groups of oligarchs who had jointly participated in the original loans-for-shares acquisition of Sidanco and then had a bitter falling-out. The AAR group believed that its partner, Interros, had tricked it into selling out at a greatly discounted price prior the BP deal. And now AAR wanted back in. BP was really a bystander, but its prospects for protecting its position in Russia did not look at all good. Outside Russia was a different matter. AAR also owned TNK. At this point, TNK had very few financial resources of its own but needed considerable investment to maintain and develop its share of Samotlor. So it was turning to Western credit markets to finance its activities. But then Western credit lines, on which TNK depended, were one after another shutting down. TNK could certainly prevail within Russia, but BP held high cards and influence outside Russia. That was sufficient to force the parties to the negotiating table: the dissident oligarchs and their company TNK gained a major share of Sidanco. Yet BP had preserved its role as the only Western company to have found away into a significant position in the heartland of Russian oil—in West Siberia.
By this time, politics in Russia had changed, and so had the position of the Russian government.
“A GREAT ECONOMIC POWER”
With the end of the Cold War, Vladimir Putin, who had been a KGB officer stationed in Dresden in East Germany, returned to his home town of St. Petersburg and joined the city government. When the reformist mayor for whom he worked as a deputy mayor was defeated, Putin was without a job. Then his country house burned down. He enrolled to do a doctorate in the St. Petersburg Mining Institute. His studies there would help shape his view of Russia’s future.
In 1999, Putin published an article in the institute’s journal on “Mineral Natural Resources” that argued that Russia’s oil and gas resources were key to economic recovery and to the “entry of Russia into the world economy” and for making Russia “a great economic power.” Given their central strategic importance, these resources had to be, ultimately, under the aegis, if not direct control, of the state.
By the time the article was in print, Putin himself was already in Moscow, rapidly ascending in a series of jobs—including head of the FSB, successor to the KGB, and then prime minister. On the last day of December 1999 Boris Yeltsin abruptly resigned and Vladimir Putin, without a job just three years earlier, became Russia’s acting president.
In July 2000, two months after his official election, Putin met in the Kremlin with some of the rich and powerful businessmen known by then as oligarchs. He very clearly laid down the new ground rules. They could retain their assets, but they were not to cross the line to try to become kingmakers or in other ways control political outcomes. Two of the oligarchs who did not listen closely were soon in exile.
TNK-BP “50/50”
Once its deal with TNK had been concluded, BP began looking at the possibility of a merger of interests. Given their recent struggle over Sidanco, there was wariness on both sides. After intense negotiations, the two groups agreed to combine their oil assets in Russia with 50/50 ownership of the new firm, TNK-BP. BP wanted 51 percent, but this was never going to be possible. As John Browne later said, “We could not have it.” On the other hand, it could not go ahead in a minority position of 49 percent. The result was equal ownership. President Putin gave his approval, though with a word of advice. “It’s up to you,” he said to Browne. But he added, “An equal split never works.” The deal went forward. At a ceremony in Lancaster House in London in 2003, Browne and Fridman signed documents for the new company, with Vladimir Putin and British Prime Minister Tony Blair standing behind them, overseeing the signatures. The new TNK-BP represented the largest direct foreign investment in Russia. At the same time it was a Russian company. The new combination modernized the oil fields and increased production rapidly. It also increased BP’s total reserves by a third, and it pushed BP ahead of Shell to be the second largest company, after ExxonMobil. But a few years later, bearing out Putin’s adage, a fierce battle erupted over control and as to exactly what 50/50 meant. Eventually, after much tension, the two sides came to a new compromise that modified the governance, shifting the balance toward the