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Cablegate: Embassy Moscow

VZCZCXRO5267
PP RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHMO #2137/01 2061414
ZNY CCCCC ZZH
P 241414Z JUL 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 9158
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHMFISS/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 03 MOSCOW 002137

SIPDIS

DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT
EUR/CARC, SCA (GALLAGHER, SUMAR)
DOE FOR FREDRIKSEN, HEGBORG, EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER

E.O. 12958: DECL: 07/24/2018 TAGS: EPET ENRG ECON PREL RS

------- SUMMARY -------

1.(C) In a July 14 meeting with the Ambassador and in a July 17 briefing for Special Envoy Gray and Eurasian Energy Coordinator Mann, TNK-BP CEO Robert Dudley told us he did not see any positive resolution emerging soon and warned that TNK-BP's operations are already effected. AAR continues to ratchet up the pressure on Dudley and BP in the battle for control of TNK-BP. Dudley has been named in a discrimination suit by some of the company's Russian employees and on July 23rd a Tyumen court ruled in favor of a minority shareholder who had sought to prevent continued employment of BP staff seconded to TNK-BP. BP has now decided to withdraw all of its 148 seconded employees from TNK-BP and Dudley told us they are unlikely to ever return. Dudley and the Western managers within TNK-BP remain for now but their situation is tenuous, symbolized by Dudley's ten day visa extension, which he expects to be renewed for another ten days at the end of this week. Dudley compared the situation faced by his company to the nationalization of oil industry in Venezuela and implicated senior GOR officials as being involved. Other sources have told us that a power struggle within BP involving Dudley and BP CEO Hayward is hampering BP's ability to respond. End summary.

--------------------- AAR TURNS UP THE HEAT ---------------------

2.(C) On July 23 a Tyumen court ruled in favor of Tetlis, a minority shareholder of TNK-BP that had sought to block continued employment of 148 BP staff who had been seconded to TNK-BP. Although BP has said it will appeal the decision, it had announced a day earlier that the remaining staff (those who had not already been reassigned out of Russia) will leave Russia due to the continued injunction against their employment. TNK-BP President Bob Dudley had briefed us on this case earlier (reftel), noting Tetlis is linked to Alfa, one of the partners in the Russian group of TNK-BP owners known as AAR.

3.(C) According to Dudley, this case is part of the continued campaign of administrative and PR pressure against BP and the foreign staff of TNK-BP coordinated by AAR. He told the Ambassador on July 14 that the BP secondees are unlikely to return to TNK-BP, saying "that chapter is over." BP Russia President Richard Spies told us the company simply could not have that much talent idle when their services could be put to use elsewhere in the world.

4.(C) In all, as of July 24, according to TNK-BP Vice President for International Affairs Shawn McCormick, 363 expat BP staff and family members have left or will be leaving Russia, including 196 American and 117 British citizens. McCormick said there are now about 85 non-Russian staff at TNK-BP of whom only 62 have work permits and visas (some are double-counted due the need for multiple work permits). McCormick said the future of the remaining staff is unclear as there is an internal dispute within AAR as to the appropriate number of expats in the company of 66,000 employees.

5.(C) Included among those with an uncertain future is Dudley, who was given a 10 day "transit" visa on July 18. Dudley was told he can work on the visa, avoiding a potential showdown with AAR partners who had threatened to try to physically prevent him from entering TNK-BP's offices. The visa expires at the end of this week, but Dudley told us he expects to get a series of ten days visas as the Federal Migration Service (FMS) tries to avoid making a decision that would lead to his being expelled from the company.

---------------------------------------- GETTING RID OF DUDLEY REMAINS AAR'S GOAL ---------------------------------------- MOSCOW 00002137 002 OF 003

6.(C) Dudley, who was also recently slapped with a discrimination suit by some of his Russian employees, told the Ambassador that AAR's main priority remains to get rid of him as the company's CEO, allowing them to effectively take control. He explained that while BP has the right to nominate candidates for the top job, AAR would still have to agree to the choice. With Dudley gone, AAR could stall on the next president indefinitely, removing the major check against AAR's ability to rewrite the procurement, trading, and strategic policies of the company to suit their needs.

7.(C) Dudley said he believes (although he admitted "some people disagree") that AAR is acting with direct cooperation from the GOR, including from Deputy Prime Minister Igor Sechin xxxxxxxxxxxx. He said he expected the situation to continue to worsen with more attacks directed at him personally and shared with us an outline (emailed to desk) of information he has received regarding a "black PR" campaign by AAR designed to put further pressure on him and on BP.

8.(C) Dudley said AAR partner Viktor Vekselberg is the only shareholder with whom he has a civil relationship. He claimed Vekselberg had told him privately that he did not support his partners attacks on Dudley and BP but that he was bound by AAR's shareholder agreement to vote with them. Dudley said he has been trading accusatory legal letters back-and-forth with Alfa's German Khan, who has led the charge against TNK-BP's foreign executives, and that Alfa's Mikhail Fridman had threatened to hold him personally liable for spending over $4 billion "without shareholder approval." Fridman backed off when Dudley offered to freeze capital spending at the company. In addition to Sechin and Prikhodko, Dudley believes Medvedev's economic advisor Arkady Dvorkovich is also supportive of AAR's actions.

9.(C) Fearing that he may not have been able to return to Russia if he left, Dudley said he participated in the July 11 shareholders meeting in Cypress by DVC. He said the meeting underscored the division between BP and AAR, with AAR voting against a BP resolution that merely called for the board to support "the substance of the shareholder agreement" (that created the company). He said Vekselberg expressed support for Dudley during the DVC, but again voted with AAR because AAR's internal agreement requires him to do so.

10.(C) Dudley compared the situation faced by his company to the nationalization of the oil industry in Venezuela, and said he wasn't hopeful the situation would be resolved soon. He believes both BP and AAR will lose, with the GOR ultimately taking control of TNK-BP through either acquisition by Gazprom, Rosneft, or a rumored merger of TNK-BP with Gazpromneft and Surgutneftegaz.

------------------ BP POWER STRUGGLE? ------------------

11.(C) In a July 21 meeting, Kremlin critic and former Deputy Energy Minister Vladimir Milov told Ambassadors Gray and Mann that his understanding was that there was also a power struggle going on within BP between Dudley on the one hand and CEO Tony Hayward on the other. Milov said Dudley had also been considered as a replacement for former CEO Lord Brown and that Hayward was being blamed by some in the company for the crisis for having tried to de-emphasize the importance of BP's Russian operations. British Ambassador Anthony Brenton told the Charge July 23 that he had heard similar reports of BP in-fighting and that this was hampering BP's response to AAR's attacks.

------- COMMENT -------

12.(C) The central role being played in this affair by the Federal Migration Service undermines GOR claims that it is not involved and lends further fuel to rumors that senior GOR officials are backing AAR. That said, it is also not clear MOSCOW 00002137 003 OF 003 whether the GOR has a unified position on how it wants to see the dispute resolved. Until then, it will likely remain impervious to our arguments that its reputation is suffering from the dispute. End Comment. RUBIN

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