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BP battle for Russia oil deal to escalate

 

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BP battle for Russia oil deal to escalate

By Catherine Belton and Neil Buckley in St Petersburg

Published: June 8 2008 20:36 | Last updated: June 8 2008 20:36

A battle between BP and its Russian partners for control of TNK-BP, the oil venture, overshadowed Russia’s efforts to court chief executives from some of the world’s biggest companies this weekend as a senior government official said the stand-off was set to escalate.

More than $14bn in deals were signed at the St Petersburg Economic Forum, where Russia rolled out the red carpet to woo about 90 chief executives from some of the world’s biggest companies, including Michael Klein, the chairman of Citi, and Rex Tillerson, chief executive of ExxonMobil.

But the official charm offensive was clouded by the bruising stand-off for control of TNK-BP which some investors say is damaging the investment climate in Russia.

The government official appeared to give his backing to TNK-BP’s Russian billionaire shareholders’ effort to put pressure on BP. He said the conflict would only be resolved when one of the sides in the venture sold their stake to the other. “They [the Russian shareholders] are only starting the offensive. In the near future, it will be worse,” he said speaking on condition of anonymity on the sidelines of the forum.

Tony Hayward, BP’s chief executive, left the forum and Russia on Saturday evening with little sign of a resolution to the conflict in sight. Mr Hayward is believed to have spoken briefly with Dmitry Medvedev following a closed meeting between the Russian president and visiting chief executives on Saturday.

The Russian billionaire shareholders, who hold their stake via the Alfa-Access-Renova consortium, showed little sign of easing the stand-off after they sent a letter to BP on Friday claiming that the venture’s BP-backed chief executive, Robert Dudley, had broken Russian law and the shareholder agreement between the two partners in holding a vote to approve candidates for the board of a key subsidiary, a person close to TNK-BP said on Sunday. The shareholders repeated calls that he should be dismissed.

The Russian shareholders accused Mr Dudley of convening an “illegal meeting” to vote on candidates for the board of TNK-BP Holding, which holds all of TNK-BP’s Russian production, refining and oilfield services assets, according to the person close to TNK-BP, in order to take “full control over the TBH subsidiary in the interests of BP”.

BP replied in a letter accusing AAR and certain senior management affiliated with AAR of trying to “upset the status quo and undermine the powers afforded to the group CEO” . These people “continue to act in breach of the shareholder agreement in an effort to gain control of TNK-BP”, the letter said. It said Mr Dudley’s actions did not constitute a breach of Russian law and he was trying to head off attempts by AAR to take control of TBH’s board.

The government official, however, said on Sunday that he did not think BP “understood with whom they were creating their partnership” when the venture began in 2003. “Alfa group… are very ambitious people in the good sense of the word. They will never allow any obstacles to get in the way of their ambitious path of development,” he said.

The official said BP appeared to be hoping that the Russian shareholders would sell their stake to Gazprom. “As far as I understand, and I had several conversations with these people, the Russian owners never wanted to sell their business. For BP it is the best scenario if Alfa sells out to Gazprom. For Russia it is the most harmful scenario.”

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