Last time we checked in on the messy state of affairs with TNK-BP, the company was in serious turmoil, with a straight-talking CEO about to get the boot, and arch-silovik Igor Sechin set on preventing any state intervention in the dispute. It finally seemed clear that the dispute was between BP and their local Russian partners over dividends and re-investment in production, with the latter party (the three billionaires Len Blavatnik, Viktor Vekselberg and Mikhail Fridman) threatening to sell their stake to Gazprom (or even to Rosneft, according to some reports). However, other analysts say that the dispute is being driven by state pressures to take over a stake in the company – which neither the Russians nor BP want to give up. Things have only gotten worse since.
Yesterday an emergency shareholder’s meeting was called in Cyprus to address the deepening rift, brought about by the Russian partners’ request that TNK-BP CEO Robert Dudley be removed following his candid remarks to media. BP is defending Dudley’s position against “one minority partner,” and fighting to maintain a number of expensive “international specialists” to maximize production.However the CEO of BP Tony Hayward few all the way to Cyprus for nothing: the Russian billionaires stood him up and did not attend the meeting, and then today independent director of the board Jean-Luc Vermeulen resigned, citing his inability to solve the dispute.An interesting Wall Street Journal report on the dispute opines that international investors should keep a close eye on how this one gets resolved, being indicative of future economic policy: “The outcome of the dispute could also provide insight into the economic policies of Russia’s new president, Dmitry Medvedev. Under his predecessor, Vladimir Putin, the Russian state clawed back control of the nation’s energy sector from two classes of investors: wealthy Russian businesspeople known as oligarchs, and foreign companies that poured billions into Russian energy ventures. The TNK-BP dispute pits one class against the other, and Kremlin watchers are closely following whether Mr. Medvedev will take sides.“My first observation is that there is a serious lack of information here, and journalists, analysts, and much less I have much of a clear idea of what’s going on in these negotiations. No doubt that being a fly on the wall during these informal Cyprus talks over the fate of TNK-BP would be as entertaining as a Hollywood summer blockbuster, but at the moment there are serious unknown variables.For example, we can’t even be sure which shareholder out of the three Russians is the one making the moves. Robert Dudley confided in Izvestia that “The managers acted in the interests of one shareholder with the aim of significantly lowering the presence of international specialists in the company.” Of course Viktor Vekselberg is receiving a lot of attention, especially for some of his companies which are rumored to be Kremlin fronts buying up assets in Switzerland, as well as for his role in Russia’s “deal of the century” as Rusal, Metalloinvest, and Norilsk approach their merger for the creation of $160 billion company. In such a high stakes game, Vekselberg, who chairs Oleg Deripaska’s aluminum giant, can ill-afford to anger anyone in government, and could conceivably play BP into Gazprom’s hands.But then again we also have TNK-BP shareholder Len Blavatnik, who splits his time between New York and Russia and seems relatively uninvolved in Russian politics, who has indicated that his share in the joint venture can be had by anybody paying the right price (presumably that price tag is higher than what Gazprom wants to pay). And if there is anything we know about Mikhail Fridman of Alfa Bank, is that we shouldn’t try to predict what he will do.My second observation of the TNK-BP meltdown is that this is very bad for corporate governance in Russia, and sends a bad message for international energy investment (BP, after all, has bet more on Russia than any other IOC). The fact that Dudley found himself forced to go public with the problem to Izvestia, resulting in the other shareholders calling for his ouster, is a demonstration of a non-functioning and non-transparent system of shareholder rights, made more difficult by a clear effort on behalf of the state to intervene and take over a stake.For some, it’s already over. The oft-quoted Chris Weafer (who may know a thing or two about Fridman and Alfa) says “The inevitable result is that a deal will be done (…) BP will have a minority stake and Gazprom will have control.“However I’m not so quick to leap to any conclusions, and will be very interested to see how this plays out.