As Oil Sinks, Hopes of Philanthropy Sink Too

LUKoil is one of Russia's biggest philanthropic donors, directing money to the Bolshoi Theater, a military academy and a group of reed weavers as corporate philanthropy has taken off over the past decade.

Not to be outdone, rival oil majors Rosneft and TNK-BP are closely trailing LUKoil in the size of their charitable contributions. The three companies accounted for a third of all donations over the past two years, contributing to a combined $1.5 billion each year.

Now, a big question mark hangs over their philanthropic activity as the global economic crisis takes its toll.

"The question is what will happen in 2009?" said Maria Chertok, Russia director of Britain's Charities Aid Foundation. "I have a feeling that this activity is folding."

Chertok said she feared that corporate donors would cut contributions by at least a third this year.

Oil companies are among the biggest donors, and their profit margins are in doubt after world oil prices plunged from a high of $143 per barrel last summer to about $40 today.

No. 2 oil producer LUKoil, which said this week that it would halve its 2009 investment program if oil prices remained at current levels, insists that it will not reduce its charitable donations this year. A spokesman for Rosneft, the country's largest producer, said the heavily indebted company would not disclose its philanthropic plans.

TNK-BP, the third-largest oil firm, is reviewing its philanthropic spending, spokeswoman Marina Dracheva said. "Spending for these purposes will not increase. This is obvious," she said.

Potential cuts could hit a wide variety of institutions and communities, ranging from small Far North settlements in companies' production areas to fine arts establishments in Moscow.

In pursuing philanthropic projects, oil companies often substitute federal and local governments in paying for the maintenance of schools and hospitals used by the families of their employees. TNK-BP spent $30 million to buy and construct housing for low-income families in 2007.

"They fill in for the state at the expense of their net income, at the expense of shareholders' money," Chertok said. "It's clear that if they don't pay for maintenance, someone will have a leaky roof. But there is a problem about that: The state doesn't properly fulfill its duties."

Other corporate donations appear aimed at building goodwill among customers.

LUKoil is sponsoring the Khrulyov Military Academy of Logistics and Transport in St. Petersburg because the Defense Ministry is a major client, said Igor Beketov, director of the LUKoil Charity Fund.

Contributions to theaters, museums and art galleries are in line with international practice. TNK-BP has financed the restoration of historical buildings in St. Petersburg. LUKoil covered the Bolshoi Theater's costs of restaging "Raymonda," a ballet by Alexander Glazunov, earlier this decade. It also bought a painting by Spanish impressionist Hermenegildo Anglada Camarasa, "Night Cafe," for the Pushkin State Museum of Fine Arts in 2007.

LUKoil also backs artists in the areas where its production units are based. It bankrolled reed-twining enthusiasts in Astrakhan last year to support what Beketov described as the traditional art of the region.

Among the projects that Rosneft lists on the charity page of its web site are the All Russian Volleyball Federation and an association of athletes practicing Summer Olympic sports, including volleyball.

Asked if the association would see a drop in donations from Rosneft this year, its secretary-general, Yury Yuryev, said: "We do have fears about that. Talks are still going on."

While oil companies fill the government's shoes in the regions, each seems to follow its own strategy in selecting philanthropic projects in Moscow.

Privately owned LUKoil is drawn to big names. "We are quite a large company," Beketov said. "We made a decision to support the most significant cultural institutions."

In the case of state-controlled Rosneft, the choice seems to stem from the government's practice of installing state-connected personalities to the head of sports organizations.

Rosneft president Sergei Bogdanchikov heads the Summer Olympic sports association that his company gives money to. He was elected to the post in 2006 on the recommendation of then-President Vladimir Putin.

The association appears to be popular among oil traders, too. It also lists two of Rosneft's business partners, Vitol and Gunvor, co-founded by Putin acquaintance Gennady Timchenko, as its sponsors.

The chief of the All Russian Volleyball Federation is former Federal Security Service director Nikolai Patrushev, who now heads the advisory Security Council.

Foreign oil majors also contribute to Russian projects. ExxonMobil, which operates the multibillion-dollar Sakhalin-1 project, has supported the Russian National Orchestra since 1993 and sponsors folk dancers, summer camps for children and sports competitions. It will give away more than $1 million this year, slightly more than last year, said spokeswoman Dilyara Sydykova.

"We are not winding anything down," she said. "It is important for the company to help the people alongside whom we work."

Doubts linger in the philanthropic community about whether state-run oil pipeline monopoly Transneft can be counted on for donations. Transneft startled the community last year when it announced that it had spent a huge 7.2 billion rubles on unspecified philanthropic projects in 2007, an amount worth $281 million at the time.

"This figure can be cast aside after all," Chertok said. "They said they spent it on charity, but they refused to say exactly which."

Philanthropic spending must remain private, said Transneft spokesman Igor Dyomin. "Charity isn't something that you enlarge upon," he said. "It's an internal rather than external issue."

The company slashed its philanthropic budget last year and will probably cut it further this year, Dyomin said.