Publication: Monitor Volume: 6 Issue: 4

The U.S. State Department ended months of speculation in late December by intervening in a high-profile dispute between Russia’s Tyumen Oil Company (TNK) and a group of foreign investors led by BP-Amoco. Secretary of State Madeleine Albright formally blocked a US$500 million loan package for TNK which had been slated for approval by the U.S. Export-Import Bank. Albright’s decision was justified in part by legislation requiring the State Department’s consent for Ex-Im Bank lending in cases involving U.S. interests in such areas as international terrorism, nuclear proliferation, environmental protection, or human rights–concerns which ran afoul of Moscow’s “antiterrorist operations” in Chechnya. However, as State Department officials emphasized, the ruling was also meant to send a clear message of displeasure about Russian abuses against foreign investors. The move to block the U.S. Ex-Im Bank loan was triggered by the outcome of bankruptcy court decision which had allowed TNK to take over Chernogorneft, the most important subsidiary of Sidanko, a Russian oil company in which BP-Amoco holds a 10 percent ownership stake. This court ruling essentially allowed TNK to deprive Sidanko’s minority owners of some of the company’s most valuable assets, even as TNK was seeking U.S. Ex-Im Bank financing to help develop the Samotlor oil field in western Siberia. BP-Amoco, which spent US$571 million to purchase the 10 percent Sidanko stake, launched a major–and ultimately successful–lobbying effort against the release of the US$500 million Ex-Im Bank loan.

TNK clearly manipulated Russia’s bankruptcy laws in a predatory fashion, and used its strong ties to the Tyumen regional administration to prevent the company’s foreign owners from using Russian courts to protect their interests. But because it is not clear that any laws were broken, BP-Amoco and other foreign investors in Sidanko–including the London-based European Bank for Reconstruction and Development–may also deserve some of the blame for their predicament. Nonetheless, the details of the dispute may be less important than the fact that Washington decided to make the TNK affair into a test case of Moscow’s professed willingness to improve the climate for foreign investors.

The decision to draw a line in the sand seems to have worked, at least for now. In the immediate aftermath of the Ex-Im Bank announcement, TNK sued for peace with BP-Amoco, and signed an agreement transferring control of Chernogorneft back to Sidanko. Under this new deal, TNK gets a 25-percent-plus-one-share in Sidanko, while BP-Amoco retains its 10-percent ownership stake. More important, BP-Amoco’s voting shares will increase from 20 percent to a 25 percent plus one blocking stake, which should allow BP-Amoco to better protect its interests. But while this may be a victory for the reform of Russian corporate governance, it may bring little joy to countless other foreign investors in Russia who do not have BP-Amoco’s political clout (Reuters, Bloomberg, PRNewswire, December 20-22, 1999).