Efforts are under way at various levels to resolve the polonium affair, which has caused a "mini-crisis" (as President Vladimir Putin said) in Russian-British relations. Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs, spoke out on this topic yesterday.

Shokhin said that although neither Russian nor British companies have an interest in seeing this crisis expand, British business stands to lose more if it does. Shokhin's arguments: although the London Stock Exchange has become the favorite IPO venue for Russian companies, if matters reach the point where Russian companies are barred from London (a purely hypothetical scenario, says Shokhin), they would have no option but to seek other locations.

Shokhin named some alternatives: the Frankfurt Stock Exchange, Euronext, and the Austrian Stock Exchange. The conclusion: many other cities would welcome Russian companies and their shares.

The present situation is as follows: 2006 saw a record number of Russian IPOs - 23 of them, compared to 13 in 2005 and five in 2004. Russia's IPO market was worth a total of $17.742 billion, four times the figure for 2005 ($4.55 billion). 

In 2007, Russian IPOs in London may be worth as much as $300 billion. But Shokhin notes the other side of the coin: "It will be much more difficult for British companies to carry out large-scale projects in Russia." In fact, conditions in Russia are becoming increasingly uncomfortable for British companies. The first alarm bell was Russia's refusal to renew the visa of British citizen William Browder, executive director of Hermitage Capital Management. Royal Dutch Shell was next: after much fault-finding from the State Environmental Inspectorate (RosPrirodNadzor), the corporation agreed in December 2006 to sell Gazprom its controlling interest in Sakhalin Energy, the Sakhalin-2 gas project operator, for $7.45 billion.

The Imperial Energy scandal has passed almost unnoticed. This British company owns oil production assets in Russia. In April 2007, RosPrirodNadzor Deputy Director Oleg Mitvol announced that IE had exaggerated its reserves and demanded a review of the audit done by DeGolyer and MacNaughton. A Natural Resources Ministry working group endorsed Mitvol's demands yesterday. IE's fate may be shared by other relatively small British companies; Mitvol has spoken of the need to inspect them.

The latest casualty is BP. In June 2007, it agreed to sell Gazprom its stake in the Kovytka gas field project. According to the official press release, Gazprom will pay $600-900 million for the controlling interest. So the balance of pluses and minuses had started to take shape even before the polonium scandal.

Gazeta