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BP bosses block Russia dividend

BP bosses block Russia dividend

By Louise Armitstead and Russell Hotten

Last Updated: 1:18am BST 20/07/2008

BP has blocked a $1.8 bn dividend payment due to be paid from its Russian joint venture in an attempt to regain the advantage in its bitter fight with its billionaire partners, The Sunday Telegraph can reveal.

The move by Britain’s biggest company to block the payment was taken in a secret board meeting of TNK-BP held in Cyprus 10 days ago.

It is designed to put pressure on BP’s four Russian partners and to secure a new visa for Robert Dudley, the chief executive of TNK-BP, who faces expulsion from Russia by the end of the month. One insider said: “This is BP playing hardball and hitting the Russians where it hurts.”

At the Cyprus meeting the two sides had a disagreement over the joint venture’s capital expenditure plans for the year.

BP, which relies on the joint venture for 25 per cent of its annual production, wants to invest money to increase the company’s production and reserves in Russia while its Russian partners, the Alfa-Access-Renova (AAR) consortium, want to reduce it. The difference in opinion is said to be about $800m.

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  • Under the terms of the joint venture, TNK-BP is supposed to pay out 40 per cent of its net income to its shareholders, BP and AAR partners, Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik.

    According to BP and results statements from TNK-BP, AAR have so far received $18 bn from dividends and assets sales over the past five years.

    The billionaires have pumped the money into a raft of other business ventures including, for instance, Fridman’s Alfa Bank.

    A BP spokesman said: “BP believes that TNK-BP should be supporting the Russian government’s objectives of raising oil production by investing. Whereas AAR prefer the money to be paid to them in bigger dividends.”

    But this weekend AAR played down the importance of the move, arguing that the billionaires didn’t mind about missing the dividend at the moment.

    A spokesman for AAR said: “We agree with BP the dividend proposed by TNK-BP management should not be paid at this time.”

    The outbreak of open warfare within the company’s top management comes after a campaign by the AAR partners to unseat Dudley and remove BP secondees from TNK-BP.

    Observers in Britain have been horrified by the treatment of Dudley and the attempts to remove him from Russia. AAR have dismissed these sentiments as anti-Russian and argue that since 50 per cent of shareholders want Dudley to step down, BP is ignoring corporate governance standards by insisting he stays.

    Regarding the current visa crisis, insiders at AAR argue that Dudley’s visa depends on him having an employment contract which they don’t want to renew.

    Meanwhile, Stan Polovets, chief executive of AAR, said he will be ready to launch a wave of legal action within about two weeks.

    Polovets told The Sunday Telegraph: “The fact that we are in a phase of litigation and confrontation is not something that we are happy about. We have tried negotiations and dialogue through the TNK-BP board and in face-to-face talks between Mr Fridman and Tony Hayward [BP’s chief executive]. BP has been unresponsive. In public they call us corporate raiders. In private they say they are not interested in making changes to the company and instead want to buy us out.

    “We would like a resolution tomorrow, but sadly we are having to proceed on the assumption that we will need to start litigation,” he said.

    Lovells, the UK law firm, has been appointed to handle legal action in the UK and Russia; SJ Berwin will cover the UK too, but also action in the British Virgin Islands; Sweden’s Vinge will cover affairs in that country; and the US litigation giant Cravath Swaine & Moore will look after proceedings in America. “International litigation takes time, but we will be ready within two weeks – maybe three weeks at the absolute maximum,” he said.

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