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Russia takes the train to reach out to Europe

The logo of joint-venture oil company TNK-BP at its headquarters in Moscow. BP and four oligarchs have been wrangling over the partnership for years.

Sergei Karpukhin/Reuters/Sergei Karpukhin/Reuters

The first direct train service from Moscow to Paris via Berlin will arrive at the Gare de L'Est after completing a 3,177-km journey on Tuesday. This Trans-European express will be greeted with great fanfare – not only because it will show off Franco-Russian co-operation but is in many ways symbolic of Russia's efforts to reach out to Western Europe.

It will also be arriving the day after the publication on Monday of the Organization for Economic Co-operation and Development's latest report on the Russian economy. The report is bound to contain all the usual OECD recommendations urging Russia to modernize its economy and improve the country's business environment, especially for foreign investors.

So the arrival of the Moscow express, combined with the OECD report, will be an opportunity for reform-minded Russians, as well as foreign investors, to assess the progress – or lack of it – in the country's efforts to embrace genuinely western values. And it is no small coincidence that all this comes against a backdrop of increasing public opposition in Russia to the Putin regime, which is inevitably damaging the international perception of Russia.

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It thus seems an ideal moment to bring to an end years of Cold War-style legal brinkmanship that has marred one of Russia's most emblematic foreign joint ventures and engage instead in a little détente. Ever since BP and a group of four Russian-born oligarchs agreed eight years ago to form TNK-BP, the country's third-largest oil group by production, the partnership has been embroiled in legal wrangling.

This has not stopped TNK-BP flourishing into one of Russia's most-profitable oil companies with big ambitions to expand globally. The venture is important for the London-listed oil major because it accounts for around a quarter of BP's annual oil and gas production. Its continued success is presumably also important for BP's four billionaire partners grouped in the Alpha-Access-Renova (AAR) consortium. It is also clearly important for Russia – not only economically but as a rare example of a private partnership between Russian businessmen and a foreign oil group in a sector dominated by state-controlled giants.

In terms of governance, neither side in the TNK-BP partnership has covered itself in glory. The Russian billionaires have harassed their international partner from the beginning. BP put its foot in it this year when it proposed to team up with the Russian state oil champion Rosneft to explore the Arctic. Its Russian partners accused BP of breaching the TNK-BP shareholders agreement and took the major to court.

The Rosneft deal collapsed, but legal claims and counter-claims have continued to fly. So much so that one Russian analyst asks: "When was the last time you read an article about TNK-BP's business rather than its governance problems?" The same applies to the Russian nickel miner Norilsk which is at the centre of an epic battle between two oligarchs – Vladimir Potanin and Oleg Deripaska.

On a broader context, that is also true of Mr. Putin's Russia, where most of the attention, especially in the present climate, has centred on the country's governance rather than on its potential and abilities. After all, the current global economic situation should put Russia in a good position, given its natural resources and its money. But its questionable governance has inevitably been a handicap undermining international confidence.

Now BP and its Russian partners have an opportunity to send a strong signal to the investment community that things are finally changing. The TNK-BP board meets on Friday in Brussels to discuss essentially how to improve the already solid performance of the company. But the Russian billionaires have also insisted on discussing the outstanding legal issues.

This has raised some eyebrows given that BP and the AAR consortium have been holding behind-the-scenes negotiations to try to resolve all their outstanding disagreements. Indeed, BP has tabled an offer to the oligarchs including transferring a substantial asset into BP-TNK to boost further the joint venture's international expansion. While formally acknowledging differences between TNK-BP shareholders, BP is also making a firm commitment to the future of the joint venture. Last but not least, it is proposing an agreement from both sides to cease all outstanding legal action.

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It would be a miracle if the two sides settled all their differences at Friday's board meeting. But simply by indicating they are finally making progress and talking détente, they would not only enhance their respective reputations, but they would also show that Russia is finally prepared to countenance at least some notions of how western investors prefer to do business. For some historians compare Russia today to the so-called robber barons of the U.S. in the last quarter of the 19th century. The problem is that we are now in the first quarter of the 21st century.

Paul Betts is the Financial Times' senior correspondent in Paris.

Copyright The Financial Times Ltd. All rights reserved.

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