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Tony Hayward lets Kremlin know that its reputation is at risk over bitter TNK-BP struggle


Times Online
The Times
June 6, 2008

Tony Hayward lets Kremlin know that its reputation is at risk over bitter TNK-BP struggle

The chief executive of BP issued a veiled warning to the Kremlin yesterday that Russia was putting its economic reputation at risk in the increasingly bitter struggle over the future of TNK-BP.

“BP is committed to Russia,” Tony Hayward told shareholders in Rosneft, the state-controlled oil giant, in Moscow. But he added that Russia’s commitment to the rule of law and property rights was “key to the continued successful transformation” of its economy.

As Mr Hayward spoke, the powerful but shadowy Russian energy czar sought to distance the Government from the dispute with an improbable claim that the state was not behind a campaign to take over TNK-BP.

Igor Sechin, the deputy prime minister in charge of the energy sector, said: “This is the shareholders’ internal affair. They must solve this issue within the company.”

Mr Sechin, who leads the hardline siloviki, the military and security service clique within the Government, is seen as a key figure in the Kremlin’s drive to force TNK-BP’s shareholders to cede control to the state. He is also the chairman of Rosneft, which, along with Gazprom, the state-controlled gas giant, has been linked with a takeover of its rival. BP is also a minority shareholder in Rosneft.

TNK-BP, Russia’s third-largest oil company, is the only big producer not under state control. Its troubles are being regarded as the first critical test of President Medvedev’s commitments to end “legal nihilism” and ensure “true respect for the law” in the country. Chris Weafer, chief strategist for Uralsib, a Moscow-based investment bank, said: “This is exactly the kind of issue that is making Medvedev’s life so difficult as he tries to rebrand Russia as an attractive investment location. The fate of TNK-BP is a major test for how the Government views the investment climate.”

The company, a joint venture that was set up in 2003, is 50 per cent owned by BP and 50 per cent owned by the Russian billionaires Len Blavatnik, Mikhail Fridman, German Khan and Viktor Vekselberg.

A BP spokesman said that Mr Hayward was on a regular business visit to Moscow. However, he arrived only a day after the Interior Ministry issued a summons to Robert Dudley, the chief executive of TNK-BP, in the latest example of mounting state pressure on the company. Mr Dudley will be called in for questioning next week. TNK-BP said that he had been summoned over tax issues at TNK before the joint venture was formed and insisted that the issue was not linked to divisions between the company’s shareholders.

The Russian partners have demanded Mr Dudley’s resignation, and last week they boycotted a board meeting after accusing him of serving only BP’s interests.

The Federal Security Service, the successor to the KGB, has raided BP’s Moscow offices twice and searched TNK-BP’s headquarters after charging a Russian employee with industrial espionage. BP also ran into visa problems for 148 foreign technical specialists seconded to TNK-BP.

State-directed legal attacks were a prelude to the dismantling of Yukos, the former oil giant, and the campaign to force Shell to hand over control of the Sakhalin-2 oil and gas project to Gazprom last year. Vedomosti, the financial newspaper, reported in April that Gazprom had agreed to buy 51 per cent of TNK-BP for $20 billion (£10 billion).

Rocky Road

2003: BP joins forces with TNK and another Russian energy group, Sidanco, to form TNK-BP

2005: Lord Browne of Madingley flies to Russia for talks with President Putin after TNK-BP is hit with a £495million government demand for back taxes

2007: Russian Ministry of Natural Resources to revoke TNK-BP’s licence at the $20billion Kovykta gasfield; President Putin criticises TNK-BP for failing to hit production goals

March 19, 2008: Police in Moscow raid the head office of TNK-BP as part of what they said was a criminal inquiry into Sidanco, which was rolled into TNK-BP five years ago

March 25 BP forced to suspend 148 employees seconded to TNK-BP after a dispute over visas

May 20 Russian security agents raid the Moscow office of BP for the second time in two months
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