TNK-BP spy arrest allegedly connected to Ukraine’s gas negotiations

Recent espionage intrigue at TNK-BP may relate to the Russia-Ukraine gas negotiations (what else?), rather than tensions between London and Moscow – From lenta.ru

Last month two Russian brothers, Ilya and Alexander Zaslavsky, were arrested and charged with industrial espionage, allegedly passing on strategic energy-sector secrets to a foreign entity.

Ilya worked for TNK-BP, whose Moscow offices were raided in connection to the charges. Alexander was a leading member of the British Councils alumni club in Moscow. Both had attended Oxford and hold dual US-Russian citizenship.

BP’s representation in Russia was simultaneously hit with alleged immigration violations forcing the company to suspend about 150 employees.

These actions come in the midst of TNK-BP and Gazprom finalizing a deal that would cede control over the giant Kovykta gas field to Gazprom, the end result of months of pressure on the project being headed by the joint Russian-British venture.

The combination of these circumstances led many observers to assert that the Kremlin has begun to crack down on TNK-BP, particularly the company’s foreign representation. Rumors of TNK-BP’s eventual take-over by the state-owned firms Rosneft (unlikely) or Gazprom (more likely) have been spinning for at least a year, though they have usually concentrated on the Russian TNK side of the company selling out. The new pressure on the British side of the venture has been taken as evidence of a further degredation of Russia’s oil and gas investment climate for foreigners.

The moves against BP also contribute the current upswing of tensions between England and Russia, in particular stemming from the unresolved poisoning of Aleksandr Litvinenko.

However, a newspaper article published last week suggests that the arrests of the two brothers is unrelated to British-Russian intrigue. Instead, the espionage allegations are being connected to the recent negotiations between Gazprom and Ukraine over the supply of natural gas.

According to the Russian paper Tvoy Den (Your Day), which was quoting information from sources within Russia’s special forces, “the Zaslavsky brothers were arrested for attempting to sell a secret supplement to the Energy Strategy of Russia through 2020, in which the development plan of Gazprom was detailed.”

The information was passed to Ukrainian hands right before gas negotiations during Yushchenko’s visit to Moscow on February 12th.

During the talks, the Russian negotiating side was surprised at some of the confidential information that the Ukrainians were using in their bargaining. As a result, suspicion of a mole arose and led to the investigation that fingered the Zaslavsky brothers.

In the meantime, the insider information has proven beneficial to the Ukrainian negotiating stance:

According to TD’s source, it was the possession of Gazprom’s plans that allowed the Ukrainian PM Yulia Tymoshenko to puff up the gas scandal with Russia and for some time successfully boycott the agreement of the Russian and Ukrainian presidents on the fulfillment of Ukrainian debts and terms of the delivery and transit of Russian gas.

This assertion has led to headlines the like of which proclaim that “Tymoshenko was victorious over Gazprom thanks to spies from TNK-BP.” I have yet to see any English-language coverage, though.

There are more than a few issues raised by Tvoy Den’s article which I will delve into later — I just wanted to get this info out there for now.

Advertisement

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.