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A.Kostin: “The combination of circumstances impeded the deal between Rosneft and BP”


Richard Quest: P’s Arctic ambitions have been put firmly on ice. The deadline for completing is planned 16 billion dollar share swap and tie up with Russia’s state controlled Rosneft. Last night as we told you, the deadline was imminent and it passed without an agreement. BP’s billionaire partners in the TNK-BP were the sticking point. They refused to sell their share at the price that was offered. There was no prospect of an agreement in time. The deadline passed. It wasn’t going to be renewed or extended, and if you join me in the livery we’ll see how this plays out for all the various participants. First of all for BP. Now the whole thing, it was going to have something with TNK-BP, but Rosneft the big enchilada. This was going to be the hallmark of their Arctic exploration strategy. Coming off the back of Macondo in the Gulf of Mexico, Bob Dudley was committed to doing the Rosneft deed. Now he is saying they are committed to Russia and TNK-BP, and he says that talks will continue, but basically he says he hopes that the disagreements can be put to one side.

For Rosneft? Well, they’re still desperate for the technological advances that will allow exploration of the Arctic, and they now know they can get it elsewhere. So they’re going to be shopping around perhaps for another oil major they can do a deal with. As for TNK-BP? What did they get out of it. Well the partners ARA, they are now still BP’s partner in Russia. But what sort of partnership can there be when there’s such bad blood and disagreements, despite Dudley saying that he hopes that they can work together.

Andrey Kostin is Chairman and President of Russia’s VTB Bank. He is also on the Rosneft board. Now Mr Kostin told me earlier that the collapse of the deal was about private conflicts, and had nothing to do with state involvements.

Andrey Kostin: It happened not because of some bad investment environment in Russia, that is effectively the issue which should be resolved. It’s been BP itself, or BP and its partners in Russia.

Richard Quest: But you didn’t want, or Rosneft didn’t want BP’s partners really as part of the deal, did you?

Andrey Kostin: Yes, I think there were some reasons for these, but originally the deal didn’t envisage this. So I mean the terms which we, the Russian side, Rosneft signed with BP actually suggested a different scenario, and as we understand, I am the member of the board, that BP provided all assurances that they would resolve these issues. So it’s unfortunate. I don’t think it’s the end of the world. I think the project will still go on. I am very much a believer in international partnership on such large projects, so I think Russia or probably Rosneft would be looking for this. But whether it will be BP or some other company, that’s still to be seen.

Richard Quest: So Rosneft searching for another partner do you think?

Andrey Kostin: Well I think it’s open for consideration and I think also always in business, I mean you should look for the opportunities and possibilities. If you can’t make it with this partner, you can probably find another partner but though BP is quite a comfortable partner for Rosneft. I think it has a very good reputation and a very good relationship with Rosneft, there is no question about this.

Richard Quest: And let me take you into deep waters if I may. If it wasn’t BP, who would you like the look of? Exxon?

Andrey Kostin: I am not an expert in oil. So I don’t know what is the best partner for this. But basically I think Russia is often criticised for being too close for the national investors, on oil and gas. I think that’s the case when Russia can actually present, that it’s completely open for international co-operation. No matter whether it’s BP, Shell or some other companies.

Richard Quest: We’ll hear more from Mr Kostin later in the programme on the question of what the new environment for doing business in Russia looks like.

Now as I reported a few moments ago on the collapse of the BP Rosneft deal for Arctic oil exploration. The event has put Russian’s business practices into very sharp spotlight. President Medvedev is trying to clean up the country’s image. He’s ordered government ministers be removed from boards of firms by the middle of the year. Rosneft and VTB Bank will be affected by that announcement. Earlier, we heard from Andrey Kostin, who is involved in both of those companies. I asked Mr Kostin if Russian’s business climate really is changing.

Andrey Kostin: You see, you can’t change it in a few months it think, but the President and the government gave very clear signals that they will be persistent in their policy to do this and of course there is a whole lot of measures which should be undertaken, including the fighting, corruption issue – the one you mentioned.

Richard Quest: If there’s one market that has exhibited volatility more than anything else, more swings and roundabouts, it is your own, isn’t it?

Andrey Kostin: Not so much I think. If you look at the performance of the stock market for example, in Russia. This year it was the best among all the BRIC countries. So I think from this point we still feel that maybe we would like to see more international investors in Russia, but still there is a quiet support for the market in Russia.

Richard Quest: What do you think has to happen in Russia to increase the FTI, to increase the foreign investment?

Andrey Kostin: Well I think it’s important that Russia would start the problem of modernisation and creating innovative economy. There are possibilities to do this. We have a very highly trained, educated population, and people who can produce really very intelligent products. And the core of the economic reforms now, it’s nice to live in the environment when the price of oil is $100 a barrel, but for Russia it is, and the crisis showed it, it is very dangerous. I mean Russia is very vulnerable for the swings of the commodity markets. So we should create a different type of economy, and that’s now where the Russian government is focusing on.

Richard Quest: And that is really important isn’t it? Because Russia is becoming addicted to oil at $100 plus a barrel.

Andrey Kostin: Oh it’s vital, absolutely. It’s vital I think for the Russian economy, yes.

Richard Quest: Because if you don’t, then you’re not building a real economy, you’re just ...

Andrey Kostin: Absolutely, always we were looking at the screen and watching the commodity price. That’s something which we really should change.

Richard Quest: Next year and the elections for the presidency – who gets it?

Andrey Kostin: Nobody knows yet! I think it’s -

Richard Quest: Is it Putin’s if he wants it?

Andrey Kostin: Well you see, I think probably in Russia, the results are much more predictable. Definitely much more than France! You have 2 specific candidates and I think their policy, their economic policy is very close. Putin himself once said about himself, we are people of the same blood. And from this point of view I think investors would be quite calmed down Russia. It’s important that even this pre-election year, there is still a very basic macro-economic stability, as we expect the surplus of our budget, so it means not spending too much on any social welfare or anything in pre-election year. So I think that is something which I don’t think should frighten investors too much. Whether it’s this gentleman or that. I think they should look at the major items of the Russian economy or macro-economics, and just continue to be investing in Russia.

Richard Quest: Macro-economics will rule the day.

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