The odd couple

All is not peace and harmony between Russia and the US in Europe’s Black Sea region. But investment groups from the two countries have joined forces to prove that co-operation is possible when money – not politics – is the motivation. Andy Thomson reports.

While relations between the US and Russia have improved beyond all measure since the end of the Cold War era, occasional frostiness between the old sparring partners can still be observed. Given recent political developments, it would be tempting to view the Black Sea as a new battleground. 

Just over a month ago, the Istanbul-based organisation for Black Sea Economic Co-operation (BSEC) – a body that promotes trade in the Black Sea region – turned down a request from the US for observer status. It was an open secret that Russia was behind the move.

The fact that eight members of the BSEC expressed regret at the move will have pleased the US, which is keen to court countries in the region in its efforts to keep ports and pipelines in which it has a strategic interest safe from terrorist attacks. In particular, it wants to protect the new 1,770-kilometre oil pipeline linking Baku in Azerbaijan with the Turkish port of Ceyhan via the mountains of Georgia. The pipeline, which is designed to lessen Western reliance on Middle Eastern sources of energy, notably bypasses Russia completely – a deliberate move intended to deny the Russians any opportunity of using oil as a political weapon in future.

In this climate of mistrust, it is not a little surprising that a Russian private equity firm has stepped in to rescue a US government-backed fund active in the Black Sea region from an uncertain future. Earlier this month Alfa Capital Partners, the investment arm of Russia’s Alfa Bank, revealed it was joining the Great Circle Capital fund as a limited partner and regional manager.

Alfa and Probel Capital Management, a Belgian real estate investment company, have agreed to pump $70 million of new investment into Great Circle, while US state agency Overseas Private Investment Corp (OPIC) is adding a further $110 million, bringing the total to $170 million.

This represents a notable revival for a fund that struggled to raise $30 million of outside investment when it was launched in 2002 with $55 million of backing from OPIC. It was subsequently reported that the fund, which aimed to invest in maritime and transport projects in emerging markets, had not been as active as originally intended – and was struggling to justify its mandate prior to the latest cash injection.

Following management changes at Great Circle – Robert Burke and Kevin Kennedy have sold their interests in the management company to fellow partners Paul Rapello and Hew Crooks – the firm is focusing its efforts on the transport, infrastructure and logistics sectors in Russia, Ukraine, other former Soviet countries, Southeast Europe, the Balkans, Turkey and various other parts of the Mediterranean.

Intriguingly, Great Circle’s largest investment to date has been in Naftrans Limited, the 100 percent owner of Georgia’s Batumi oil terminal in the Black Sea, in which Great Circle invested an initial $13 million, with a pledge to invest a further $30 million in follow-on investment.

Perhaps more such Black Sea oil deals are in the offing for this American fund and its Russian limited partner. If so, they would in the process be bridging something of a political divide.