Monday, June 23, 2008
The End of a Fairytale
06/19/2008 - Moscow News by Marina Pustilnik - When British Petroleum and a group of Russian billionaire owners of TNK oil signed their partnership deal, which created TNK-BP, back in 2003, it was not only the largest foreign investment in Russia to date, it was also a sign of hope. Hope that Russian companies can partner with foreign energy majors, learn from them and expand their presence on the international markets. That was an age of innocence. As this partnership is now unraveling with mutual accusations on both sides and active propaganda by both shareholder groups, it is becoming clear that this age is over. It also shows that apples and oranges are only good together in a fruit salad - putting two different interest groups under one venture umbrella is unlikely to reap much success. TNK-BP has been under much pressure in recent months. First, the company had to give up control over the giant Kovykta gas field in the Irkutsk region to Russia's gas monopoly Gazprom, because the state-backed firm refused to open up its pipelines otherwise. The Russian-British firm was then subjected to back-tax checks and cases, its foreign specialists had their work visas revoked and there was even an industrial espionage case involving a TNK-BP employee. All of this was happening as TNK-BP was nearing the end of the 5-year lock-up period, during which the partners could not sell their stakes. Analysts viewed this as the state applying pressure; driving BP to agree to take on a new partner instead of the Russian billionaires. That partner would most likely be either Gazprom or Rosneft. The general feeling was that the British would be uncomfortable with such a partnership, but reality proved to be much more interesting. During all those months the Russian shareholders of TNK-BP denied any plans to sell their stakes, while trouble was brewing. Several weeks ago the Russian shareholders launched an attack on TNK-BP CEO Robert Dudley, accusing him of mismanagement and demanding his replacement. BP tried to keep up appearances at first, but over the last week accusations started sprouting from both sides. BP Chairman Peter Sutherland accused his Russian partners of reverting to the raider tactics of 1990s and of trying to wrest full control and - ultimately - ownership of the com-pany. Russian billionaires Mikhail Fridman and Viktor Vekselberg accuse BP of sabotaging TNK-BP's international growth and IPO plans. At the same time the Russian shareholders say they are ready to sign an agreement on a new lock-up period, while sources close to BP say that the international energy giant wants guarantees of a partnership with Gazprom or Rosneft before it buys the billionaires' stakes. On top of that neither Gazprom nor Rosneft seem capable of affording the 50 percent stake in TNK-BP, which is worth over $20 billion according to expert estimates. Both state companies have spread themselves thin with various investments, and a source close to Gazprom said a couple of weeks ago there is no possibility of acquisition in the next 18 months. The major problem of TNK-BP is, of course, the conflict of interests. On the one hand you have an international giant, which is interested in improving the quality of its subsidiary's operations, but it is mostly interested in getting oil and gas from the company while promoting its original brand - BP. On the other hand you have private shareholders, who want both high dividends and the growth of the company's value. The Russian shareholders of TNK-BP are powerful men who are used to managing the assets they own. BP forced them to give up operational control, but they were willing to do it because the payoff was enough. Now the billionaires want full parity - and BP sees that as raiding. It's as if BP does not understand that the "raider tactics" of its current partners will seem like really innocent stuff compared to the new rules of play that Gazprom or Rosneft would most likely implement if a deal ever goes through.