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Cablegate: Embassy Moscow

VZCZCXRO5149
PP RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHMO #2273/01 2191319
ZNY CCCCC ZZH
P 061319Z AUG 08 ZDK
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 9327
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 02 MOSCOW 002273

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: 08/06/2018 TAGS: EPET ENRG ECON PREL PINR RS

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

1.(C) TNK-BP CFO James Owen resigned on August 4, citing the on-going dispute (reftel) over control of the company as hampering his ability to perform his job. TNK-BP's chief strategist, Kris Sliger (protect), told us August 5 that he doesn't think a new CFO would be named soon given the difficulty in attracting the right person into the company at this time and the need for both sides to approve the selection. Sliger also said CEO Bob Dudley is unlikely to return and in any event may face additional charges of labor code violations that could see him "suspended" from his role by the labor authorities. Meanwhile TNK-BP's woes continue to weigh on already declining investor confidence in Russia. End summary.

------------------------- CFO: "I DON'T NEED THIS." -------------------------

2.(C) Sliger told us that Owen announced his resignation from TNK-BP relatively unexpectedly. According to Sliger, Owen had explained to Sliger the day before that he was leaving because the gap between the two sides in the on-going dispute is "too wide," a settlement "too far off," and, at 61 years-old, "I don't need this." Sliger said that as CFO, with his signature on the company's key financial documents and disclosures, Owen was putting himself personally on the line with various regulatory agencies. Sliger added that Owen had worked with AAR partners German Khan and Mikheil Fridman &long enough to know that's dangerous."

3.(C) Sliger said finding a new CFO in the current climate at TNK-BP would be difficult and take some time. Furthermore, per the shareholder agreement, AAR and BP would need to agree on the choice. He suggested that current controller Jonathan Muir, an expat employee, might be named interim CFO and was also a potential permanent replacement. Sliger described Muir as having "impeccable integrity." Without a new and fully empowered CFO, however, asset stripping at TNK-BP may gain momentum. As reported in the press, a BP spokesman put it this way -- "what you've got now is the biggest two foxes with an even freer rein to eat the chickens."

--------------------- FUTURE OF THE COMPANY ---------------------

4.(C) Sliger, who has been with the company since its founding and helped put the original deal together, sees "about a 30% chance" at a resolution preventing arbitration. "And to get there, we would have to engage in trench warfare with mustard gas." He said CEO Bob Dudley, will have difficulty managing the company from abroad and is unlikely to return to Russia as TNK-BP's CEO. He added that Dudley might also face additional charges of labor code violations, which would allow the labor authorities to temporarily suspend him from his post.

5.(C) Sliger said AAR partners Fridman and Viktor Vekselberg want to get as much money as they can out of TNK-BP, but that Khan ************ wants control of the company that he believes he has built. According to Sliger, the Russian partners simply do not understand how modern corporations work, and thus do not appreciate the implications of their actions for TNK-BP. As long as TNK-BP can continue to pump oil and gas, the Russians will believe all is well. However, what they fail to grasp, Sliger explained, is that the departure of the expats will effect the company's performance. The CFO's departure, for example, will lower the quality of company audits, thus raising uncertainties and risks for lenders, and thus raising the cost of capital for the company. ------- MOSCOW 00002273 002 OF 002 COMMENT -------

6.(C) The Russian stock exchanges have lost more than a quarter of their value since mid-May, much of it in the last few weeks. TNK-BP's woes have contributed to this, highlighting the uncertainties and risks related to doing business here. End comment. RUBIN

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