'Suspended punishment'

There is a feeling of deja-vu surrounding attempts by Russia's state-controlled gas giant Gazprom to wrap up a deal for BP's stake in the huge Kovykta gas bubble in eastern Siberia.

As the Kremlin continues its drive to bring energy assets back under state ownership, Russian-British joint venture TNK-BP has suffered a spate of unwelcome state intrusion that could be construed as a broad attack on the company.

Bark or bite?

• Plain-clothes tax police raided the Moscow offices of TNK-BP on March 19.
• Oleg Mitvol, the Kremlin attack dog who threatened to revoke environmental authorisation for Royal Dutch Shell's Sakhalin II oil and gas production project, has announced a probe of TNK-BP's Samotlor field in western Siberia.
• An Anglo-Russian TNK-BP employee and his brother have been arrested on charges of industrial espionage.

BP Chief Executive Tony Hayward dashed to Moscow last week to reassure investors that the Kremlin was not trying to evict him from the country, home to 19% of the company's oil and gas reserves. Yet Hayward did not convince. Shares in TNK-BP fell 10%, as investors feared a reprise of what UCL political scientist Dr. Alena Ledeneva has labelled 'suspended punishment'.

Sword of Damocles?

Ledeneva believes the official rules governing investment in the Russian economy are deliberately opaque, mercurial, and inconsistent. Merely participating in the economy means inevitably transgressing one law or other, nolens volens. Everyone is under threat of punishment, but actual punishment is 'suspended', ready to be enforced at the whim of those in authority.

In this regulatory imbroglio -- Russian capitalism at its most unruly -- any number of transgressions can be invoked to clamp down on an individual or firm, ranging from the mortal (tax evasion) to the venial (getting fire regulations wrong).

Ill-gotten gains?

Dmitry Medvedev, the former law professor who becomes Russia's president on May 8, has promised to clarify the ambiguous legal system. Yet the cryptic laws may have already served their purpose.

Under Boris Yeltsin, the oligarchs became fantastically rich in a kind of frontier capitalism, which paid little attention to property or shareholder rights, as did their forerunners in the US nineteenth century 'Gilded Age'. Vladimir Putin wanted to claw back their gains and leveraged tax and environmental laws to regain control of the hydrocarbon sector.

The abstruse laws do not seem to deter foreign investment. The stock of foreign investment has risen to 221 billion dollars, 120 billion of it arriving in 2007. With the Russian economy growing last year by 8.1%, foreigners will continue to see business opportunities, but the game will still be played by Russian rules.