EDITOR'S NOTE: This is an update and expansion of our story of Mar. 25 on this topic.
The Swedish Arbitration Board blocked the tie-up between Britain’s BP and Russian state-owned oil major Rosneft to jointly explore for oil in the Arctic at the request of the Russian oligarchs that control the British-Russian joint venture TNK-BP.
The court’s decision sparks a major three-way clash between Russia’s business elite, the state and one of Russia’s largest foreign investors. At stake is billion of dollars in investment and a key plank in the Kremlin’s energy strategy.
On Jan. 14, BP signed off on a deal to take a 9.5 percent stake in Rosneft in return for giving away 5 percent of its shares to form an exploration and production joint venture. The holding company Alfa-Access-Renova (AAR)—which owns 50 percent of the TNK-BP joint venture and represents four of the most powerful businessmen in Russia—objected to the deal.
The arbitration panel issued an injunction on Mar. 24, which has cast doubt on the $16 billion deal between the two oil giants. AAR claims the BP and Rosneft tie-up violates a shareholder agreement inside the joint venture that either partner must run all Russian projects via TNK-BP.
AAR CEO Stan Polovets said in an e-mailed statement: "Willfully ignoring the provisions of the shareholder agreement was a serious misjudgement by BP that has severely damaged the relationship between the TNK-BP shareholders; it has also harmed BP's reputation in Russia. We expect [BP CEO] Bob Dudley to make every effort to rectify the situation and rebuild the trust that has been lost."
For its part, BP said it "has always been and remains, fully committed to investing in Russia" and would look for ways to carry out the deal with Rosneft despite the injunction, reported RIA Novosti. "BP will now apply for a determination whether the share swap may proceed on its own," the company said in a press release posted on its website. It added that it hopes to "[find] a way to resolve its differences with its Russian partners to allow these important Russian Arctic developments to proceed in future."
Rumors immediately began to swirl. The fact that the Rosneft-BP deal could be challenged by TNK-BP on the basis of the shareholders agreement was widely mooted on the announcement of the deal in January. Observers fear that a clash between the state-owned oil company and a private one controlled by oligarchs could end up being very ugly.
In February, Rosneft issued an ominous statement in response to a demand by AAR citing its objections to the deal on the basis of the shareholders’ agreement between BP and TNK and threatening to bring a lawsuit in the the High Court of Justice in London.
“Based on such examination, Rosneft will undertake all measures to defend the rights of its shareholders, with all the resulting consequences,” the statement said.
However, some have speculated that AAR’s case was designed to force BP to buy out the oligarchs in the joint venture or merge TNK-BP into the new venture.
“It would be very attractive for the Russian side,” said Roland Nash, chief investment office at Verno Capital. “Rosneft would become one of the biggest oil companies in the world and TNK-BP would get access to new resources; currently they don’t have any offshore fields and are unlikely to be given access to them. The loser would be BP, which would find itself squeezed on one side by the state and on the other by some powerful Russian businessmen.”
Indeed, reports surfaced on Mar. 28 that BP could be forced to spend more than £9 billion ($14 billion), according to analysts estimates, to buy out its partners in TNK-BP in order to force through its Arctic exploration deal.
Sources close to the dispute cited by The Scotsman on Mar. 28 suggested that Mikhail Fridman, chief executive of TNK-BP and the leader of AAR, has instructed BP to buy out him and his colleagues, a claim denied by AAR.
Igor Sechin, deputy prime minister and CEO of Rosneft, has also denied that there were any talks a few days after the injunction.
“Rosneft is not holding any talks with AAR. We haven’t received any proposals regarding these proceedings and are not holding any talks," said Sechin at a press conference. Answering a question on whether TNK-BP could participate in Rosneft’s deal with BP, Sechin said that TNK-BP’s shares were of no interest for the swap deal, as they are not traded in New York, London, or Frankfurt.
Analysts speculate the dispute will be resolved, as Arctic exploration is a key facet of the Kremlin’s energy strategy. The Rosneft-BP deal is also a blueprint for tie ups that are central to Russia’s plans to modernize and diversify the economy: large international companies are offered access to Russia’s rich natural resource basis through minority stakes in state-owned companies, and in return the Russian company gets access to world-class technology.
The Stockholm court has banned the deal only until April 7, and according to Sechin, a final decision has not yet been made. He added that Rosneft is preparing measures to protect its interests in the deal with BP and is ready to demand compensation.
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