Cameron seeks to end deal slump in Russia
U.K. Prime Minister David Cameron will visit Russia next week, seeking to thaw a five-year chill in relations and reverse a losing streak for the country's companies in Russia against German and U.S. rivals.
British mergers and acquisitions in Russia slumped to $346 million last year, compared with $428 million for German companies and down from a peak of $2.1 billion in 2007, data compiled by Bloomberg show. The value of U.S. deals surged to $5.7 billion last year from $1.2 billion in 2007, including PepsiCo Inc.'s $3.8 billion purchase of a majority stake in OAO Wimm-Bill-Dann in December.
Cameron will be the first British leader to visit Russia since 2005 as relations soured to a post-Cold War low after the 2006 murder of ex-KGB agent Alexander Litvinenko in London. The premier arrives less than two weeks following Russia's raid on the Moscow offices of BP Plc, a day after it was replaced by Exxon Mobil Corp. in an Arctic oil project with OAO Rosneft.
“Britain is supposedly a mercantile trade-oriented country but when it comes to investing in Russia, Europe's most populous country and set to be Europe's biggest economy, we have been completely outclassed by America and the Germans,” Liam Halligan, chief economist at Prosperity Capital Management in Moscow, which oversees about $5 billion in Russia and other former Soviet countries, said by phone.
Cameron, whose visit to Russia was announced in May, will meet with President Dmitry Medvedev on Sept. 12, according to an e-mailed statement today from the president's office. Cameron may also meet his Russian counterpart Vladimir Putin.
Radiation Poisoning
Litvinenko, who died of radiation poisoning in London, in a deathbed statement blamed then-President Putin for his murder. The Kremlin dismissed the accusation as “absurd.”
The U.K. and Russia expelled diplomats and Russia forced the closure of British cultural offices outside Moscow. This followed Russia's refusal to hand over Andrei Lugovoi, a former KGB agent wanted by the U.K. for the November 2006 murder.
BP, which in 2003 forged a joint venture with a group of Russian billionaires with Putin's blessing, has fallen out with its partners in TNK-BP for the second time in three years. The London-based company, which relies on the venture for a quarter of its output, had to give up a deal to explore Arctic fields with Rosneft after the billionaire partners sued to block it. BP Chief Executive Officer Robert Dudley will accompany Cameron on the visit to Moscow, Sky News reported without saying where it got the information.
‘Symbolic Display'
The raid on BP offices by court bailiffs, accompanied by armed men enforcing a $3 billion lawsuit a day after the Exxon deal, is a “symbolic display of the U.S. company's rising fortunes in Russia against the failing luck of the British giant,” said Lilit Gevorgyan, a London-based analyst at IHS Global Insight.
U.S. President Barack Obama's administration has sought to strengthen relations with Russia since he came to office in 2009 after ties frayed under his predecessor George W. Bush.
The two nations have since signed an accord to reduce their nuclear-arms stockpiles even as Russia has continued to oppose a planned U.S. missile defense system in eastern Europe and an American visa ban on Russian officials linked to the death of anti-corruption lawyer Sergei Magnitsky.
“We have been extraordinarily successful partners in moving toward reset,” Obama said last month.
German Ties
Germany has developed close political and trade ties since Putin, a former spy who lived in Dresden during the Cold War, came to power in 2000. Former German Chancellor Gerhard Schroeder is chairman of Nord Stream AG, a 7.4 billion-euro ($10.4 billion) Russian-controlled Baltic Sea gas pipeline being built from Vyborg, Russia, to Germany.
Putin last week met Deutsche Bank AG Chief Executive Officer Josef Ackermann and praised Germany's biggest lender for helping arrange a debut sale of ruble debt abroad.
The British policy of granting asylum to Russians including Chechen separatist leader Akhmed Zakayev and businessmen accused of fraud is a persistent thorn in bilateral ties, said Sergei Markov, a member of the ruling United Russia party.
“We don't need any more unfriendly actions,” Markov said, warning against an initiative by Denis MacShane, a lawmaker from the U.K. opposition Labour Party, to sanction the same Russian officials targeted by the U.S. over Magnitsky's death.
Tony Brenton, the former U.K. ambassador to Russia from 2004 to 2008, said the Litvinenko affair remains “unfinished business” that still bedevils relations between the two countries unlike Russia's ties with Germany or Italy.
‘Political Difficulties'
“We have had more political difficulties, without a doubt,” Brenton said in a phone interview.
U.K. companies including BP, Royal Dutch Shell Plc, AstraZeneca Plc, Kraft Food Inc.'s Cadbury unit and Kingfisher Plc have invested more than 11 billion pounds ($17.8 billion) in Russia, about 15 percent of total foreign investment in the country, according to the U.K. Trade & Investment government agency.
London-based HSBC Holdings Plc, Europe's largest lender, gave up on plans to establish a retail banking business. Barclays Plc is also selling its retail unit in Russia amid rising competition from Russian state lenders.
“Outside oil and gas, U.K. companies are extremely thin on the ground in Russia,” Halligan said. “In 1994 when I first came to Russia, the Brits had a huge head start. Fifteen years on and we have lost the plot by being completely focused on intrigues and Cold War conspiracies.”