than the outflows seen in the first quarter of last year.

Goldman downgraded its Russian growth expectations for 2014 to 1 per cent from 3 per cent previously.

‘Economic activity in Russia is likely to be strongly affected by the current political tensions relating to recent developments in Ukraine and Crime,’ it said.