TNK-BP Sending Mixed Messages

MTMikhail Fridman, one of TNK-BP's Russian shareholders, criticizing the British side at a news conference this week.
In a brand-new office on the 14th floor of a central Moscow high-rise, the Russian shareholders who own half of embattled oil firm TNK-BP are waging a war.

On a recent afternoon, the shareholders' newly appointed press secretary stood at the office's sparkling windows, offering an expansive view of Moskva-City, the ultimate symbol of the teeming capital's oil-driven wealth.

"Why do they have to do everything all at once and so big," he said, musing about the inevitable traffic the new office complex will generate. A Russian reporter standing nearby answered, "Because who knows what tomorrow will bring?"

Despite protests by AAR and BP -- the equal shareholders in TNK-BP -- investors and analysts continue to function under the assumption that the firm is ripe for a state-run partner in the days of $140-per-barrel oil.

Stan Polovets, an AAR deputy chairman who was promoted to CEO two weeks ago, insists otherwise.

"They're portraying it as being driven by politics or greed -- not as an attempt by the Russian shareholders to make sure their interests are represented in the company," he said during an interview this week, one of dozens offered to journalists as AAR looked to plead its case.

Many analysts say the complaints aired against BP by AAR -- a consortium which groups Mikhail Fridman and German Khan's Alfa Bank, Viktor Vekselberg's Renova, and Len Blavatnik's Access Industries -- are valid. With massive projects around the world, BP has little interest in seeing TNK-BP expand beyond the former Soviet Union. It does lag behind its Russian competitors in terms of refining capacity. The question, analysts say, is: Why now?

When asked why AAR chose this time, as the British-Russian venture nears its fifth anniversary, to raise these issues, Polovets first answered with a negative. It is not, he said, because a key clause in the shareholders agreement binding the owners to TNK-BP expired last year. A copy of the clause, obtained by The Moscow Times, says AAR and BP were never bound to the venture, they simply had to offer a potential stake up for sale to their partners first.

With the clause's expiration on December 31 last year, BP and AAR lost their rights of first refusal, and BP or AAR can now negotiate with whomever they choose. Both sides deny a desire to sell or dilute their stakes and insist that they are not negotiating with Rosneft or Gazprom, the state's energy champions.

A government official said earlier this month that "state companies have no place" in TNK-BP. "Talk of Gazprom buying a stake is the worst option," the official said on condition of anonymity.

The dispute has thwarted attempts to close the sale of TNK-BP's Kovykta gas field to Gazprom, Richard Spies, the head of BP Russia, said Thursday.

TNK-BP agreed to sell the enormous east Siberian field to Gazprom last summer, following months of pressure from state environmental authorities. The deal, whose price recently skyrocketed from between $700 million to $900 million to $1.2 billion, has yet to be sealed, despite the passing of several deadlines.

"BP and BP directors in TNK-BP are ready to close the agreement with Gazprom on Kovykta," Spies said. When asked what the delay was, he answered, "Ask the other shareholders."

The dispute has reached a level of acrimony that means the principal players communicate with each other chiefly through the media, in rival interviews and in briefings.

EU Trade Commissioner Peter Mandelson said Thursday that the case of TNK-BP, a 50-50 Russian-British partnership, was being watched closely to judge the foreign investment climate in Russia. "It's a test case for business partnership and business success," he said in an interview. "If this is a jealousy disagreement, as I am told it is, then governments should step back and state agencies should not involve themselves, because they risk politicizing the disagreement."

The conflict was publicly launched in March with Federal Security Service raids against BP and TNK-BP offices, the arrest of a TNK-BP employee on charges of industrial espionage, and the withdrawal of 148 BP employees from the joint venture over visa issues.

The state labor inspectorate has also brought administrative charges against TNK-BP and its CEO, Robert Dudley, whose ouster AAR is seeking.

"A sudden inspection exposed a number of substantial violations of labor regulations, including the incorrect registration of recruitment contracts, inappropriate salary payment times, and others," a source in the inspectorate said Thursday, Interfax reported.

Dudley faces punishment ranging from a warning to 15 days in prison if found guilty, the report said.

"This conflict is not about a badly performing company; it's not about the chief executive; it's not about foreign employees and not about the international expansion of TNK-BP's business. It's a systematic attempt to control the company using tactics of the 1990s," Alastair Graham, BP's chief liaison with its TNK-BP board members, said at a news briefing on Thursday, repeating a claim made by BP chairman Peter Sutherland earlier this month.

BP's share price has fallen from nearly ?650 ($1,280) one month ago, to ?580.25 at the close of trading Thursday. TNK-BP accounts for one-quarter of its production. "That's why this partnership is a bit tricky -- because one is a strategic investor, an operator, an industry player that's managing the assets. The other partner is a financial investor that's looking at a different set of metrics," said Polovets of AAR.

Staff Writer Nikolaus von Twickel contributed to this report.