New legal setback halts BP's Russia dream

8th April 2011, Comments 0 comments

An arbitration tribunal on Friday delivered another blow to BP's dream of completing a tie up with Rosneft by blocking its historic share swap agreement with Russia's largest oil firm.

The Stockholm panel's ruling came just two weeks after the same tribunal kept BP from proceeding with its plans to search for oil in the Arctic in vast plots of lands owned by the Russian state-controlled company.

Both parts of the historic tie up -- which was blessed personally by Prime Minister Vladimir Putin in January -- were fought by the billionaires who make up the Russian half of BP's local venture TNK-BP.

The group fear the deal will eventually make their company irrelevant and argued that they had the right to bid on the Rosneft project first.

Friday's decision was immediately hailed by the Russian group and dismissed by BP as just another step in a long legal battle to complete a deal that makes up a vital part of its strategic future.

"The share swap and the Arctic opportunity announced January 14 remain subject to the final decision of the arbitration tribunal," BP said in a statement.

The two sides also confirmed that the Stockholm panel had extended the April 14 deadline for completing the deal in order to give BP more time to submit evidence backing its claim to the share swap portion of the agreement.

The Russian billionaires -- known collectively as AAR and led by Alfa Group head Mikhail Fridman -- said they were willing to fight the tie-up to the end.

"AAR welcomes the decision of the tribunal, which we consider fair, balanced and thoughtful," AAR chief executive Stan Polovets said in a statement.

"We will be pleased to continue to cooperate with the tribunal and will provide any additional information and evidence it requires during the next stage of the hearings."

The original agreement was announced as BP struggled to overcome the damage to its reputation and finances caused by the 2010 Gulf of Mexico oil spill.

The deal with Rosneft would have made BP first through the door to the giant energy wealth believed to the buried in the Arctic -- where large chunks are controlled by the Russian state.

But the agreement came to almost an immediate halt when panels in London and then Stockholm sided with the Russian shareholders in BP's local venture.

The Russian billionaires argued that TNK-BP had the right of first refusal on any deal with Rosneft and argued that the tie up broke the joint venture's shareholder agreement.

Analyst said last month that BP would still probably manage to somehow complete the tie up because it was personally backed by Igor Sechin -- the Rosneft board chairman who serves as Russia's effective energy czar.

But Sechin's own position was shaken at the end of March when President Dmitry Medvedev announced that he would be dismissing all government officials from their seats on state company boards by the end of the year.

© 2011 AFP

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