Upon reading Mikhail Fridman’s plaintive comment piece in the Financial Times today, I have to say that I find myself in support of his position – not necessarily the handling of the affair nor the use the state’s bureaucratic institutions instruments of pressure, but rather because the leadership of BP prevented TNK-BP from becoming all that it could be. That, in and of itself, is a great pity, as the dispute is not only bad for corporate governance and bad for Russia’s business environment, it is also having a negative impact on the country’s oil production during a time of great consumer need. If I could make just one broad, sweeping statement about the TNK-BP dispute, is to point out how it illustrates that Russia’s lack of rule of law and non-functioning courts system doesn’t just hurt political victims of the Kremlin such as Khodorkovsky, but everyone from consumers to the titans of industry in the AAR consortium and even Oleg Deripaska’s Rusal.
BP has been treating Russians as subjects By Mikhail Fridman Today an extraordinary meeting of the board of TNK-BP, the oil joint venture, has been called in Moscow to remove Robert Dudley from his role as chief executive. Viktor Vekselberg, a 12.5 per cent share-holder in TNK-BP and chair of the board compensation committee, has also made a formal request to BP to nominate an independent candidate to the post. This is the latest development in our attempts to reverse years of underperformance at TNK-BP. We have been left with no choice. Sadly, BP has refused to engage meaningfully with any of the proposals we have made in recent years. Rather than talk to us, it has chosen to misrepresent our objectives and the nature of the dispute between us.
However, we are agreed with BP on one point – that this is a dispute for control of TNK-BP. It is a traditional, commercial dispute about different ambitions for the strategic development of the business. Should TNK-BP remain narrowly focused, run by BP as if it were its subsidiary, and restricted to operating in Russia and Ukraine? Or should it be free to compete for the enormous opportunities available elsewhere, evolving into an independent, dynamic international oil company?To say TNK-BP has underperformed would be a gross understatement. From September 1 2003, when it was formed, to June 1 this year, TNK-BP’s market capitalisation rose only 138 per cent. By contrast, Lukoil’s value has increased 467 per cent and the Russian stock market rose by 355 per cent. In the past two years, as other oil groups have delivered record dividend growth, shareholders in TNK-BP have been asked by its chief executive to take a 75 per cent dividend cut and accept a total shareholder return of 4 per cent.Why is our company stagnating? Because BP does not want it to grow into an international competitor and sees it simply as a vehicle for adding reserves to shore up its own stock price, which has remained flat since 2003. It has fenced TNK-BP within the borders of Russia and Ukraine, although no restrictions in the shareholder agreement prevent the company expanding internationally.Directors and executives from BP have rejected or stalled 20 international projects proposed by the company’s executives since 2003, including exploration opportunities in Kazakhstan, Turkmenistan and Iraq, and refinery opportunities in Poland, Germany and the Baltics. These are just the sort of projects that TNK-BP is particularly well-suited to exploit given its unique ownership structure and political -connections.AAR, a consortium of TNK-BP’s Russian investors, is committed to its long-term strategic development. We are frustrated by BP’s narrow view of its capabilities. This limited view might be in BP’s interests but is not in the interests of the company or all its shareholders, including minorities in our subsidiaries. We have politely argued this case for years to little avail. That is why change is needed.An independent chief executive must be appointed to act in the interests of TNK-BP, not one shareholder. There should also be independent directors. The new chief executive – whom BP has the right to nominate – must be empowered to assemble a management team without obligation to a single shareholder. The business must reduce its dangerous overreliance on BP secondees and recruit more technical experts from other international oil companies. We believe these requests are reasonable and conform to international norms of corporate governance.BP has chosen to portray AAR as corporate raiders and erroneously implies that this dispute is about the rule of law in Russia. Perversely, it seems oblivious to the fact that some of TNK-BP’s foreign staff have been investigated about possible infringement of Russian employment, migration and tax laws, which exposes TNK-BP and its shareholders to legal risk.The recent controversy about visa ap-plications for TNK-BP’s foreign workers is a case in point. BP is not the “victim of power struggles within the administration” as the Financial Times editorial on July 2 suggested. The truth is far more mundane. Mr Dudley’s action in withdrawing powers of attorney from company lawyers responsible for liaising with the federal migration service caused serious problems in the visa application process. Yet the international media leapt to BP’s defence.We see a long-term future for the joint venture and have no intention of selling out of a business with great prospects. Indeed, we would be happy to extend the moratorium on the sale of shares we own in TNK-BP. We are bullish about the oil industry and the Russian economy. We want to increase the company’s revenue and profitability and restore its dividend returns. We want to build TNK-BP into a great international oil business.But we can only do this if BP treats us as its partners, not its subjects.The writer is chairman of the board of TNK-BP and founder of Alfa Group, which owns 25 per cent of TNK-BP. Alfa, Access Industries and Renova Group have formed the AAR Consortium, which controls 50 per cent of TNK-BP.