TNK-BP problems won't be fixed soon-board source

Business Materials 12 July 2008 01:03 (UTC +04:00)

Oil major BP and its four billionaire partners in Russian joint venture TNK-BP appear no closer to resolving a conflict over management after a board meeting in Cyprus on Friday, sources told Reuters.

A source who attended the meeting of TNK-BP, a holding company which controls 95 percent of the listed Russian entity TNK-BP Holding , told Reuters the dispute between the rival shareholders about the future of Russia's No. 3 oil producer would not be decided soon.

This raised concerns among investors that the year-long struggle could be prolonged. The remaining 5 percent of TNK-BP Holding is owned by minority shareholders.

"I don't think soon. Not soon," the source said on condition of anonymity when asked if the dispute at TNK-BP would soon be resolved.

TNK-BP Holding, which pumps as much oil as Britain, has been wracked by a struggle between BP and its four Russia-connected partners over management control and future strategy. Investors are following the case for clues to the investment climate in Russia under President Dmitry Medvedev.

The quartet of billionaires, represented by the AAR consortium, want to fire the BP-backed chief executive of TNK-BP, Robert Dudley, whom they accuse of poor performance and favouritism toward BP.

BP says Dudley is acting in the interests of both groups of shareholders and accuses the Russians of an attempt to seize control of the venture, in which both sides control 50 percent. Analysts say the company has outperformed most of its Russian peers.


David Nicholas, a spokesman for BP, described the board meeting, which took place in the Cypriot Mediterranean port of Limassol, as business-like and cordial.

He declined to disclose details, saying the results of the meeting would be made public on Monday.

"The shareholders discussed the company's operations rather than focusing on differences," a second source close to consultations, who also asked not to be named, told Reuters.

The fact the meeting took place at all could be seen as a sign of progress: the Russia-connected shareholders, Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik, failed to attend a previous meeting in Cyprus in May shortly after the two sides publicly aired their differences.

On that occasion, some of the Russian quartet flew in the previous evening for informal discussions but then decided to stay away from the formal board meeting

At Friday's meeting, AAR chief executive Stan Polovets told Reuters he was elected to the 10-man board of TNK-BP Ltd. He replaced Jean-Luc Vermeulen, a Russian-nominated independent director who resigned in May.

Each side has five board members and in the event of a deadlock, there is no casting vote.

TNK-BP is Russia's second-biggest foreign investment. Another key element in the dispute has been the Russian partners' determination to drastically cut the number of foreigners directly employed by, or seconded to, TNK-BP.

The Russian side says the foreigners are excessively expensive and are not needed in such great numbers, while BP-backed TNK-BP management say they provide much-needed expertise.

TNK-BP's Moscow-traded stock fell 1.4 percent to $2.07, compared with a 0.9 percent decline on the Russian Trading System .