Watching the World: Spies, taxes, and business

April 25, 2005
In the old days, when Her Majesty’s Treasury was being drained dry, the British government dispatched James Bond to sort out the problem.

In the old days, when Her Majesty’s Treasury was being drained dry, the British government dispatched James Bond to sort out the problem. These days, that task falls to other stalwarts, armed with little more than patience and politesse.

Last week, BP PLC Chief Executive John Browne was the man for the job as he winged it to Moscow for a meeting with Russian President Vladimir Putin-latterly of the KGB-to discuss the general business environment in Russia these days.

“Taxing” is probably the word that best describes that environment, as Browne well knows, since Russian authorities have recently demanded back tax on BP’s 50-50 joint venture with local oil producer TNK.

Indeed, news of Browne’s visit emerged just after TNK-BP received a demand for back taxes totaling 22 billion roubles ($792 million) on top of an earlier demand for 4 billion roubles ($144 million), which it is contesting.

That must be more than a little worrisome to BP shareholders.

Taxes beyond polite

BP’s media office was nonetheless chirpily diplomatic in saying that Browne does not consider the tax matter a big issue. “It’s ‘business-as-usual’ for BP in Russia,” a spokeswoman said.

Of course it’s business as usual for Browne, and that’s become the worrisome thing in Russia these days as Putin’s government continues to goldfinger the oil industry for every rouble it can.

Without question, businesses have become alarmed by an increasing number of back-tax probes launched in the wake of OAO Yukos’s seminationalization against a $28 billion tax bill that some analysts have referred to as retribution for the political ambitions of its jailed owner Mikhail Khodorkovsky.

Fearing a similar fate, Russia’s OAO Sibneft reportedly has paid a back-tax bill of $300 million for 2001-03 in the hope of avoiding a politically charged tax probe like the one that dismembered Yukos.

Taxes beyond patience

But one does not even have to be involved in politics to attract the golden eye of Russian tax authorities.

No, like tax officers in a variety of places around the globe, those in Russia know a soft touch when they see one, and they long ago appraised the oil industry’s soft underbelly as the softest of touches.

In that regard, consider the latest news, where government taxes on Russian crude oil exports may be increased to a new high of $130-133/tonne beginning in June.

That would be a whopping 30% or so more than the record set on Apr. 1, when Moscow increased duties to $102.60/tonne from the earlier $83/tonne from February and $101/tonne from December.

It’s business as usual in Russia? Browne may be On Her Majesty’s Secret Service, but the news is out anyway, and the headline’s definitely not From Russia With Love.