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A Turn of Fortune in Russia

Wall Street's troubles have rippled through to Moscow's Arbat Street as well as Main Street.

The Wall Street Journal has reported that the Russian government let the Alpha Group, controlled by tycoon Mikhail Fridman, tap a Russian government fund to help pay back a $2 billion loan to a group of banks led by Deutsche Bank.

That would have repercussions at the Arbat Street headquarters of Moscow-based oil company TNK-BP, where Fridman and his allies earlier won concessions from BP about the management of their Russian joint venture, including the ouster of the BP-chosen chief executive. Not even two months after that victory, Alpha's financial constraints have everyone recalculating.

First, Alpha's financial constraints will probably only magnify the Russian partners' desire to siphon dividends out of TNK-BP. Even before the credit crunch hit hard in September and October, the Russian partners were eager to draw more cash out of the venture.

Second, Alpha's troubles could force the Russian partners to abandon ambitions to have TNK-BP explore extensively outside Russia; it would cost too much money. Just three months ago, the Russian partners were lamenting lost opportunities in places like Cuba, where the company recently agreed to study drilling opportunities. Now, sources say that Fridman may be shelving projects that BP hadn't favored anyway.

Finally, Fridman will probably also look to trim TNK-BP capital spending plans in Russia so that the joint venture will be able to pay out somewhat bigger cash dividends for use shoring up Alpha's finances. TNK-BP had forecast between $3.5 billion and $4.5 billion in capital spending for 2009; the lower number now looks more likely. That won't help Russia stop the erosion of oil and natural gas production.

Fridman's rapid rise to wealth in Russia has undoubtedly aroused jealousy and irritation there. Now it will be fascinating to see what price will be extracted from him by those who have watched his rise.

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Comments (1)

forexthinker-com Author Profile Page:

Considering Fridman’s handling, it is doubtful the TNK-BP partnership would survive.

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