Discredited in the West, British Petroleum is pushing for high octane deals in emerging markets like India.
The award for the Ironical Statement of the Year should go to Mukesh Ambani, the world's fourth richest man. On February 24, 2011, announcing a high-octane oil and gas exploration deal—potentially worth $20 billion--with British Petroleum, the chairman of Indian petrochemicals giant Reliance Industries said he was delighted to partner with "one of the finest deep water exploration companies in the world."
Let's hear that again: "One of the finest deep water exploration companies." Ambani must either have a very short memory or a selective one? Hello, isn't this the same British Petroleum whose horribly amateurish drilling in United States coastal waters last year caused the worst marine oil spill in history. Eleven oil rig workers were killed in the deep sea disaster, following which the British company engaged in a massive cover-up, and only fessed up after American lawmakers publicly grilled its CEO.
However, Ambani's enthusiasm is understandable. Straight off he gets $7.2 billion in cash, which will drive his insatiable appetite for acquiring high-tech oil and gas assets around the world, especially in the United States.
Ambani, who is a voracious reader of management books, should dig up some history, especially of its new British driller. Wikileaks has revealed the extremely shady nature of British Petroleum's operations. According to leaked US cables, the president of Azerbaijan has accused the company of stealing billions of dollars of oil from his country and using "mild blackmail" to secure the rights to develop vast gas reserves in the Caspian Sea region.
The leaked US embassy cables reveal a disagreement between Azerbaijan and British Petroleum over how a consortium operating the huge Azeri-Chirag-Guneshi oil and gas fields, led by British Petroleum, would share profits with the government.
The production sharing agreement, which was signed in 1994, allowed for British Petroleum and its partner companies to initially take home a larger share of the revenues from the oilfield to pay off their development costs. Once these costs were recouped, a higher proportion of the revenues were to go to the government of the Central Asian republic.
However, British Petroleum had other ideas. In April 2007, the company told the Azerbaijanis that higher transportation costs and production delays were forcing it to delay the agreed increase in government profits. The game was afoot--the company was stringing along the government.
In one cable in October 2007 Azerbaijan's oil major, Socar, threatened to have British Petroleum's Azerbaijan boss, Bill Schrader, put on trial for "stealing ten billion dollars worth of Azerbaijani oil". According to another cable, the government was planning to "make public that BP is stealing our oil" if British Petroleum did not respond favourably.
Azerbaijan's is a classic case of a large transnational oil corporation browbeating a developing country and exploiting its natural resources. In Confessions of an Economic Hitman, John Perkins explains how oil corporations "invest' in a natural resources rich country and then take away much of those resources, leaving next to nothing for the local people.
Perkins illustrates: "For every $100 of crude taken out of the Ecuadorian rainforests, the oil companies receive $75. Of the remaining $25, three quarters (18.75 percent) must go to paying off the foreign debt (that is, the oil companies' investment). Less than $3 goes to the people who need it the most."
If foreign oil cos were taking away almost 94 percent of Ecuador's oil revenues, its unlikely the Azerbaijanis are doing much better.
Exploiting developing country resources seems to be British Petroleum speciality. Its crowning glory came in the 1950's in Iran where it was literally stealing Iranian oil and exploiting the local people. When the democratically elected Prime Minister, Mohammed Mossadegh, nationalized the oil industry, "an outraged England sought the help of her WWII ally, the United States", says Perkins.
However, both countries feared that military retaliation would provoke the Soviet Union into taking action on behalf of Iran. So instead of sending in the Marines, therefore, Washington dispatched CIA agent Kermit Roosevelt (Theodore's grandson). He performed brilliantly, winning people over through payoffs and threats. According to Perkins, "He then enlisted them to organize a series of street riots and violent demonstrations, which created the impression that Mossadegh was both unpopular and inept."
In the end, Mossadegh went down and Washington got its stooge--the slavishly pro-American Shah, whose corrupt rule generated such virulent anti-Americanism that it lasts to this day among all Iranians cutting across class.
According to the Wisconsin-based Center for Media and Democracy, British Petroleum has been at the centre of some of the worst oil and gas-related disasters and scandals in the US:
•In 2005, a major explosion destroyed a gasoline-filled tower at its Texas refinery, killing 15 people and injuring 170 more. Investigation revealed that the company had ignored its own protocols for operating the tower, and a warning system had been disabled. It pleaded guilty to federal felony charges and shelled out more than $50 million in fines.
•A year later, around 4,800 barrels of oil leaked into the snow around a pipeline in Alaska's Prudhoe Bay. British Petroleum had ignored warnings by one of its own quality assurance specialists about the corroded pipeline.
•In May, 2008, British Petroleum was one of eight big oil companies to settle a lawsuit brought by more than a hundred public water providers, who charged that the companies' activities led to widespread contamination of public groundwater sources. The companies jointly paid $423 million in cash.
•The US Department of Justice has charged British Petroleum with manipulating the market price of propane. The company agreed to pay over $300 million in fines in the case.
So what exactly is British Petroleum doing in uncharted Indian waters? "By allying ourselves with Reliance, we will access the most prolific gas basin in India and secure a place in the fast growing Indian gas markets, creating a genuinely distinctive BP position," said the company's new CEO, Bob Dudley.
In simple English, it marks a new stage in the MNC’s attempts to recover from the huge public relations disaster that was the American oil spill. Discredited in the Western world, the oil major is seeking redemption elsewhere. That, along with a belief that the epicentre of the natural gas industry--both production and consumption--is shifting to the emerging markets, has driven the company to conclude mega deals in the BRIC nations--Brazil, Russia, India and China.
However, so tainted is British Petroleum that it has found the going tough in these countries. The Russians have insisted on a complex $16 billion share swap deal with Rosneft, perhaps as insurance against a future disaster on Russian territory.
The Chinese, who have more leverage than anyone else--as well as capital punishment for crimes of negligence--, have asked for technology transfer before the British can cart away a drop of oil.
In India, the experience has been mixed. Much before the Reliance deal, India's state-run ONGC had proposed a strategic alliance with British Petroleum, but India's oil ministry rejected it, despite the British government pushing for the deal.
On the other hand, the Reliance deal seems just perfect. As well as getting a 30 percent share of Ambani's proven oilfields, the British can always rely upon the uber-powerful plutocrat to steer them out of Indian waters in case of trouble--oil spills included.
(About the author: Rakesh Krishnan Simha is a features writer at Fairfax New Zealand. He has previously worked with Businessworld, India Today and Hindustan Times, and was news editor with the Financial Express.)
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