To all - NYT article about Russia NOT respecting fair play in ownership (and disposition) of assets.
October 23, 1999
Another Setback for BP Amoco in Its Investment
in Russia
By NEELA BANERJEE
MOSCOW -- BP Amoco has suffered what may be the harshest
setback yet in its struggle to preserve a $571 million investment in
Sidanko, a bankrupt Russian oil conglomerate that once symbolized
opportunity for foreigners in Russia's petroleum industry.
On Thursday, Tyumen Oil Co., a Sidanko rival that has emerged as a big
problem for BP Amoco, acquired Kondpetroleum, a bankrupt oil producing
subsidiary of Sidanko. Tyumen paid only $52 million, a sharp markdown
from the asking price of $145 million.
Despite assurances from the Russian government that BP Amoco's 10
percent investment would be protected, BP Amoco has watched valuable
Sidanko subsidiaries gradually slip away over the last year and end up under
the ownership, or at least the influence, of Tyumen Oil.
The Kondpetroleum sale to Tyumen may be the most decisive blow yet: if the
deal goes forward, it is likely that similar methods will be used to sell
Sidanko's core oil producer, Chernogorneft, later this year. Most analysts
predict that Tyumen Oil, which has long sought to buy Chernogorneft, will
get it.
"There's a good chance that Cherno will go, too, at this rate," said Peter
Boone, director of research for the Moscow brokerage firm of Brunswick
Warburg. "The fight has been going on for a long time, and BP Amoco seems
to be losing every little battle."
The Kondpetroleum sale is the latest in a series of disputes that have further
tarnished Russia's poor image with investors. Two weeks ago, a St.
Petersburg court reversed the privatization of the Lomonosov porcelain
factory, annulling a majority stake held in the company by several executives
from Kohlberg Kravis Roberts and the $440 million U.S.-Russia Investment
Fund.
Days later, police in Vyborg, north of St. Petersburg, clashed with workers
at a cellulose plant who refused to obey a court decision handing over the
factory to a Britain-based owner. Last Friday, Russia's chief securities
regulator resigned over what he called Russia's intractable hostility toward
outside investors.
In the case of Sidanko, BP Amoco and many industry analysts say that
Tyumen Oil has used the bankruptcy process to strip away Sidanko assets
like Kondpetroleum at exceedingly low prices. Tyumen Oil has rejected such
accusations. It has said BP Amoco is frustrated by the British company's
own poor decision to invest in Sidanko.
Indeed, BP Amoco two years ago picked a concern that was more a
collection of scattered assets rather than a functioning company. By late last
year, minor creditors had begun bankruptcy proceedings against three
Sidanko units, including Kondpetroleum and Chernogorneft, and early this
year Sidanko itself was pushed into bankruptcy.
Sidanko is the largest creditor of Chernogorneft and Kondpetroleum, but
since the bankruptcies began, Russian courts, especially in the Tyumen
region where the companies are based, have handed down rulings
contradicting creditors' wishes.
BP Amoco and others accuse Tyumen Oil of unduly influencing the local
courts, particularly because the head of Tyumen Oil's board, Leonid
Roketsky, is also the region's governor. Tyumen Oil denies such accusations.
The courts have installed external managers at Chernogorneft and
Kondpetroleum who have refused to register debts Sidanko is owed by the
units. That, in turn, reduces or voids Sidanko's role on the creditors'
committees, which decide how to deal with the companies' bankruptcies. In
both cases, the external managers, contrary to Sidanko's wishes, have
decided to sell the production units quickly.
In a country where business and politics are inextricable, high-level influence
may ultimately decide the fate of Sidanko's units. BP Amoco has successfully
lobbied Congress to delay $500 million in Export-Import Bank loan
guarantees to Tyumen Oil.
But in Russia, BP Amoco is clearly less influential than Tyumen Oil, which is
owned by the powerful Alfa Group, whose top executives include former
government ministers and Kremlin insiders. Said one Moscow oil analyst,
"Domestically, Alfa has enough power, enough good connections with the
current regime, to be able to go all the way on this."
Copyright 1999 The New York Times Company |
