BP's Russian Partners Pour Oil on the Flames

The vitriol between BP and its Russian oligarch partners over the TNK-BP joint venture goes from bad to worse. Last week we had BP's chairman, Peter Sutherland, likening the oligarchs to 1990s-style Russian corporate raiders. Needless to say, they have now taken the name-calling to a new level, comparing Sutherland to Hitler's propaganda chief, Joseph Goebbels.

But the battle should surprise no one, least of all Tony Hayward and others at BP's London top table.

BP was acutely aware of what it was taking on when it formed the joint venture: its new oligarch friends had been bitter enemies until shortly before the TNK deal was signed in 2003.

Chief oligarch Mikhail Fridman and his Alfa Group had clashed with BP back in 1999 when the Russians laid claim to parts of Russian oil group Sidanco, then part-owned by BP. The UK oil group threatened legal action and ultimately had to call in Tony Blair to put pressure on Vladimir Putin to wrest back what they were convinced was theirs. They succeeded.

John Browne, the BP chief executive at the time, denied his company had ever sued the TNK oligarchs, but he admitted they had fallen out. When asked whether it was wise to partner former enemies, Browne asserted it was better to have seen the dark side as well as the light when it came to new business partners.

So the two sides have form. But the British company has got itself into a fight it cannot win. There can be no appeal to Putin this time round.

This private-sector scrap will likely make it easier for the Russian government to get what it ultimately wants: part of TNK. A battle between BP and the oligarchs could allow Gazprom to nip in and take part or all of the Russian oil producer at a knock-down price.

But BP can ill afford to lose its Russian business. It has 25% of its production locked up in TNK and troubles elsewhere, including a depressed share price and a reputation tarnished by the Texas City refinery blast and other US problems.

Pruning hedgies

It seemed far too straightforward: a simple new rule designed to clamp down on short selling during rights issues, starting in seven days.

There was no discussion document, consultation period, submissions or working party - just a new rule, that from this Friday firms that borrow more than 0.25% of a company's stock for short selling during a rights issue will have to disclose their activity. And if that doesn't put a stop to those pesky hedge funds profiting from the banks' problems, the FSA will consider an outright ban on stock lending to them.

Needless to say, the FSA's move did not go down at all well, not just with the hedgies but with investment firms that don't like being told what they can and can't do with their shares and that make good money out of lending stock (though it remains a bit of a mystery to me why any long-term shareholder would want to loan stock to someone who benefits from the value of those shares being driven down).

But just one working day after the FSA announcement, and before the new rules even take effect, word filters out of Japan - where Alistair Darling has been attending the G8 finance ministers' meeting - that the FSA's new short-selling rules will only be temporary and it now intends to find a permanent solution. The Treasury is planning a host of working parties to consider City issues and the first of these will look at rights issues and short selling.

The chancellor's City group of movers and shakers - set up only 18 months ago with 34 big-name members - is evidently far too high-level for such nuts and bolts issues, so from now on it will meet only once a year to discuss big-picture concerns. Instead bankers and finance professionals from a few rungs down the ladder will sort out thorny problems such as short selling.

The new lower-level City group on short selling of stock and rights issues will be co-chaired by the FSA and the Treasury.

The FSA was yesterday insisting that its Friday announcement - which made no mention of its new transparency rules being temporary - was always just a stop-gap before a more measured consultation that the Treasury had just announced. The low-level group is now likely to spend months on what should be two obvious conclusions.

First, the new FSA rule stands (and maybe should even be extended). There is no reason why short sellers should be able to keep their positions private.

Second, the timetable for rights issues has to be shortened. HBOS will not wrap up its cash call until mid-July, even though it was announced on April 29. That is just far too long, for managements and shareholders alike.