By Michele Kambas & combined sources
A boardroom war between BP Plc and its four Russian partners over their troubled joint venture TNK-BP has left the company without an approved 2008 investment programme or an interim dividend, two sources with direct knowledge of the matter told Reuters.
TNK-BP has been the subject of a battle between BP and its four billionaire Russian-connected partners over management, strategy and control for the past year. The affair has turned into a major international issue after accusations that the Russian side is using state resources, such as the police, courts and tax service, to put pressure on BP.
The Kremlin has insisted it is staying out of the dispute, though some investors are sceptical.
One source said the ten-person board meeting of the holding company TNK-BP Ltd in Cyprus last week was deadlocked on all the main issues on the agenda and the firm's investment plan for 2008 and its interim 2008 dividend payout were not agreed.
"It was a kind of stylised corporate war," the source said. "Each side vetoed the other's resolutions."
Underlining the increasingly bizarre nature of the dispute, TNK-BP's senior managers attended by videoconference from Moscow because problems in renewing visas made them worry that if they left Russia they might not be allowed back.
At Friday's board meeting in Limassol, the Russian side tabled resolutions calling for the dismissal of TNK-BP CEO Bob Dudley, the firing of the company's senior management team and for equal representation on all company subsidiaries. BP vetoed these resolutions, the source said.
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BP then proposed a vote of confidence in Dudley and the firing of key Russian managers, which were vetoed by the Russian side, which acts as a bloc under the umbrella of the Alfa-Access-Renova (AAR) consortium.
A BP spokesman in London declined comment on the meeting, citing confidentiality.
These moves were expected after the Russian shareholders, led by Alfa Group boss Mikhail Fridman and his partner German Khan, had campaigned for Dudley's dismissal for months, saying he was not independent. BP has consistently backed Dudley and says he has acted in the interests of all shareholders.
But TNK-BP managers were more concerned by the board's failure to agree the company's 2008 investment plans, which include vital steps to increase oil production.
"TNK-BP management indicated they were on track to spend $4.4 billion in capex but AAR pointed out that management had previous guidance from the board not to exceed $3.5 billion," a second source said.
"AAR expressed the view that capex should not exceed $3.5 billion and the board agreed both shareholders should work with management to review capex for the rest of this year."
The lack of agreement means that the current level of capex spending by TNK-BP's management has not been sanctioned by the board — a development which could force cutbacks in investment plans designed to boost oil production.
"The Russian side are walking a very fine line here," the first source said. "(Prime Minister Vladimir) Putin and (Deputy Prime Minister Igor) Sechin are going around saying: 'Where is the next oil production increase coming from?' and these guys are vetoing a plan which would deliver an increase in production."
The board agreed to review TNK-BP's investment plans again in two weeks' time, the first source added.
Increasing the pressure on the Russian shareholders, BP objected to a $1.8 billion 2008 interim dividend payout by TNK-BP Ltd to its shareholders, the second source said.
TNK-BP Ltd, which is 50-50 owned by BP and AAR, in turn controls 95 percent of the listed Russian entity TNK-BP Holding. Minority shareholders own the remainder.
"Management proposed a $1.8 billion dividend and BP thought it was imprudent at this part, given market turmoil," the source added. "They recommended not to pay a dividend and AAR agreed."
The highly lucrative company has paid out over $18 billion in dividends to its shareholders since its creation in 2003.
Despite the tensions on both sides, the Cyprus meeting passed off in a businesslike fashion, the first source said.
"Talks are continuing outside the formal meeting structure between the two sides," he added. "Neither side expects a quick resolution." (Reuters)
