Page 2 of 2 BP's Russian defeat a market victory
By John Helmer
what counts at St James Square - the market cap of BP, the BP share price, and
the bonuses Sutherland, Hayward and their associates earn, so long as the
Russian reserves continue to be booked on BP's ledger.
A minor footnote to the conflict is likely to be buried by the MoU. However, it
tells more about BP's tactics and intentions than the company should have
allowed to be known.
On June 30, as part of what the FT reported as tit-for-tat by the British
against legal action by the Russians, BP issued a London lawsuit, informing the
court and BP's shareholders that for at least 15 months their company had a
legal claim to 8.5 billion rubles
(US$366 million), payable by the Russian shareholders of TNK-BP.
On request, BP has produced a copy of the Short Claim filed by Linklaters at
the High Court. It is captioned BP Russian Investments Ltd versus Alfa
Petroleum Holdings Ltd and OGIP Ventures Ltd, both of London. BP declines to
say if it has served the claim on the defendants, nor whether it has filed in
court the fuller Particulars of Claim. The amount of the claim, including the
court filing fee but not legal costs and interest, is "the US dollar equivalent
of rubles 8,462,102,278.92". Michael Bennett is the Linklaters solicitor who
signed the claim on BP's behalf.
In a single page, however, BP and its lawyer revealed details of BP's
relationship with TNK-BP and AAR, which BP shareholders had not been alerted to
before - and which BP may now wish it had not exposed at all.
The legal basis of the claim is that in 2003, when BP acquired a 50% share of
Tyumen Oil Company (TNK) - then owned by Fridman, Vekselberg and Blavatnik -
the Russian shareholders signed an agreement to indemnify BP in the event that
the Russian government, prosecutors or tax agency filed claims against TNK for
the period prior to BP's deal. BP officials were reluctant at the time, and
subsequently, to admit to the existence of this and related indemnities, and
for two good reasons: BP did not want a public demonstration of how little it
trusted its new Russian partners in TNK-BP; nor would it acknowledge how
probable it thought TNK was liable for heavy back-tax claims from the Russian
government.
Clause 4 of what is called the Tax Deed of Covenant, dated August 29, 2003, is
now identified as the operative provision by which BP is now demanding the
money it says was paid out of its share of TNK-BP's profit in either 2006 or
2007. The Claim Form doesn't provide details of the tax levies on TNK-BP. Asked
what these were, BP spokesman David Nicholas referred to BP's annual report for
2006.
This says that on October 23, 2006, tax audits of TNK-BP group companies for
2002 and 2003 resulted in "a payment by TNK-BP of approximately $1.4 billion in
settlement of those claims". There is no reference to how much of this amount
was paid out of BP's share of TNK-BP monies, and thus subject to repayment by
TNK-BP to BP. All BP admitted to its shareholders was that "at the present
time, BP believes that its provisions are adequate for its share of any
liabilities arising from these and other outstanding tax decisions not covered
by the indemnities provided by our co-venturers ..."
This language appears to refer to tax liabilities BP might have to pay the
Russian authorities, after the 2003 transaction was completed. It omits to
disclose to shareholders that BP and TNK-BP had apparently agreed at the board
of directors, and with chief executive Dudley, that no money, out of the $1.4
billion tax paid in 2006, would be owing to BP.
BP refuses to explain why it has apparently changed its mind - and so recently.
Nicholas told Asia Times Online: "We consider the correspondence between BP and
the defendants and the contents of this correspondence to be confidential. We
have filed our claim with the High Court and you now have a copy of the claim
form. The details of this claim will be fully examined when the case comes to
court. We don't intend to make further comment on it."
The Claim Form reveals that BP's first letter of demand for payment was sent to
the Russian shareholders on March 19, 2007. But the amount claimed in that
letter by BP is reported in the court document to have been 3.4 billion rubles.
Further letters of demand followed, BP says, on August 1, December 24, and May
9, 2008. BP then makes an unusual admission: on May 22, BP received a letter
from the defendants, the Russian shareholders of TNK, in which they
acknowledged "that each Defendant was liable to pay 50% of Roubles
1,835,147,027.73 in respect of the sum of Roubles 3,402,745,865.00 claimed by
the Claimant in the aforesaid letter dated 19 March 2007".
Read that carefully again - BP admits that in its letter-writing campaign from
March of 2007 to May of 2008, its demand was for 3.4 billion rubles (about $147
million at today's exchange rate); and that the Russian shareholders had agreed
to pay it all.
Notwithstanding, just 38 days after receiving this payment undertaking, BP
filed suit for an amount that is exactly two and a half times larger. BP was
asked to explain why it sued so soon after the Russians agreed to pay on May
22; and why the amount of the claim had jumped skyward. Spokesman Nicholas
refused to say.
Can there have been an agreement in 2006 between the BP and Russians on the
board and in the senior management of TNK-BP not to reimburse BP, and not to
invoke the indemnities? Then, through 2007, when BP was dispatching its letter
claims, was there an understanding with the Russians that they would be obliged
to reimburse BP for considerably less than BP is now demanding?
The difference between what BP told the Russian shareholders it was willing to
accept in March 2007 and what it sued for nine weeks ago is almost 5.1 billion
rubles (about $218 million at June 30). In retrospect, this appears to be a sum
Dudley, the BP representatives on the TNK-BP board, Graham of BP Russian
Investments, and the BP board were all willing to sacrifice - without issuing a
notice to shareholders. Perhaps a year ago, this was a sacrifice they judged
prudent to maintain amity between the BP and Russian shareholders.
But once the BP plot to oust AAR had been exposed, the appearance of amity was
shot, and the stock markets turned against BP, the English tried to protect
their stake, keeping Dudley in place, with a writ worth $218 million more than
both sides had agreed to accept and pay in May. In the old-fashioned sense in
which Cyrano de Bergerac meant the word, this was lunacy. Hayward's signature
on the agreement of September 4 certifies it. In a commonsense world, lunatics
will also be defeated in the end.
Brown and Miliband face the same fate.
John Helmer has been a Moscow-based correspondent since 1989,
specializing in the coverage of Russian business.
(Copyright 2008 Asia Times Online (Holdings) Ltd. All rights reserved. Please
contact us about
sales, syndication and
republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
