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TNK-BP Pays Off $1.44Bln Tax Bill

TNK-BP has paid $1.44 billion in back taxes amid a mounting attack that analysts say is designed to ensure that a state-run company will soon gain a stake in the Russian-British oil major.

The tax claim is the largest levied against a Russian company apart from the multibillion-dollar claims that led to the downfall of Yukos.

TNK-BP said Friday that it had expected the charge and settled the claim for 2002 and 2003 from a $1.46 billion reserve created for the tax case.

"This will have no impact on the company's financial results for this year, or on the company's operations," said Alexander Shadrin, a TNK-BP spokesman.

TNK-BP negotiated down the initial tax claim of $1.85 billion, but analysts said the final settlement was larger than they expected.

"The market was expecting a lower amount. Settlements have traditionally been substantially lower than the claims, so it is a surprise," a source familiar with the matter said. "It is tied in with the ongoing attack against the company."

TNK-BP appears to be the latest target in the Kremlin's campaign against oil and gas projects with foreign participation, as it seeks to ensure the state has a significant share in the sector that President Vladimir Putin has called the country's "holy of holies."

Prosecutors last week opened a criminal investigation into TNK-BP subsidiary Rospan International over purported license violations at fields in west Siberia, and have threatened to level a similar charge against the operator of TNK-BP's flagship Kovykta field in east Siberia.

Analysts said the moves were designed to warn TNK-BP of the measures it could face if it refused to allow Gazprom or Rosneft to buy into the oil major when its Russian billionaire shareholders are free to sell their stake in spring 2007.

"Once the TNK-BP break clause comes into effect next spring, we'll see a restructuring of ownership, with the entry of a new Russian partner and BP's share possibly reduced to below 50 percent," the source said.

"That would be consistent with the state effort to ensure control of the sector."

No Western oil major has entered Russia since BP teamed up with the Tyumen Oil Company to form TNK-BP in 2003. The country's third-largest oil producer, it is 50 percent owned by BP and 50 percent owned by a group of Russian shareholders — Mikhail Fridman's Alfa Group, Viktor Vekselberg's Renova and Len Blavatnik's Access Industries.

Since the back tax claim dates back before the merger, the cost will be split among the Russian shareholders. TNK-BP's Shadrin declined to detail how the cost would be divided, saying: "This is a question for the shareholders."

The company is still battling a 4 billion-ruble ($150.4 million) tax claim for 2001 in the courts, he added.

Since the 2003 merger, the state has made it clear that all new oil and gas projects will be majority-owned by a Russian company. State-run Gazprom has said it is interested in scooping up the TNK shares, while TNK-BP CEO Robert Dudley has said he is unaware the Russian shareholders have any intention to sell.

Yet the source close to the matter said BP had resigned itself to taking on a state-friendly Russian partner. The payment of a $3.6 billion interim dividend for the first nine months of 2006 has led some to speculate that a sale could be in the works.

The mounting campaign against foreign oil projects has prompted warnings from foreign diplomats and analysts that Moscow must clarify if its intentions if it hopes to continue attracting foreign investment.

A mounting series of accusations against Shell over purported environmental violations at Sakhalin-2 has been seen as a means of putting pressure on the British-Dutch major as it negotiates Gazprom's entry into the project.

Government criticism of U.S. oil major ExxonMobil and France's Total has prompted speculation that the state might seek to rewrite the terms of production sharing agreements, or PSAs, that it signed in the 1990s with those two companies and Shell.

"There is a belief that after the PSAs are dealt with, the state will turn to TNK-BP," the source said. "This attack on TNK-BP is part of a fairly heavy-handed approach by the state to force the company into accepting whatever terms of restructuring it is offering."

The Natural Resources Ministry has been the Kremlin's recent instrument of choice in its campaign to win back oil and gas reserves. The tax claim against TNK-BP has evoked memories of the state's attack on Yukos.

"We thought that the company would be able to lessen the sum in negotiations with the tax authorities, or would fight it out in court," said Vladislav Metnev, an oil and gas analyst at Troika Dialog.

"But given what happened to Yukos, it seems that no company wants to go to court any more. If there are claims, it's better to pay them voluntarily," he said.

Once the nation's biggest oil producer, Yukos was smashed by more than $33 billion in back tax claims it unsuccessfully tried to fight in court. With its main production unit now in state-controlled Rosneft's hands, the rest is to be sold off in bankruptcy proceedings early next year.


(The Moscow Times 13.xi.06)

 
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