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Russian government ready to remove the operating right of TNK-BP on Siberian gas field
18 February 2010 , 08:24Reuters1216
The government moved closer on Wednesday to stripping TNK-BP of its East Siberian Kovykta gas field, in a move likely to dent investor confidence and ultimately benefit state behemoth Gazprom. BP and its billionaire partners in the venture have repeatedly warned that the move to strip them of Kovykta would damage the country's investment climate. TNK-BP and BP declined to comment on Wednesday's decision.
Analysts have said the decade-old Kovykta dispute underlined risks of doing business in Russia, but that a decision to revoke the license would have a limited share impact because all negative developments have been priced in a long time ago. An official from the Federal Inspection Service for Natural Resources Use said Wednesday that it recommended the license be stripped and sent to the Federal Subsoil Resource Use Agency, an agency responsible for monitoring license agreements, which is now due to make a final decision on the case Thursday.
TNK-BP co-owner Viktor Vekselberg told President Dmitry Medvedev last week that the new inspection into Kovykta "was clearly not supportive for the investment climate." In 2007, TNK-BP agreed to sell Kovykta to Gazprom for about $1 billion. But the deal has repeatedly been delayed because of disagreements over price.
The Natural Resources and Environment Ministry has reiterated its warning to TNK-BP that it might lose the rights to Kovykta, saying it has failed to follow the obligations outlined in its license, such as beginning full-scale production. TNK-BP has argued that it cannot bring production to the required levels after the government made Gazprom the country's gas export monopoly, thus effectively closing China's markets for Kovykta.
The field has about 2 trillion cubic meters of gas reserves — enough to meet the global gas consumption for eight months — but needs billions of dollars to reach peak production and build pipelines to China. With its huge reserves, Kovykta falls into the category of strategic fields, which means that Gazprom could get it free of competition if the license is stripped from TNK-BP.
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