TNK-BP Stalemate

Every month the press appears to indicate that either the Russian shareholders in leading oil JV TNK-BP, the AAR Consortium, want to buy out their partners from BP or that BP wants to buy them out or sell its interest to Rosneft.

And then nothing happens either due to political issues or haggling on price, or outstanding litigation between the partners over BP’s breach of the shareholders agreement when it sought an abortive deal with Rosneft.

Presumably AAR will play for time, expecting that dubious court cases launched in Russia will enable it to buy BP’s interest on the cheap.

The problem is the high-profile nature of the JV, which was announced with much grandstanding during President Putin’s first term. If the perception internationally is that BP was pushed out unjustly by its partner due to corruption in the courts and other pressures, this will hardly bode well for Russia’s need to attract much-need investments in infrastructure, in particular in its roads, trains, ports, shipping routes and storage facilities.

So the desire of the oligarchs from AAR to maximise their profits from the oil asset regardless of the negative impact on Russia’s investment image, in particular as they have other assets both in Russia and abroad, is for the time being countered by a stubborn response from BP, which is aware of the international repercussions, and the continuing infighting at the Kremlin between different factions over what to do.

Why has this happened? Well it probably didn’t help that not that long ago Putin, with prodding from his eminence grise Igor Sechin, who was both a Minister and chairman of Rosneft at the time, made it clear to BP that he would not oppose a deal between BP and Rosneft.

Putin subsequently backtracked when AAR objected, run as it is by powerful oligarchs with a grip over him, alleging that he was not aware of the shareholders’ agreement. Either not a very bright move by Putin or cold and calculating deal with AAR shareholders to share any potential profits from compensation payable by BP for breach of the agreement. Either way, any focus on this matter looks for bad – either he was short-sighted or was deceiving a key investor for purely mercenary motives.

It is hard to see how in the light of this situation and other corruption scandals mentioned August in the Russian press about oil trading and over-the-top commissions paid by companies for the right to sell TNK-BP’s oil that any side would emerge clean from any asset sale.

So the stalemate appears likely to continue until someone takes a decision. A decision with billions weighing on it for the shareholders and other parties taking a cut and with maybe even more at stake in terms of needed long-term investments in Russia’s economy. While oligarchs and the President may not care about their reputations, the country will only suffer from any further increase in reputation risks arising from doing business in Russia.

 

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