June 11, 2008 / 4:50 PM / 11 years ago

WRAPUP 1-Russian partners sue BP as TNK-BP talks collapse

(Adds lawsuits, quotes, comments from CEO)

By Michael Stott and Tom Bergin

MOSCOW/LONDON, June 11 (Reuters) - BP’s (BP.L) Russian partners in its troubled Russian joint venture TNK-BP decided on Wednesday to sue the British oil company in two cities after it rejected their demands for more boardroom clout.

Sources familiar with the dispute said talks between the two sides on the future of the highly lucrative company, seen as a bellwether for foreign investment in Russia, broke down late on Tuesday night.

The Russians said they decided to act after BP failed to agree to a set of specific demands by a Wednesday deadline. One of these was that the venture’s American manager — former BP man Robert Dudley — should be fired.

The acrimonious and highly public argument between the two sides has alarmed investors. TNK-BP was the largest foreign investment in Russia when it was set up in 2003 and the Kremlin blessed the venture. It accounts for a quarter of BP’s worldwide output and is Russia’s third largest oil firm.

The quartet of Russian billionaires have complained to BP that their 50 percent holding in the company were not reflected on all TNK-BP related boards and said individual shareholders were being stripped of management powers.

They also said TNK-BP exceeded its powers in hiring secondees from BP, using too many foreigners in management positions at the Moscow headquarters instead of in technical posts in the field.

“We will be asking the International Arbitration Court in Stockholm to declare the secondment agreement null and void,” an official for Alfa-Access-Renova (AAR), the consortium representing the four oligarchs, said in a telephone interview. “We have made a decision to file the suit today.”

The official said AAR would launch a separate legal action in Moscow to strip BP-nominated TNK-BP directors of their powers because they had conducted what he termed an illegal board meeting of TNK-BP.

BP declined to comment officially on the Russian shareholders’ complaints, though a letter from BP to the Russians at the weekend rejected the charges as baseless, according to a copy obtained by Reuters.

OWNERSHIP SHADOW

Although arguments in recent days have revolved around specific issues of boardroom power and the use of BP secondees at the Russian company, sources close to the matter say the real issue at stake is the venture’s future ownership.

The Kremlin is widely believed to be seeking a big stake in the company for a state-controlled energy major, possibly Gazprom (GAZP.MM) or Rosneft (ROSN.MM), meaning one or more of the existing partners has to sell down.

The Russian oligarchs — German Khan and Mikhail Fridman of Alfa Group, Viktor Vekselberg and Len Blavatnik — say BP suggested they sell out, the AAR official said.

Sources familiar with the matter said the Russians were especially angered that BP seemed keen to do a deal with the Kremlin on future ownership of TNK-BP behind their backs.

In London, a source close to BP denied that the oil major had asked the Russians to sell out, saying that the oligarchs had in fact suggested a sale to BP.

However, BP told its partners that it would only consider buying their stake if the transaction was approved by the Kremlin and if they could line up an onward buyer, he added.

This was because BP did not believe a wholly foreign-owned oil company would be allowed to operate in Russia, he said.

Another source close to BP said earlier that Alfa, acting on behalf of the Russian side, had proposed a 60 percent reduction in TNK-BP’s foreign employees, 50-50 representation on all TNK-BP subsidiary boards and increased powers of attorney for Khan, who is also TNK-BP’s head of security.

The AAR official said Dudley, a former BP executive, had not renewed powers of attorney for Khan and another shareholder in management, oil and metals tycoon Viktor Vekselberg, reducing their powers to act on behalf of the company.

“There is no effort to take control of the company,” the official told Reuters. “We are talking about parity on boards of directors and in management.”

Speaking in London on Wednesday, BP chief executive Tony Hayward insisted that he remained in discussions with the Russian partners, though he said he was “not expecting an early resolution of a complicated situation”.

The two sides had an angry exchange of letters last week. Alfa Petroleum Holdings said Dudley had “seriously violated Russian laws...and the shareholders agreement” by holding what it termed an “illegal meeting” of the TNK-BP Holding board.

BP called the accusation “disingenuous” and saying the letter did “not even articulate, let alone attempt to substantiate” its claims.

“We’re now expecting that the Russian side may well try to injunct the shareholders’ meeting,” another source close to BP said, referring to TNK-BP’s plans to hold a meeting on June 26.

BP and the four oligarchs own half shares in British Virgin Islands-registered TNK-BP Limited, which in turn owns through other units 95 percent of TNK-BP Holding TNKBPI.RTS, the listed Russian entity. Minority shareholders own the other five percent.

Fresh legal action would come on top of a wave of other attacks on TNK-BP.

These include three labour inspections, raids by the main domestic spy agency, a lawsuit in a Siberian court stopping the use of BP secondees at TNK-BP, an Interior Ministry tax summons and a Moscow bailiff’s injunction.

Editing by Andrew Callus

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