Hopes Rise of a Thaw in Relations between BP and Russia; Oiling the Wheels: BP Chief Tony Hayward Is Looking for a Better Relationship with Russia's New President Dmitry Medvedev

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Byline: WILL STEWART

IT HAS NEVER been easy doing business in Siberia's oil and gas fields.But the biting winds that sweep across the frozen tundra are a minor problemcompared with the air of malevolence that wafted towards BP from the Kremlinbefore new President Dmitry Medvedev took charge on Wednesday.

Under Vladimir Putin, Medvedev's predecessor and great ally, BP had felt thefull force of Moscow's opprobrium to their joint venture, the third-largest oilproduction operation in Russia.

First, Slavneft, BP's Russian joint venture with Gazprom Neft, saw its officesraided in February in an alleged tax probe. Then in March the FSBsuccessor to the KGBraided BP's Russian headquarters. And less than 24 hours later OxfordUniversity-educated Ilya Zalavsky, a senior manager at the firm, was chargedwith stealing Russian commercial secrets and selling them to Ukraine.

Finally Moscow announced it was sending its environmental chief to probe thebiggest field operated by BP in Russia. No-one at BP was unaware that OlegMitvol's steely handling of international oil giant Royal Dutch Shell onSakhalin Island two years ago had effectively forced them to sell up to Russianfirm Gazprom.

The attack on BP sent shivers through the market, bringing back uncomfortablememories of the Kremlin's assault on Yukos that led to its dismemberment.

Yukos, once Russia's largest oil company, was sold off in a series of auctionslast year following back-tax claims amounting to around [pounds sterling]14 billion.

In effect, Yukos was re-nationalised.

And there were fears before Medvedev came to power that BP may find its assetsgoing the same way, with state gas monopoly Gazprom ready to take over at anytime.

Now Medvedev, who is supposedly pro-Western and pro-business, is in charge. Thequestion is, will he continue former President Putin's purge on those who gotrich quick in Russia? Or is Putin's work done, and is it time for tempereddialogue with big Western firms? When Putin took control of Russia he faced twochallenges: the oligarchs who had seized billions of pounds of Sovietera stateassets through the barrels of their Kalashnikovs or mastery of what mightloosely be termed the legal system, and the investorsoften foreignwho had piled into the tyranny of post-communist Russia and picked up assets onthe cheap like children let loose in a sweetshop.

Putin did two things. With the oligarchs he demanded absolute loyalty. Ifgiven, questions would not be asked about exactly how they became rich soquickly, but they would be reined in and be expected to contribute some oftheir sudden wealth to the motherland. Those that opposed this were jailed,like Mikhail Khodorkovsky, or went into exile, like Boris Berezovsky. …