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BP vents its frustration on Russian partners

telegraph.co.uk

BP vents its frustration on Russian partners

By David Litterick

Last Updated: 12:15am BST 13/06/2008

 

 

BP has launched its fiercest attack yet on the Kremlin and its joint venture partners at TNK-BP, accusing them of acting like “corporate raiders” who risk destabilising Russia and closing the country to foreign investment.

  BP chairman Peter Sutherland
Mr Sutherland’s comments are likely to infuriate the Kremlin

BP chairman Peter Sutherland warned that unless President Dmitry Medvedev backed up his promises to restore “the rule of law”, Western companies would likely turn their back on the country, depriving it of the capital and expertise needed to develop its oil resources. 

Mr Sutherland’s intervention in the battle for TNK-BP is the strongest signal yet of BP’s frustration at the Kremlin and its joint venture partners as the business becomes embroiled in a political quagmire.

“There has been much discussion in the press of late regarding our Russian joint venture TNK-BP,” Mr Sutherland told the World Business Summit in Stockholm. “Are there too many foreign managers? Is Bob Dudley a good CEO? Are we stifling the growth of the company and preventing expansion overseas? These are all potentially interesting debates, but I am afraid, however, that they miss the essential issue. The struggle over TNK-BP is unfortunately a much simpler dispute over control, and perhaps ultimately ownership, of the company.

“This is just a return to the corporate raiding activities that were prevalent in Russia in the 1990s. Prime Minister Putin has referred to these tactics as relics of the 1990s, but unfortunately our partners continue to use them and the leaders of the country seem unwilling or unable to step in and stop them. This is bad for us, bad for the company and of course very bad for Russia.”

With oil and other resources trading at record prices, the Kremlin has been taking back control of its vast energy assets that it believes were sold off too cheaply in the early 1990s, when Russia was an economic “basket case”. The Kremlin used its muscle against Royal Dutch Shell over the Sakhalin 2 field. After a long battle, Shell eventually relinquished control to Gazprom.

BP controls 50pc of TNK-BP, which provides around a quarter of BP’s oil production. The rest is owned by oligarchs, including Len Blavatnik, Viktor Vekselberg and Mikhail Fridman, who sparked the latest crisis several weeks ago with calls for Mr Dudley to be replaced. The calls pushed private disputes between the partners bubbling into the open and the Russian shareholders have since accused the British group of running the venture for its own benefit. They are understood to have launched legal proceedings against BP yesterday.

Mr Sutherland’s comments are likely to infuriate the Kremlin and will ratchet up the pressure on the Russian government to settle the dispute. Russian deputy prime minister Igor Sechin, who met BP chief executive Tony Hayward last week, has said the Russian government would not intervene in the dispute, but it is widely believed that the government wants to take control of at least part of the TNK-BP operation by merging it with one of the big Russian oil companies.

The dispute comes at a time when Russian oil production is set to decline because of lack of investment. It means the country, the most important oil producer after Saudi Arabia, needs an injection of capital and expertise to exploit new oil reserves in Siberia.

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