COMMENT: TNK-BP deputy chairman blasts Russia partners, not state

By bne IntelliNews July 25, 2008

Ariel Cohen of the Heritage Foundation -

Lord George Robertson, deputy chairman of TNK-BP's board and former secretary-general of Nato, has blasted BP's Russian partners at a closed-doors luncheon meeting at the Nixon Center in Washington on Thursday, July 25.

The comments took place as news emerged that Robert Dudley, TNK-BP's British CEO, had been forced to leave Moscow to continue running the company from London due to his Russian visa being denied. Yet doubts remain whether he will be able to effectively run the company from overseas, which is being torn apart by a dispute between the BP and its Russian partners in the 50-50 joint venture. Additionally, the denial of visas by Russia for other key foreign BP personnel will reduce the joint venture efficiency, Robertson claimed. Simultaneously, BP has begun arbitration procedures for alleged violations of the shareholders' agreement.

"In all my years as the UK defense minister and at Nato, I am wondering, which was the toughest job - then or now?" Robertson asked, rhetorically. "It is an outrage that the Russian partners are able to orchestrate a campaign of harassment, using branches of the Russian government, including the [Federal Security Service], tax, immigration, environmental protection, and others."

Yet Robertson rebutted the idea that BP is the victim of an organized campaign by the Russian state, as other international oil companies have been before it, including ExxonMobil and Royal Dutch/Shell. He prefers to believe, at least in public, that it's the great personal wealth of BP's Russian partners and their influence at the lower levels of the government that is causing so many problems for BP. Rather, the successful court action to deny foreign BP personnel Russian visas, brought in Tyumen by Tetlis, a Moscow brokerage that's a TNK-BP minority shareholder established by former Alfa Bank employees, was linked by Lord Robertson to BP's Russian nemesis, TNK. "Nothing in the meetings I attended suggests that the Russian state has a coordinating role in the attacks... This is instigated by the Russian shareholders - the state is standing back."

Robertson cited comments by Igor Sechin, the powerful deputy PM in charge of energy, that there is nothing good in the conflict between the BP and Russian shareholders, and that BP brings to Russia new technologies and transparency. Robertson also repeatedly linked the creation of TNK-BP to Prime Minister Vladimir Putin's imprimatur. "He blessed it, he was present at the signing of the protocol... Putin used to say [in 2000] that he wants Russia to be in the West, to have a relationship with Nato." Yet, Putin said afterwards that a 50-50 shareholders' split and divided management control is a bad idea. Robertson believes that if Putin wants, he can turn the clock back and put a stop to the nightmare that BP is in.

Benefits to all

TNK-BP has created enormous wealth in Russia, Robertson said. In five years, the joint venture paid $70bn in taxes. And the principal Russian shareholders in TNK-BP, AAR (Access Industries, Alfa and Renova), have received over $19bn in dividends - a tremendous amount of money, which includes $4.5bn to Len Blavatnik; $4.5bn to the chairman of the company, Victor Vekselberg; $3.3bn to Mikhail Friedman; $2.1bn to German Khan; and $1. 2bn to Peter Aven. Yet the high hopes of 2003 have been dashed: the behaviour of the Russian partners is damaging the long-term future of the company, he argued.

BP understands that it needs Russia's reserves, though. Lord Robertson stated that BP is committed to Russia and won't be driven from it by its current nefarious partners. However, another BP official said that the firm might sell its share for a market price and invest the money elsewhere. Robertson denied that Gazprom has forwarded an offer to buy out BP for $25bn.

Yet some present at the luncheon remained unconvinced that the Russian state is neutral or innocent in the affair. Wayne Merry, a former US diplomat who served in Moscow, suggested that any visa action always reflects state policy, in the US or Russia. "There are several prominent Russians who are denied visas to the US and the UK, and Russia makes these decisions in similar way," Merry said. Others pointed out that the Federal Security Service (FSB) today wouldn't move without a nod from above. "It looks like the Russian state is involved in expropriation without compensation and nationalization, and is trying to do so without paying compensation," Merry claimed.

Robertson rebuffed a number of the allegations made by the Russian partners about the venture. First, it's untrue, he said, that BP - and Dudley in particular - ran the joint venture in an economically inefficient way. Revenues were up 66% to $28.3bn on year and so were profits - the giant dividend of the Russian shareholders is proof of that, he said. He also said it's untrue that BP was bringing too many foreign specialists in, as TNK claims. Out of the many thousands working for TNK-BP in Russia and Ukraine, only 148 are foreigners. And it's also wrong that BP rejected TNK's appeals to engage in oil and gas projects beyond Russia - the joint venture has opened offices and planned operations in Turkmenistan and Venezuela.

Nevertheless, we have been to this show before: political deterioration leads to a chill in business relations. As US-Russia and Russia-UK ties frayed, Exxon and Shell saw their stakes in Sakhalin projects cut down to size. For the British Council, asylum for exiled oligarch Boris Berezovsky and the Litvinenko poisoning affair did the trick.

In addition, Russia is plagued with resource nationalism, as Sechin's recent statement about allowing only Gazprom and Rosneft to develop the Arctic continental shelf, demonstrates. Yet Robertson stuck to his guns and chose to believe that this is only a shareholder conflict.

Yes, BP says that it's committed to fight AAR and to stay in Russia. The question remains, however, what is Plan B? What is BP's strategy going to be if the Russian state is not, as Lord Robertson maintains, prepared to remain neutral, and it no longer wants BP in Russia as a equal partner - in the TNK-BP joint venture or otherwise?

Ariel Cohen, Ph.D., is Senior Research Fellow at the Heritage Foundation

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COMMENT: TNK-BP deputy chairman blasts Russia partners, not state

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