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Two can play at this game

By Andrew Hill

Published: June 5 2008 03:00 | Last updated: June 5 2008 03:00

From a safe distance, the vicious dispute shaking TNK-BP, the British oil company’s Russian joint venture, looks familiar. A casual observer might even think it was round two of the row resolved a year ago, in which the Kremlin threatened to remove TNK-BP’s licence to operate the Kovykta oilfield in Siberia. TNK-BP ceded its controlling stake to Gazprom, a bit like Royal Dutch Shell, which a year earlier gave up a majority of its Sakhalin 2 gas and oil project to the state-controlled company.

But what makes the current battle more interesting, and more dangerous for BP, whose negotiating position looks weaker by the day, is that the Kremlin does not seem to be involved. Dmitry Medvedev, the new president, has stayed silent and premier Vladimir Putin, his predecessor, has confined himself to an “I told you so” statement. That has left the field clear for a fight between the British company and the 50-50 venture’s Russian shareholders.

What is striking is that while the colour in this story looks quintessentially Russian, the dialogue comes straight from the west’s Bumper Book of Shareholder Activism. “We are simply exerting our rights as a 50 per cent shareholder,” says one person close to Alfa-Access-Renova, the consortium that holds the Russian interest in TNK-BP. “We are unhappy about the company’s performance.” Judging from such comments, the tea and biscuits traditionally used to placate nuisance shareholders at City annual meetings really wouldn’t melt in the Russians’ mouths.

Expropriation and abuse of shareholder rights are two of the greatest fears of western minority shareholders in Russian companies. The Russian investors’ best hope of getting their way is therefore to turn the tables and behave like conventional activists. Their most potent weapon is the 50 per cent stake they acquired when the venture was created in 2003. The attempted ejection of Robert Dudley, TNK-BP’s chief executive and the driving force behind the venture’s earlier success, is unacceptable and nothing justifies strong-arm tactics. But BP must regret ignoring Mr Putin’s 2003 warning about the ownership structure. Sounding like a corporate governance consultant, the Russian premier says he told the British company: “Agree to one of you having a controlling stake [or you] will always have frictions over who is the boss.” And he should know.

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