Environmental audit at Kovykta

Update (May 22): The font page of the US paper edition of today’s Financial Times is led by the headline, “Moscow ready to claw back BP licence,” followed by the article written by Catherine Belton found online under the title “Moscow ready to revoke licence for BP Russian venture ‘in days.'” Just a bit of an interesting juxtaposition.

Oleg Mitvol, a key figure in the Sakhalin-II / Shell environmental accusations, is now turning his attention to Kovykta. This 2 Tcm field is being developed by TNK-BP, but efforts to capitalize on the reserves by building an export route to China have been stymied due to problems in getting Gazprom and the Chinese side on board for the massive export pipeline project. The lack of a market has been a key reason for the low production levels–the local demand cannot cover the 9 Bcm per year stipulated. And until a new market is opened (i.e. the Far East), that figure is unlikely to be reached. From the St. Petersburg Times:

MOSCOW — BP’s Russian unit will be audited by the most-senior environmental regulator this week and stands to lose its license to operate Eastern Siberia’s largest known natural-gas field if it fails.

TNK-BP, a venture between BP and private Russian investors, will be audited May 23 on its production at the Kovytka field, where it has a contractual target, Russia’s Natural Resources Inspectorate said. Rusia Petroleum, a unit 62 percent owned by TNK-BP, produced 1.5 billion cubic meters from the field last year, compared with a target of 9 billion cubic meters.

Russia is certainly interested in building a gas export line to China, and the Kovykta field plays a key role in its far-east strategy. But it seems that Putin has no desire to let TNK-BP take the lead in this direction.

Instead, it seems like Putin will convince the private Russian sharholders to sell their 50% stake in the company to Gazprom (or possibly Rosneft, but less likely) in December 2007, once the regulations on TNK-BP’s stock sales permit such in action. Putin has allegedly already offered the Russian-British joint-venture to Gazprom in late April as part of an arrangement between the gas giant and Rosneft on the divvying out of Yukos assets.

It has long been accepted that Gazprom would have to play some sort of role in the development of the Kovykta field, due to Russia’s single-export operator (that is, Gazprom) strategy. Arranging the exact level of involvement, however, was difficult. Now it appears Gazprom is content to wait until next year to begin a pipeline to China project, which will likely push out their goal of delivering exports there by 2011 out a couple years. Of course, this may suit Russia fine, given that it is already committed to developing the challenging Nordstream pipeline under the Baltic Sea, and is seeking development for the Shtokman field too, which will both serve the dominant European market. China’s market, despite dramatic growth, is still much smaller. Of course, by the time the gas actually gets flowing to China, the demand there–and price–will likely be higher than it is now, potentially dropping bigger returns into Gazprom’s pockets.

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Recent news roundup

Ministers will block Gazprom move on UK (The Observer/Guardian)

The government has given its strongest indication yet that it would block an attempt by the Russian energy group Gazprom to take a significant stake in a UK energy company.

Putin puts policy bluntly to EU (The Chicago Tribune)

VOLZHSKY UTYOS, Russia — President Vladimir Putin, emboldened by Russia’s vast oil and natural gas wealth, bluntly rejected European criticism of his crackdown on political foes, saying Friday that “like it or not,” Russia’s Western neighbors would have to accept it as a partner.

“Both Russia and the EU are interested in the development of relations with each other, and they will develop whether we like it or not,” Putin said apparently referring to Europe’s growing reliance on Russian energy resources.

EU must see Putin is not a democrat (The Telegraph)

…As EU leaders met for the second day of a summit with Mr Putin in Samara, a city in the Urals, Mr Kasparov and 26 activists and western reporters were detained in Moscow after allegations that their tickets were forged meant they missed their flight.

…Members of the pro-Kremlin youth wing Nashi, dressed in white coats and presenting themselves as medical orderlies, handed out leaflets suggesting that Mr Kasparov was deranged.

After more than five hours – minutes after the last flight to Samara had departed – the group was released. A police official at the airport reportedly blamed a computer problem that meant Mr Kasparov and his companions could not be issued with a ticket.

Russia sues US bank; laundering case cited (New York Times)

The Federal Customs Service of Russia is seeking $22.5 billion in damages from the Bank of New York Company over accusations of money laundering in the 1990s.

The bank “committed violations of Russian law that resulted in damages of $22.5 billion to the state” from 1996 to 1999, Maxim Smal, a lawyer for the service, said by phone after filing the lawsuit in the Moscow Arbitration Court yesterday. Andrei Stukov, head of the Customs Service’s legal department, confirmed the amount of damages sought, via a spokeswoman.

Mr. Smal said the suit was “almost entirely based” on an investigation in the United States that ended in 2005 with the bank agreeing to pay $38 million to settle two criminal investigations and admitting it failed to report $7 billion in suspicious Russian transactions. The American investigation “uncovered very serious violations,” Mr. Smal said, but he declined to elaborate, saying more details will be revealed today at a news conference in Moscow.

 

The mystery surrounding the end of Yukos

Now that Yukos has “expired,” we are left to ponder exactly what went on during the last auction lot, which was expected to raise only a few hundred million dollars from the sale (likely to Rosneft) of Yukos’ 22-story Moscow office building, but in actuality generated nearly $4 billion from an intense bidding war. From the FT:

…an obscure company bought an auctioned lot, including Yukos’s headquarters building, for almost $4bn (£2bn), in what looked at first glance to be the most expensive property deal in recent history.

The company, Prana, bid nearly five times the starting price of Rbs22bn (£430m) to head off state-controlled Rosneft in 707 rounds of bidding.

Observers were baffled by the price paid for the lot, which, at first glance, included only the office building…and acouple of shell companies.

Prana is, according to wikipedia, a sanscript word for “breath” or some such, used mainly in yoga practices–though some how I doubt that the office will be turned into a new-age workout studio.

It turns out that those “shell companies,” which apparently include trading and sales units, still held active (or recently active) accounts possibly worth a couple billion dollars themselves. The sale had been headlined by the office building (and its associated property–certainly a valuable commodity in Moscow, even if it isn’t right in the center of the city), which was valued at around $300 million. It is not exactly clear if the auctioneers realized the extra worth within the associated companies, or whether they were ignorant along with most every one else–except, apparently Rosneft and the mysterious Parna.

It could very well have been one last attempt at a “F-You” to Yukos by Rosneft, making off with the last of the fallen company’s sales for bargain-basement prices, behind the backs of critical outside observers. Instead, it raised about another $4 billion, pushing the total amount raised from Yukos’ auctions to over $30 billion. Yukos’ stock, long-thought worthless, also rose to 57 cents on news of the surprise sale, before closing at 52 cents (it’s now at 49 cents).

Here is the NYTimes article, Moscow Time’s coverage, and the Google news roundup of the story.

I’ll comment more after I read some of the Russian coverage, but it looks to be that one of the shell companies, “YUKOS-M,” was the main firm’s “purse,” acting as a lending and surplus vehicle. Just how much was left within the “purse,” is still unclear, however.

Update: According to Kommersant, it looks like Prana may have some obscure connections to Gazprom.  Russia’s anti-monopoly agency is threatening to vitiate the auction if the true backers behind Prana aren’t revealed, and this could be a legitimate threat given the precedence, but we’ll see.

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