NY Times, April 29 2014 Sanctions Over Ukraine Cause Headaches in the Energy Sector By ANDREW E. KRAMER
MOSCOW — Once a year, the chief executives of the world’s largest oil companies fly to St. Petersburg, Russia’s second city, for an economic forum and a rare chance to meet with President Vladimir V. Putin and his lieutenant in the energy business, Igor I. Sechin. At one panel discussion last year, leaders of major oil companies like BP, Chevron, ConocoPhillips, Eni, Royal Dutch Shell and Statoil sat in an auditorium as Mr. Sechin trumpeted the future of the industry in Russia, namely opportunities in Arctic offshore drilling and shale oil development in Siberia. Mr. Sechin sat beside Jeffrey R. Immelt, the chief executive of General Electric, a major supplier to the energy industry. “The participants of this meeting are a big and powerful group which controls capital of two and a half trillion dollars,” Mr. Sechin said. “It is of course an honor for me to speak to such a high-level group.” Now such relationships — between Russian state-owned businesses and large multinational companies — look increasingly complicated. As part of the latest round of sanctions over the Ukraine crisis, the Obama administration on Monday took aim at Mr. Sechin, the president and chairman of the management board for Rosneft, Russia’s state-owned oil giant. He is the most prominent businessman targeted to date. The administration’s measures, and similar ones in Europe, have focused on companies, officials and wealthy businessmen with deep ties to the Russian government and Mr. Putin. The energy sector has been a particular priority: The latest American sanctions cover 17 companies largely clustered in oil and gas construction and financing, as well as Mr. Sechin and six other people. While the financial implications for large multinationals have so far not been significant, the list is creating headaches for compliance departments of Western companies. For example, American investors will most likely be able to continue to own shares in a company with a chief executive who is subject to sanctions, according to one investment banker who was not authorized to speak publicly. But it is unclear whether portfolio managers can take part in a quarterly conference call or other meetings with a person on the list, lest it be seen as a form of commercial interaction. The United States did not place sanctions on Rosneft, and Mr. Sechin does not own a majority of the company, so American companies can still work with Rosneft. “U.S. persons are not prohibited from dealing with Rosneft, including participating in meetings of the company board,” on which Mr. Sechin sits, a Treasury Department official said. Although the targets have been limited so far, the sanctions have had reach. Visa will be required to suspend credit card services to a handful of Russian banks on the sanctions list: SMP Bank, Bank Rossiya, InvestCapitalBank and Sobinbank. MasterCard said it would stop servicing cards issued by those banks, though cardholders would be able to withdraw cash. Tien-Tsin Huang, a J. P. Morgan analyst, estimated that Russia accounted for just 1 percent of revenue at Visa and that the impact of the sanctions this year would be “pennies.” Credit card executives have expressed concerns that Russia might retaliate with its own restrictions on American companies. Another businessman hit with sanctions, Sergei V. Chemezov — the director general of Rostec, a quasi-governmental organization that oversees high-technology industries, and a longtime member of Mr. Putin’s inner circle — has had extensive dealings with Boeing. A joint venture partly owned by Rostec manufactures about half of the titanium parts used in Boeing aircraft. A regional airline affiliated with Rostec has contracts to buy Boeing jets. “We are aware of the new sanctions announced on Monday and are reviewing the matter to understand what impact, if any, there may be to our ongoing business and partnerships in the region,” a Boeing spokesman said in a statement. But the energy business faces a particularly delicate dance. Since late 1999, when Mr. Putin began his first term as president, Russia has sought to consolidate its commodity and energy companies under loyal oligarchs or state control. Mr. Sechin, a former officer in the Soviet main military intelligence directorate, or G.R.U., has been a pivotal player. Players like BP, Exxon Mobil and Shell have spent years building relationships in Russia, promising to transfer technology and capital. Western companies, wanting access to oil deposits, have been eager to make such trades. BP owns nearly 20 percent of Rosneft’s stock. Shell is a partner in a large liquefied natural gas facility on Sakhalin Island in eastern Russia. Exxon Mobil has an Arctic exploration joint venture with Rosneft. Russia produces some 10 million of the about 90 million barrels of oil pumped daily around the world. Mr. Sechin, who has been an aide to Mr. Putin since 1993, has been called the Scariest Man on Earth because of his espionage background. And he was a military intelligence agent who served in the Angolan civil war. He represents a faction of what Kremlinologists say are former K.G.B. and military officials known as the “siloviki,” or men of power, who moved into business under Mr. Putin and became necessary interlocutors for Western executives. Since BP and its Russian partners sold their joint venture to Rosneft, Mr. Sechin has been the British oil giant’s go-to man in Russia. “I have got a lot of respect for him,” Bob Dudley of BP said in January of Mr. Sechin, with whom he is on close enough terms to send text messages. Mr. Dudley sits on Rosneft’s board with Mr. Sechin. The Rosneft relationship is a major source of profit for BP. Russia accounts for about a third of BP’s total oil and gas output globally, more than the company pumps in the United States. Toby Odone, a spokesman for BP, said in a statement that the company was “committed to our investment in Rosneft, and we intend to remain a successful long-term investor in Russia.” He added that the company is studying the sanctions announcement for “what this may mean for BP.” In a statement released by Rosneft, Mr. Sechin said the sanctions would not affect the company’s operations. Other companies targeted include several banks, including SMP, that have financed oil field and pipeline construction, and Stroytransgaz and related companies, which form the pipeline construction arm of Gazprom, a state-controlled energy company. For years, financial analysts have questioned whether Stroytransgaz and related entities were have been used to siphon money from Gazprom to company and government insiders. By targeting individuals and companies in oil field services, the sanctions could slow capital investments in Russia’s oil sector and affect future output. Gazprom’s capital expenditures totaled about $24.4 billion in 2013, according to a company statement. A slowdown could pinch American companies such as equipment suppliers. The list reflects the delicacy that the Obama administration faces as it imposes sanctions. The United States still depends deeply on imported energy in spite of rising domestic output. If oil and natural gas are considered together, Russia is the world’s largest energy-exporting country, surpassing Saudi Arabia. Padma Desai, an expert in Russian politics and economics at Columbia University, said the direct fallout from the sanctions remained limited. Still, she said, Russia was hurting because of damage to its investment climate, and American companies could also see business disrupted, as joint oil and gas projects are delayed and Russian partner banks are put on blacklists. “Everyone wants the environment to settle down,” said Ms. Desai. “Both sides are watching the other.” _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
