BP to take $1bn stake in London flotation of oil giant Rosneft

BP is set to defy critics of the controversial Rosneft flotation by taking a stake worth about $1bn (£540m) in the state-owned Russian oil producer.

The decision by Britain's biggest company to become a strategic investor in Rosneft will be a huge fillip to the Kremlin, which is desperate to attract support for the share listing from Western oil companies.

But opponents of the flotation said last night that BP had "a gun to its head" because of its existing oil interests in Russia, which would have been compromised had it decided not to back the Rosneft offer.

Confirmation of BP's decision came as the Rosneft flotation, one of the biggest ever staged on the London Stock Exchange, received the formal approval of the Financial Services Authority, which vets all UK listings.

The flotation is expected to raise $10bn-$11bn, valuing Rosneft at between $60bn and $80bn. It has proved massively controversial because of claims that the company's main asset, Yuganskneftegaz, was stolen by the Russian government from another oil company Yukos.

The chief executive of Yukos, Mikhail Khodorkovsky, is now serving time in a Siberian concentration camp after being convicted of tax fraud.

The book building for the offer among institutional investors is due to close tonight and the price will be fixed on Thursday. The shares are scheduled to begin trading on the London and Moscow stock markets next week.

The state-owned Malaysian oil company Petronas and the China National Petroleum Company are also said to have agreed to become strategic investors in Rosneft. The share sale will see between 13 and 19 per cent of the company offered to outside investors although the maximum stake that any one shareholder can own will be limited to 2 per cent.

The offer has been criticised on ethical grounds by the billionaire investor and philanthropist George Soros and has also received a hostile reception from a number of large US and British investment funds.

But BP appears to have ignored the international condemnation of the flotation. Its joint venture Russian oil company TNK-BP is the third largest in Russia and Lord Browne of Madingley, BP's chief executive, is keen to win fresh oil exploration rights from the Kremlin. This is seen as one of the main reasons why the company has decided to become a strategic investor in Rosneft.

Last night Mr Khodorkovsky's lawyer, Robert Amsterdam said: "BP has had a gun held to its head and I am not going to blame the victim. BP's operations in Russia and the lack of any proper rule of law mean that it has no option but to hedge its bets. Even the biggest companies are now subject to extortion. This serves to demonstrate how far back Russia has fallen."

The success of the Rosneft flotation in London will be an important test for the Russian president Vladimir Putin, who hosts the G8 summit of world leaders in Moscow this week. Rosneft has strong links to the Kremlin, not least through its chairman, Igor Sechin, who is also the deputy head of President Putin's administration. The Kremlin has been determined to ensure that the offer receives a good reception from investors in the West after friction with the European union over energy policy.

President Putin threatened to divert Russian gas supplies destined for Europe to other parts of the world after criticisms within the EU of the state-owned Gazprom's decision to suspend gas supplies to Ukraine.

Gazprom has said it is interested in bidding for the UK's biggest energy supplier Centrica - a move which has been backed by the Prime Minister, Tony Blair, but not by the Chancellor, Gordon Brown.