Tuesday, December 14, 2010

BP asset sales, state-owned companies and national security

BP's oil spill in the Gulf of Mexico is old, old news. But what has gone relatively unnoticed is the possible energy and national security impact of BP's asset sales meant to cover the costs of the Deepwater Horizon incident.

BP aims to sell $30 billion in assets, and China and Russia are lining up to grab what they can, including most recently United Energy Group's purchase of $775 million of BP assets in Pakistan. United Energy Group is a a Hong Kong-based company with much of its assets in China and Indonesia.

Payment? In cash.

Other than that, here's the asset sale list, courtest of BNet's Kirsten Korosec:

Assets sold to date:

Korosec fails to mention BP's sale of German pipeline and refinery assets to Venezuala, who promptly turned around and sold the works to Russia' Rosneft for $1.6 billion. That purchase is directly in line with Russia's goals of controlling domestic upstream assets and buying up downstream assets in countries it can't control through cruder means, such as price and supply variations. Also, the sale goes very much against Germany's goal of not selling transport and downstream assets to Russia. Bottom line, Russia wins.

These purchases underline what I believe is an unexpected cost of the BP oil spill for the United States: The strengthening of state-run or influenced energy corporations from Russia and China. While BP's ownership of the assets didn't necessarily strengthen US energy security, their ownership by Russia and China embeds those firms more deeply in the global energy market. Even India has found itself trying to play catchup by instructing its state-owned energy firms to search overseas for assets to purchase.

That growing grasp comes with national security implications, since state-owned industries are seldom fully divorced from those states' international affairs goals.

As the Wall Street Journal puts it:

States use these tools to create wealth that can be directed as political officials see fit. The ultimate motive is not economic (maximizing growth) but political (maximizing the state's power and the leadership's chances of survival). This can distort the performance of markets. State-run companies and investment funds are also burdened with the same bureaucracy, waste and political cronyism that burden the (often authoritarian) governments that control them.

So while BP is doing its duty to pay for the costs of its Gulf of Mexico spill, there are larger ramifications for international relations and national security. Stay tuned for more sales as BP attempts to sell another $10 billion worth of assets.

Who do you think will be in line with a fistful of cash?

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