Fight between BP-Amoco and TNK over Sidanko is getting messy

Oct 19, 1999 02:00 AM

by Ben Aris

The tussle between BP-Amoco and Tyumenneft (TNK) for control over Sidanko subsidiaries has become a confused muddle.
The stakes are high: Either BP-Amoco loses more than half a billion dollars or the Russian government loses its last sliver of creditability among investors.
BP Amoco paid $ 571 million for a 10% stake in Sidanko in 1997. But in February of this year, Sidanko was forced into bankruptcy procedures by parties that many believe are the company's own shareholders. Since, then a fight has ensued between BP-Amoco and TNK over Sidanko's most profitable asset: the Chernogorneft production unit, which turns out 124,500 barrels of oil a day.
Though Sidanko is the majority stakeholder in Chernogorneft, it has all but lost control over Chernogorneft, one of the few profitable companies it owns. By a quirk of Russia's Byzantine bankruptcy laws, Chernogorneft is also facing bankruptcy proceedings, even though it is still making money.
TNK, together with its allies, has managed to garner some 60% of votes among the production units creditors. And since local authorities in Chernogorneft's home base in western Siberia are pro-TNK, if Chernogorneft is bankrupted it will probably fall into TNK's hands through a rigged sale of the type that has become par for the course in Russia.
With managers at its bankrupt subsidiaries diverting cargoes and cash flows to other contractors, Sidanko now controls less then half of its original oil production volume of about 20 million metric tons of crude per year. Not surprisingly, BP-Amoco has already written off more than $ 371 million of its investment in Sidanko. It is normal practice to write off a bust company, but -- this being Russia -- Sidanko is being threatened with receiversjip despite the fact that it is due to make a profit this year on the back of soaring international oil prices.
The three production units still fully under Sidanko's control -- Udmurtneft, Saratovneftegaz and Novosibirskneftegaz -- produced 3.4 million tons of crude in the first half of 1999. If Sidanko were able to add production from its Varyeganneftegaz and Chernogorneft subsidiaries to those volumes, it would be able to pay off half of its $ 462 million worth of debts by year's end. The rest of the debts -- bank loans and debts to shareholders -- could be deferred to the first half of 2000, according Stanislav Yegorushkov, the 24-year-old external manager put in charge of Sidanko.
The courts are little help in resolving disputes like these. For any ruling handed down by one arbitration court, the other side can co-opt an opposite ruling from another. And so it goes on in an endless circle of lawsuits. In an effort to cut through the Moebius loop of red tape, BP-Amoco approached the government in the summer, asking them to intercede on their behalf as only personal intercession by the prime minister or president could resolve the dispute.
Here the story becomes confused. The state asked that BP-Amoco's rights be transferred to the state, and BP-Amoco apparently agreed. However, last week Fuel and Energy Minister Viktor Kalyuzhny threatened to sell off Sidanko in its individual parts if the company's shareholders and creditors did not hand over their voting rights to the authorities.
This threat followed an announcement in the Russian press by BP-Amoco saying that they had already passed "all evidence" relating to the abuse by creditors at the subsidiaries -- not the same thing as handing over rights.
No one now understands what BP-Amoco is up to. One theory is that the multinational company needs the government's help but does not want to give up control of its shares. (BP-Amoco has also turned down several offers by TNK on co-operation and sharing the subsidiaries). It may be that the company is afraid of letting the government take control over Sidanko, one of Russia's largest oil firms, as the government's top priority ahead of winter is to provide oil to the regional energos that heat the country. Protection of investors' rights comes in a poor second. Sidanko is one of the major suppliers of fuel to the Far East, where serious shortages were reported last year.
But the government is also aware that it must be mindful of investors' rights. Analysts -- and presumably the government -- believe that if such a high-profile and large investment into what should be a profitable sector goes awry, then it will be a hot day in Siberia before anyone else chances their arm in Russia.
BP-Amoco is not commenting but seems to be doggedly sticking to its guns. Having already decided they made a mistake in investing into Sidanko, the company's managers are attempting to shame the government into helping them recover at least part of their investment. In the meantime, they are pushing on with their main goal.
At the end of September, BP-Amoco announced that it was preparing to increase its stake in Rusia Petroleum from 20% to 33%, via a share issue that is due to be held in November. Rusia Petroleum controls the Kovyktinskoye gas condensate field,which contains an estimated 870 billion cubic meters of gas and is conveniently located for exports to Irkutsk and China. When BP-Amoco bought into Sidanko, it controlled 60% of Rusia Petroleum.

Source: NewsBase
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