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Hayward must urgently address the Russian farce, even if it means selling

The Independent

Jeremy Warner’s Outlook: Hayward must urgently address the Russian farce, even if it means selling

 

Friday, 25 July 2008

 

Robert Dudley, chief executive of the Russian oil major, TNK-BP, has decided to jump before he could be pushed. After months of wrangling, Mr Dudley has quit Russia, but aims to continue running the company from outside the country.

 

BP’s Russian oligarch partners in TNK-BP are not yet there in getting their way over management control and strategy, but they certainly seem to be winning the battle. BP has already been forced to withdraw 148 technical staff. Now the chief executive has gone too. The idea that Mr Dudley can realistically run the company from the US, where he will be basing himself, is ridiculous.

Has the time come for BP to cut its losses, quit Russia altogether, sell up and apply the proceeds either to a capital return to shareholders or more welcoming shores elsewhere?

Tony Hayward, chief executive of BP, has no emotional attachment to the Russian assets. It was his predecessor, Lord Browne, who re-embraced the Russian bear, so there would be no humiliation for Mr Hayward in negotiating an exit. What’s the point in staying, given the manifest hostility not just of the company’s partners but, by the look of it, the Kremlin too? By doing nothing to stop the attacks on BP, President Medvedev seems to be signalling his approval.

Selling up would indeed be the logical conclusion if TNK-BP were not such a vital part of the group. At 25 per cent of reserves – though, because of Russian taxes, a rather smaller proportion of profits – this is not an asset BP can afford to lose.

In the five years since the joint venture was set up, BP has more than got back in dividends the $8bn it put into the business, but, given what’s happened to the oil price over that period, the returns have hardly been outstanding. Nor is there any obvious buyer for the assets at a reasonable price. Having said they might be prepared to buy-out BP, the oligarchs have since gone cold on the idea, though there is no doubt a price at which they would be prepared to talk. As for the state-run oil and gas concerns of Rosneft and Gazprom, they too don’t yet seem ready to take control of the company.

An impasse has been reached. Given that the oligarchs appear unwilling to compromise to any degree, it is not clear how it might be resolved. The same gang cheated BP out of its last involvement in Russia’s bountiful supply of hydrocarbons. The shareholder agreement set up to govern TNK-BP was meant to prevent the same thing happening again.

Perhaps it is indeed water-tight, but the Russians have turned to other methods to get their way. We can all beat the table about the iniquities of it all, and how the Russians are only cutting their own throats on foreign investment by allowing BP to be victimised in this way, yet, whatever the wider principles involved, the harsh reality for BP is that it has to find a solution. Perhaps there is none. Unfortunately for him, Mr Hayward is doomed to try.

http://www.independent.co.uk/news/business/comment/jeremy-warner/jeremy-warners-outlook-hayward-must-urgently-address-the-russian-farce-even-if-it-means-selling-876958.html

Related Article

TNK-BP boss leaves Russia after dispute with partners

 

By David Prosser, Deputy Business Editor
Friday, 25 July 2008

 

BP has been forced to concede more ground in the acrimonious dispute with its Russian joint venture partners, announcing yesterday that it has recalled Robert Dudley, chief executive of its TNK-BP business, from Moscow. Mr Dudley, who will continue to serve as TNK’s chief executive, has been forced to quit Russia after failing to resolve a dispute with the authorities over his work permit and visa.

 

The withdrawal of Mr Dudley is a bitter pill to swallow for BP, which believes the TNK boss is the victim of a campaign being managed by the oligarchs who control Alfa, Access and Renova (AAR), the Russian investors which have a 50 per cent stake in the business.

Peter Sutherland, BP’s chairman, accused the Russian authorities of conniving with AAR. “Nowhere in our recent history have we been treated as we are currently being treated in Russia where our fellow shareholders [AAR] have been orchestrating a campaign of harassment in order to gain control of our joint venture TNK-BP,” he said. “There has even been manipulation of the Russian state as part of this campaign.”

Tony Hayward, BP’s chief executive, added: “BP will use all means at its disposal, both inside and outside of Russia, to defend its interests and rights as a 50 per cent shareholder in TNK-BP.”

However, a spokesman for AAR said that, while it has been campaigning for Mr Dudley’s sacking in the belief that he has not run the company in the interests of all shareholders, it had nothing to do with his dispute with Russia’s Federal Migration Service (FMS).

The FMS had given Mr Dudley until Sunday to produce a valid contract from TNK in order to renew his work permit; but while BP insists his paperwork is in order, the authorities have refused to accept it. AAR argues that Mr Dudley does not have a contract that has been signed off by all shareholders.

Mikhail Fridman, AAR’s representative on TNK’s board, said he would continue to campaign for Mr Dudley’s resignation. “It a ridiculous notion to suggest that the company can be run by remote control,” he said. “This approach demonstrates that BP is without question running TNK-BP as a subsidiary.”

BP declined to comment on where Mr Dudley would now base himself, though, as an American citizen, he may choose to return to the US. Mr Dudley said he had been left with no choice but to leave Russia, but that he hoped to return. “The uncertainty which has been created by the transit visa that I now have creates acutely unstable working conditions for me and a distraction to the TNK-BP group,” he said.

To add to BP’s woes, the oil giant suffered a second reverse in Russia yesterday, with a Siberian court ruling that it had received illegal payments from TNK-BP. The dispute centres on 150 technical consultants seconded from BP to TNK-BP over the past five years, for whom BP has received payments from its Russian unit. The Siberian court upheld the case of a shareholder which has complained that these payments were an unlawful special dividend.

BP said it was considering whether to appeal against the ruling and it has in any case already withdrawn all the staff from Russia. But it could now face demands that it repay the fees TNK-BP has paid for their services in the past.

The oil giant continues to insist that it will not sell its holding in TNK-BP.

http://www.independent.co.uk/news/business/news/tnkbp-boss-leaves-russia-after-dispute-with-partners-876953.html

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