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Tony Hayward
Face-off: BP chief executive Tony Hayward, far left, has found himself battling against his company's Russian partners Mikhail Fridman, above near left, Len Blavatnik, above near right, and Viktor Vekselberg

Threats, tax probes, and three men holding BP's fate in Russia

Will Stewart in Moscow
9 Jun 2008


When new British ambassador Anne Pringle arrives in Moscow later this year, she won't have far to look for advice on how to help BP sort out its woes in Russia. Her husband, Bleddyn Phillips, is City law firm Clifford Chance's global head of oil and gas, and he will be relocating to the Russian capital with her. Not only is this relationship remarkable by diplomatic standards, and bound to set tongues on the Moscow party circuit wagging, but the joint move could also not come at a more prescient time.

Phillips is bound to be able to cast an expert eye over the travails facing the oil giant's 50-50 venture with a group of Russian businessmen, TNK-BP. However, events are moving so quickly that it's possible TNK-BP will not exist in its current form in October when the ambassador and her husband take up residence.

Despite hopes that under new president Dmitry Medvedev, the heat may be turned off BP, its woes have if anything escalated. The company's country chief, Robert Dudley, will be questioned at the interior ministry today as part of a criminal investigation into alleged company tax evasion - instigated, it is said, by BP's Russian partners Mikhail Fridman, Viktor Vekselberg and Len Blavatnik.

Last week, they demanded Dudley's resignation as chairman. Today's summons is a way of piling more pressure on Dudley - as is the banning of 148 staff from working in Siberia, which was brought about by a writ filed by a tiny company run by men who used to work for Fridman's Alfa Group.

What this is leading up to, Moscow experts believe, is the Russians preparing to sell their stake in TNK-BP - Russia's third-biggest oil firm - to Gazprom or Rosneft.

Analyst Igor Konchin said: "They are just trying to get a bigger offer. This is all about money." One Western diplomat agreed: "They are basically saying 'pay us lots of money and we'll go away and stop making life so difficult for you'. It's very crude and very Russian."

In some ways, the fact that allies of the Russian shareholders inside the Kremlin, and not the Kremlin itself, have been causing mischief is a relief to BP. Gazprom would love to buy into TNK-BP, and would have the backing of the government which, since 2003, has systematically taken over and/or reacquired major interests in its biggest natural resource groups.

For now, TNK-BP is the only oil and gas group in Russia in which the Kremlin has no economic interest. It's quite likely the three will sell to Gazprom eventually - in which case, what then for BP in Russia?

No one working in the Russian oil and gas sector will quickly forget how the Kremlin and Gazprom hounded Shell out of its operation on Sakhalin island - essentially forcing it to sell to Gazprom in 2006 through a series of punitive environmental taxes. However, Russia has moved on since then.

President Medvedev is committed to making the country an attractive place for Western investment. Besides, a link with Gazprom would not be the end of the world for BP. With £2.7 billion profits on £20billion turnover last year, TNK-BP accounts for a quarter of BP's global production. If that could be protected by their partnership with Gazprom, BP would be happy.

Another Western observer said: "Gazprom respects what BP can bring to the table. TNK-BP's Russian shareholders wanted to expand abroad, which would have threatened BP's interests. Gazprom already operates abroad and in countries BP doesn't do business in, and there would be no conflict of interest for either side."

Sadly, Robert Dudley may have to be sacrificed first. He has borne the brunt of the Russian pressure bravely, and may well enjoy an escape from the political whirlwind that has engulfed him since he's been in Russia. Insiders say he will remain while the local investors are making trouble but will go with his head held high, if and when their shares are sold.

A BP source said: "Bob is a figurehead of the struggle with the Russian investors and while that's ongoing, he will stay. But a new partnership, with Gazprom say, would change that."

There is no question of BP pulling out. Chief executive Tony Hayward says: "BP is committed to Russia... [it] is a great nation in the process of economic transformation."

It doesn't look either as though the super-rich trio are getting everything their own way. The Kremlin, for all their string-pulling, is also distancing itself publicly from the affair, with Vice-Premier Igor Sechin saying: "The state wouldn't meddle into the inner relationships between the shareholders of TNK-BP."

BP could do far worse than a partnership with Gazprom, and with it the de facto protection of the Kremlin.

Increasingly, the questions are not if but when, and how much Gazprom is prepared to pay.

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