Conflicts in the TNK-BP Merge
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The problems started in 2008 when tension arose between a managing body of the merge AAR and BP due to pressure from the Russian authority which led to disputes among the shareholder. The disputes were so intense such that the shareholders confronted each other in the public view. The reason that led to pressure from the Russian authority was the issue of tax evasion of approximately $900 million from various units sold in TNK-BP. The shareholder raised mixed concerns about the issue of tax evasion and the probe conducted by the Russian authority led to shareholder’s disputes Ekin (2009).
The issue of the government, accusing TNK-BP joint venture, was meant to destabilize the it and to make it look as if it was ineffective because it failed to meet its obligations. These were meant to make the leadership of the venture look stupid and irrelevant. After realizing that the CEO was a performer, the authorities came with a plan to topple his management with some faulty accusations. This created some more loopholes of his management skills, hence was the major source of solving disputes Goldman (2008).
The government was aiming to discourage shareholders and bring more confusion in the venture as to why the liabilities were more and unpaid yet the TNK-BP had the potential and capacity of settling its liabilities. The government also knew that by imposing such accusations it would result into a heated repulsion of the shareholder and the management, since the shareholder would realize that the CEO and his top management were misappropriating the company’s assets Dixon (2007).
The merge was also struck by other legal obligations when the Federal Security Service arrested the employee of BP-TNK merge together with his brother where they were found guilty of industrial surveillance. AAR and BP engaged in public war concerning the unnecessary overpayment of western employees at the TNK-BP. The governing body was expatriating about the overpayment yet the western employees were defended by BP. AAR was then accused of being behind the denial of western employees work permits after they expired. This increased their enmity as the corporate body AAR was annoyed by the claim. In 2008 a local brokerage through court action stopped TNK-BP from employing and using foreign staff. This further widened the relationship between BP and its governing body as they thought that all the setbacks were brought by ARR Guriev (2005).
In 2008 June BP was threatened by the Russian shareholder when he wanted to take a legal action to remove the nominated directors of BP from power in the TNK-BP alliance when the corporate differences increased. BP was annoyed by the intention throwing blame to AAR that they were the ones who influenced the shareholder to make his decision. They disagreed with AAR who thought that BP’s aim was to tarnish their name by making all kinds of negative claims on them. The legal action that the Russian shareholder wanted to take was against the nominated BP employees was generated and motivated by the idea that BP was supporting foreign employees to earn more from the joint venture. The Russian government also denied the then TNK-BP chief executive officer permission to work under the temporary work permit the idea that was to stop all the foreign employees from working in Russia. Stopping the foreign employees targeted to remove Dudley from management though in an indirect way Guriev (2005).
After the departure of the foreigners, in September, the government withdrew its claim of tax evasion from TNK-BP joint venture and also suspended the case against the arrested employee of TNK-BP claims that there was to the case to be heard against the two and also that TNK-BP had settled their tax. It was therefore seen that the Russian authority wanted to remove the foreign employees from working in the country. The blame game that AAR was behind the government denying the foreign workers the working permit was then found to be political and not driven by AAR as it was earlier thought of. Dudley then moved from Russia blaming a plotted campaign that aimed to remove him because of the fight for power to control the joint venture between the partners and BP. The former TNK-BP senior manager described Dudley as a very resilient CEO and hence his evacuation should be put into doubt Ekin (2009).
The departure of Dudley brought some relief as BP and AAR reached a peace deal on how the venture was to be controlled. It can be noted that the problems the venture was facing were engineered politically so as to destabilize the leadership of Dudley who was a foreigner. The government wanted to control the joint venture and therefore after realizing that it was unable to do it, it started the game plan to remove Dudley from a management position. They did this by creating confusions among the Russian people so as to have control of the business. The legal worries were able to disappear after the departure of Dudley and there the company strategy was to form a new management system to preside over the business after the resignation of Dudley Poussenkova (2013).
The explosion of the deep water horizon in Gulf of Mexico led to a massive spill that led to the loss of billion dollars in TNK-BP venture. The spill led to the CEO of BP losing a job that was replaced by Dudley the former CEO of TNK-BP joint venture. With the re-introduction of Dudley as the CEO in BP management it meant that wrangles that existed and ended in the past were to be reintroduced again. The rivalry between BP and AAR intensified as it was steamed by the external forces that were political. The Russian government wanted all the management positions to be managed by native speakers. BP stood firm to protect their CEO and therefore this intensified the rivalry as they saw as if they were being betrayed by BP Dixon (2007).
Partnership problems were as a result of claims that were generated by AAR that BP was responsible for blocking the goals and achievements TNK-BP which included the expansion of the company in Russia. The problem, therefore was that neither BP nor AAR was responsible for the wrangle that existed. The main reasons for their differences was that they being pushed by the political forces. The government wanted the companies in Russia to be under the control of the natives as they believed they were paying the foreigners a lot instead of paying the natives.
Western expatriates are not only affected by the cultural differences while working in TNK-BP but they are also affected with the Russian government authorities. Not everything has changed even after Russia having changed from the Soviet era since until now non- Russian executive in TNK-BP is not allowed by the Russian law to access the official state data concerning the National natural and petroleum reserves Ekin (2009).
In January 2011, Dudley now the new CEO of BP developed a scheme that would bring up the company’s finances and hence give it access to a big oil and gas reserves which had not yet been tapped. The plan was based on a share swap between BP and OAO Rosneft in which they would acquire 5% stake in BP in exchange of 9.5% stake from the Russian oil firm. Additionally, the two companies came into an agreement to explore and develop three licensing blocks in Kara Sea, which was a Russian part of the Arctic Ocean (Chazan 2011).
The dispute arose when AAR were unhappy because BP had failed to include them in the deal. They felt BP was breaching the TNK –BP contractual agreements that had been made earlier. This agreement stated that that TNK-BP would be the prime driver for all petrol and gas operations in Russia in which BP went against. They in turn sued BP in a London and Stockholm International Arbitration court which it was agreed that BP had violated the agreement of the shareholder hence they blocked the BP-Rosneft alliance (Ekin & King 2009).
This was a big blow to BP and they found it difficult to admit. Market analysts found it rather interesting as to why BP should go ahead conducting a deal without actively involving AAR yet they were business partners. This signing was rather miscalculated since BP placed a lot of faith in the chairman of Rosneft Igor Sechin who was by then the deputy prime minister and often referred to as Putin’s right hand man. It turned out that Sechin’s influence could not make an impact on the AAR shareholders force of overturning the decision (Ekin & King 2009).
An analysis shows that politics played a big role in most of the business deals in Russia and this is observed when PB blindly takes a decision based on the other party’s political standing within the country being sure that they would maneuver the normal systems to get what they wanted. This is proved contrary to the expectations when AAR takes them to the courts and wins the case. AAR is described as a company with a high international profile, good government connection and has enough assets to shield them against political pressure if need be, hence BP could not use that as a weapon against them Carbonell (2009).
In the year 2012, political pressure mounts for BP when the minister for Natural resources and Environment ordered legal cases to be brought against the oil company for massive pollution over the Western Siberia region, between the Ob and Yensei rivers. This comes amid criticisms that the company has had a poor record of environmental conservation and urged to modernize their pipeline within a month to reduce the massive oil leaks. According to Blank (2011), environmental concerns could not have been part of his mind when he was attacking the third largest oil producer in the world, but it was driven at his ambition to seek candidacy in the gubernatorial race in the region.
Towards October in 2012, BP planned an exit strategy in which it decided to sell its stake in the TNK-BP purposefully to escape the frustrating relationship with AAR. They mutually agree to sell the $55 billion worth of stake to Rosneft in which TNK-BP sells to Rosneft sells its $28billion stake in cash while BP settles on converting its stake of $26.7billion to shares and acquisition of 5.66% of Rosneft from the Russian government, hence becoming a significant minority shareholder in the company (Poussenkova, 2013). The deal was sealed in March 2013 when BP received cash totaling to $12.5 billion and stake worth 18.5% from Rosneft.
Industrial analysis showed that though BP is running away from what it terms as a difficult relationship, the current one would be more difficult. This is because the Russian government owns 75% in Rosneft while BP owns a 19.75% stake making it a government controlled entity. Most companies in Russia, which are owned by the state, are run in their own unique way in that they are run not at the best interest of minority shareholders. Towards the end Russia assures BP of good business by offering them two seats in the board which gives them the confidence of absence of corporate governance tussles within the company Dixon (2007).
May 2014 followed a series of signings to enhance good working relationships among the partners. During the St. Petersburg International Economic Forum, the two partners signed agreements concerning exploration and development of Domanik formations in the Volga Urals region, which created an avenue for joint pilot projects and in case of success lead to development of unconventional resources (British Petroleum in Russia 2014).
June 2014 followed by new signings of long term deliveries of oil products and crude oil on a prepaid basis. This type of agreement involved a possible exchange of oil products with crude oil of up to 12 million tons within a span of 5yrs on a prepaid basis and the total amount shall not be less than $1.5 billion. Such deals are meant to cement the relationship between the two partners and to increase profitability in the long run Carbonell (2009).
Western expatriates are not only affected by the cultural differences while working in TNK-BP but they are also affected with the Russian government authorities. Not everything has changed even after Russia having changed from the Soviet era since until now non- Russian executive in TNK-BP is not allowed by the Russian law to access the official state data concerning the National natural and petroleum reserves.
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