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Wednesday, June 11, 2008

BP 'walks away from TNK-BP talks'

11 June 2008 - Upstream OnLine - Talks between UK supermajor BP and its Russian partners over the future of their 50-50 joint venture TNK-BP have broken down, sources close to BP said today. "BP rejected the ultimatum," one source told Reuters, referring to three demands presented to BP by the Russian shareholders. The demands were for a 60% reduction in TNK-BP's foreign employees, 50-50 representation on all TNK-BP subsidiary boards and increased powers of attorney for German Khan, a major Russian shareholder who is also part of TNK-BP's senior management. "The talks broke down at 11 pm last night in London," the source told Reuters. Speaking in London today, BP chief executive Tony Hayward insisted that he remained in discussions with the Russian partners, though he said it would take some time to reach an agreement. The boardroom battle at TNK-BP, as well as a campaign of harassment by Russian authorities this year, are linked to what company sources said is a fight over the company's strategy and future ownership. The Kremlin is widely believed to want a major stake for one of the country's state-controleed energy players in TNK-BP, which would mean that either BP or the Russian oligarch shareholders - or both - have to cut their stakes. The four Russian billionaire shareholders had delivered their ultimatum to Hayward - who attended an investment forum in St Petersburg on Saturday - and demanded BP agree to it by 1300 Moscow time (0900 GMT) today or face the consequences, the sources said. BP rejected the demand, they added. The four major Russian shareholders - Khan and Mikhail Fridman of Alfa Group, Viktor Vekselberg and Len Blavatnik - have accused TNK-BP's top management, led by expatriate Robert Dudley, of acting only in the interests of BP and have demanded his removal. Dudley insists he has always acted on behalf of all shareholders, and BP has backed him. The two sides had an angry exchange of letters last week. Alfa Petroleum Holdings sent Dudley a letter dated 5 June alleging he had "seriously violated Russian laws...and the shareholders agreement" by holding what it termed an "illegal meeting" of the TNK-BP Holding board. BP replied two days later rejecting the accusation as "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," the source said, referring to TNK-BP's plans to hold a meeting on 26 June. "We're expecting more legal action at any time." TNK-BP managers are dismayed by the prospect of action to stop the shareholders' meeting, which they say would prevent the company from being able to pay its dividend and would deprive the company's 18,000 minority shareholders of their vote on statutory matters. BP and the four oligarchs own half shares in British Virgin Islands-registered TNK-BP Ltd, which in turn owns through other units 95% of TNK-BP Holding, the listed Russian entity. Minority shareholders own the other 5%. Fresh legal action would come on top of a wave of other attacks on TNK-BP, which made net profits of $5.3 billion last year. According to sources familiar with the matter, 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. "What the Russian side is doing is taking a scattergun approach," said the source. "They are hoping that one or more of these actions will pay out and get Dudley suspended from his post." Attempts to reach the Russian shareholders for comment were unsuccessful. A spokesman for Alfa-Access-Renova, the consortium representing the billionaire oligarchs, had no immediate comment and spokesmen for Fridman and Khan's Alfa Group, as well as Vekselberg's Renova, were not immediately available.

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