Cablegate: Tnk-Bp Update: No Resolution in Sight As Deadline
DE RUEHMO #1713/01 1681438
ZNY CCCCC ZZH
P 161438Z JUN 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 8624
INFO RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
C O N F I D E N T I A L MOSCOW 001713
STATE FOR EUR/RUS; NSC FOR MWARLICK
E.O. 12958: DECL: 06/16/2018
TAGS: ECON EINV ETRD PREL PGOV RS
SUBJECT: TNK-BP UPDATE: NO RESOLUTION IN SIGHT AS DEADLINE
Classified By: CDA Daniel A. Russell for Reasons 1.5 (b) and (d).
------- Summary -------
1.(C) Foreshadowing a weekend of public claims and counter claims, TNK-BP's VP for International Relations Shawn McCormick told us last week that BP and its Russian partners are negotiating but not making much progress. McCormick said the Russian Government and Gazprom both appeared to be taking an unhelpful "hands off" approach. Time was running short as the foreigner's work permits would expire at the end of July. BP was prepared to go after its partners foreign holdings if its managers were forced out of the company. Separately, a leading Moscow-based investment analyst expressed concern over the dispute, which he said was starting to undermine investor confidence. End Summary.
---------------------- Difficult Negotiations ----------------------
2.(C) In a June 11 meeting with ECMIN, AmCit Shawn McCormick, TNK-BP's Vice President for International Relations (strictly protect) said negotiations between BP and AAR, the company's billionaire partners in TNK-BP, were on-going but had so far failed to yield results. McCormick foreshadowed the flurry of public statements and press articles this past weekend by noting that BP was willing to consider proposals that would "monetize" the AAR partners stakes, including through shares in BP, but that the Russians partners were not negotiating in good faith and appeared prepared to continue using government agencies and the Russian courts to pursue their aims.
3.(C) McCormick added that the public claims that the Russian partners wanted to go international and that BP feared the competition were "spin." In fact, the Alfa partners and in particular German Khan had been using the company's resources to vest projects in places BP couldn't invest, such as Kurdistan, Cuba, Burma and the like. When the TNK-BP board rejected these proposals, Khan would then slide them to a separate company that Alfa controlled, an arrangement that suited Khan and his Alfa partners fine. The real issue remained control of the company, with which the Russian partners would be able to either maximize their profits at BP's expense by, for instance, directing procurement to other companies that they owned at artificial prices or ensure that they received top dollar for their shares if forced to sell.
4.(C) McCormick said BP's sense was that the GOR appeared to have decided not to intervene to resolve the dispute, despite the damage it was doing to the country's investment climate by allowing state institutions to be used against a foreign investor. In that regard, he singled out newly promoted Presidential Aide Dvorkovich for criticism. McCormick said Dvorkovich's comments in St. Petersburg to the effect that Gazprom buying the Russian stake would be the "worst" possible outcome had been extremely unhelpful. Gazprom was also taking a wait and see approach, which McCormick said he suspected was the result of government pressure.
5.(C) McCormick said the window to resolve the dispute without an open rupture was closing. The work permits of most of the foreign managers at TNK-BP, including the company's president, Amcit Robert Dudley, and himself were set to expire at the end of July. In the event that the foreign managers were forced out of the company, BP would seek redress through the binding arbitration agreed to in the company's charter and would go after the AAR partners foreign holdings.
--------- U.S. Role ---------
6.(C) McCormick expressed appreciation for U.S. efforts on BP's behalf, especially Commerce Secretary Gutierrez's press availability at the St. Petersburg Economic Forum, where Gutierrez had publicly noted the concerns of the foreign business community about transparency, the law, and the way state institutions were being used in the dispute. He said this was exactly the right message U.S. officials should deliver in the event that future opportunities presented themselves.
-------------------------- Investment House Concerned --------------------------
7.(C) Separately, ECMIN also met June 11 with Renaissance Capital's Head of Research, Roland Nash. The discussion was primarily about the new government's implementation of economic reforms (septel). However, Nash raised TNK-BP, noting that it was his sense that both the foreign and Russian business communities were increasingly concerned at the apparent ability of the AAR partners to use state institutions for personal gain. Nash said he was not sure the GOR understood that this was undermining Medvedev's statements on reducing official corruption and that this would have repercussions for foreign investment. RUSSELL