Streetwise Professor

I wonder if these stories may have some connection.  First, Rosneft and BP are apparently working to structure a deal to buy out AAR from TNK-BP.  Second, the Russian government has revoked a tax holiday on TNK-BP’s Verknechonskoye field, as well as another field held by Surgutneftgaz.

This will apparently cost TNK-BP $450 million.  Nice way to put some downward pressure on the value of TNK-BP–and hence the price AAR can demand for their piece of it.

Of course there are other reasons to remove the tax breaks, notably the Russian government’s need for money.

But there’s a bigger issue here too.  A constantly changing, unpredictable, and ultimately arbitrary tax regime subject to the short-term political currents in Russia (e.g., Putin promises more bennies as part of his political campaign, and the money has to come from somewhere) as well as the vicissitudes of natural state rent reshuffling, is hardly conducive to robust investment.  Russia is notorious for its low rate of investment, especially compared to its alleged peers.  Foreign direct investment is moribund, and Russians are shifting capital out of the country.  This is another short term measure that undermines the long-term prospects for Russian development.

Not that short-termism is a solely Russian phenomenon.  I hope to post soon on how it is becoming a serious problem in the US too.