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Intern Lenka Kocáková: TNK-BP shows the importance of risk intelligence for foreign business

Political factors affecting businesses

Doing business in a foreign country often brings with it a number of risks, including sectoral regulations, form of government, legislation, geopolitical threats, relations between the countries concerned, etc. It is especially important to consider employing appropriate risk intelligence measures when the country of choice does not have a democratic government and/or is accompanied by international tensions. The British-Russian joint venture TNK-BP is a direct example of the extent to which political risks can influence business.

A less than harmonious partnership

TNK-BP was a joint venture between BP and Alfa Access Renova (AAR), a consortium of Russian oligarchs with government connections between the years 2003-2013. The majority of its operations were conducted in Russia. Issues between the two parties had emerged right from the beginning, as shareholders often had diverging goals. As a result, disputes and tension occurred, targeting BP, and more specifically the then-CEO of TNK-BP, Robert Dudley. During their ten-year-long partnership, it was possible to observe how a small group of Russian businessmen tied to the government influenced the outcome of disputes in their favour.

In one instance, the Russian government did not like BP’s plan to create a new venture with Gazprom, which would have made the latter a major player in the Russian oil field and pushed AAR to sell its shares in TNK-BP. As a result, Moscow thwarted BP’s plans, thus illustrating the measures authoritarian leaders and major power players can take when their agenda is in any way threatened. This shows the importance of the form of government and government relations in the target country one is starting to do business in and the associated risks it may result in.

Another government intervention occurred when the Russian police arrested a BP employee and his brother on unsubstantiated charges of industrial espionage. The situation worsened further, forcing Robert Dudley to flee Moscow after his work visa had not been renewed by Russian Immigration Services. This was a result of AAR’s dissatisfaction with BP’s approach to running the company, which the former did not perceive as equal. In a different instance, AAR brought BP in front of the London High Court after accusing the company of violating a shareholder agreement, when BP was interested in closing a new Arctic deal with competing Russian oil company Rosneft. Once again, AAR’s close ties to the government ensured that the deal did not go through.

The role of PRINCEPS

The above illustrates only a few examples of the impacts of politics on business. In such instances, PRINCEPS can help businesses to navigate doing business in a specific region by identifying the implications of political changes on businesses in a number of sectors. With an individual approach to each client, PRINCEPS addresses the concrete needs of each situation to provide robust and comprehensive risk intelligence services throughout the CEE region. Incorporating risk intelligence into business decision-making processes significantly limits the number of unknowns and minimises the impact of political risks on foreign investments and other business ventures.

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