March 29, 2011 / 1:02 PM / 6 years ago

Russia: investor climate so bad BP row can't hurt

4 Min Read

* BP row won't affect investment climate - Kremlin aide

* Kremlin hopeful dispute will be settled

By Denis Dyomkin

MOSCOW, March 29 (Reuters) - Russia's investment climate is already so bad that even a row between BP and its shareholders at Anglo-Russian TNK-BP will not discourage seasoned investors, a senior Kremlin aide said on Tuesday.

BP (BP.L) was blocked from expanding its presence in Russia through a $16 billion share swap and joint exploration plans with Russian state giant Rosneft (ROSN.MM) by a Stockholm arbitration panel last week, after TNK-BP's TNBP.MM billionaire partners took the case to court.

The move has led to concerns that other energy firms looking to extend their reach may face similar problems.

"Right now our investment climate is so bad that it won't be affected," President Dmitry Medvedev's top economic aide, Arkady Dvorkovich, told reporters.

He said he was hopeful that the dispute would be settled, and when asked what the Kremlin's advice was, Dvorkovich responded: "Find a solution that is acceptable to both sides. I think they'll find one."

Medvedev said in December Russia's investment climate was poor and has called for a reduction in bureaucracy, an improvement of the court system and for property rights to be upheld.

Dvorkovich has said the sentencing of former oil tycoon Mikhail Khodorkovsky to six more years in prison could hurt Russia's investment climate.

Russia's image was dented late last year when a court ruled against Khodorkovsky, in jail since 2003, after what his supporters said was a politically motivated trial into theft and money-laundering. The United States criticised the decision.

The case was seen as a test of Russia's commitment to the rule of law, which along with corruption is seen as one of the biggest problems investors cite when doing business in Russia.

Russia is perceived as the most corrupt country in the G20 by Transparency International, which places it on a par with Cambodia and Kenya.

Dispute Dealt Blow to Government

BP's attempt to form an alliance with state-controlled Rosneft to explore the Arctic was seen as a major boost for Russia's investment climate before it was challenged by the local shareholders of BP's joint venture TNK-BP.

Rosneft Chairman Igor Sechin has argued that Rosneft had suffered losses as a result of the actions by BP's TNK-BP partners Access-Renova (AAR), which pursued the court action against the BP-Rosneft tie-up, arguing the alliance violated their right of refusal.

BP has sought further court hearings on its blocked Rosneft deal on April 4, AAR said. AAR and BP each own half of TNK-BP.

The dispute has also dealt a blow to the government, which struck a series of deals this year with global energy majors to tap new oil and gas regions to sustain long-term output growth. Analysts have said these majors could now quit Russia.

Top oil producer Russia is trying to polish its image for foreign investors, not only in the energy sector where it is trying to offset an imminent decline in output at its western Siberian oil fields.

Medvedev has embarked on a modernisation drive aimed at diversifying the oil and gas-driven $1.3 trillion economy towards high-tech innovation. (Writing by Thomas Grove; editing by Elizabeth Piper)

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