UPDATE 1-Putin says warned BP about Russian risks

UPDATE 1-Putin says warned BP about Russian risks

Sat May 31, 2008 7:00am EDT

(Adds quotes, background)

By Gleb Bryanski

PARIS, May 31 (Reuters) – Russia’s Prime Minister, Vladimir Putin, said he had warned BP (BP.L: Quote, Profile,Research) about the risks of setting up a venture with a group of Russian billionaires when he blessed its creation as Russian president in 2003.

“They now have a problem with their Russian partners. I warned them several years ago that there will be problems,” Putin said in an interview with French Le Monde daily attended by Reuters and released on Saturday.

BP and the Russian billionaires, which include Viktor Vekselberg, Mikhail Fridman, German Khan and Len Blavatnik, publicly aired differences this week over foreign expansion strategy and personnel policy at the firm.

“Several years ago they (BP) created a joint venture splitting the firm 50-50. When they did it, and I was present at the signing ceremony, I told them: “Don’t do it. Agree to one of you having a controlling stake,” Putin said.

Putin said the Kremlin would not object to either BP or the tycoons holding a controlling stake in the new venture.

“A whipmaster was needed there … They (BP) told me they will manage and here is the result. They will always have frictions over who is the boss. These are commercial disputes within the company,” Putin said.

The conflict escalated on Thursday when BP rejected a demand from the Russian shareholders to replace TNK-BP’s long-serving chief executive Robert Dudley, whom the Russians accused of serving only the interests of BP.

Many analysts say differences emerged following months of intense Kremlin pressure on TNK-BP TNBPI.RTS to sell control to a Russian state-run firm, such as gas giant Gazprom (GAZP.MM: Quote, Profile,Research).

The Russian shareholders say they want to expand abroad even if foreign acquisitions compete with existing BP businesses, and they also want a better balance between Russian and foreign staff.

The public dispute came on top of other major problems at TNK-BP, which last year was forced to cede control of a major Siberian gas project to Gazprom.

Mounting state pressure on the firm, including the arrest of an employee on an industrial espionage charge, a raid on its Moscow offices and a court injunction to stop it using BP specialists, have added to the tension.

“Nothing has happened to TNK-BP yet,” Putin said, answering a question about how the situation around TNK-BP affected the investment climate in Russia. He said problems with other foreign investors in Russian oil industry have been solved.

“As far as Shell is concerned, we have solved all the problems and we hope there will be no such problems in the future,” Putin said, referring to Sakhalin-2, one of the world’s largest LNG projects, once led by Royal Dutch Shell (RDSa.L: Quote, Profile, Research).

Shell ceded control of the $22 billion venture to Gazprom after Russia’s environmental watchdog threatened to strip it of production licences for breaking ecological rules.

“Our partners should know that a colonial method of Russia’s natural resources exploration will not work,” Putin said. Sakhalin-2 was initially run under a production sharing deal, which Russia viewed as unfair.

(Reporting by Gleb Bryanski; Writing by Dmitry Zhdannikov; editing by Christopher Johnson)