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Apr. 24, 2005
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German Khan Not a Lady's Man
// TNK-BP capitulates to Ukraine
Business and Power
Ukrainian Prime Minister Yulia Timoshenko began a series of meetings Thursday with representatives of Russian oil companies that have refused to heed the order issued by the Ukrainian Economics Ministry placing a cap on the retail price of fuel. Executive director of TNK-BP German Khan was the first to be received by Timoshenko. It looked like she was well prepared for the meeting. The Interfax-Ukraine news agency had released information before the meeting that the Ukrainian Prosecutor General's Office has sent copies of a suit to the state property fund and TNK-Ukraine about the illegal privatization of TNK-BP's Lisichansky oil refinery. The meeting was still in progress when it became known that the report was false. But it was too late. Khan had agreed to sell gasoline at his gas stations at the prices set by the Economic Ministry.
Around noon, Interfax-Ukraine reported, citing a source in the economic court in Kiev, that the purpose of the Prosecutor General' Office's had sued to have the privatization of the Lisichansky oil refinery annulled and the refinery returned to the state. The bases for the suit were not elaborated on. In July 2000, TNK-Ukraine was declared the winner of privatization competition for 67.41 percent of the stock in that refinery. The company paid about $10 million for it. At present, the plant is being used by OOO LiNOS, which is owned by ZAO Linik, part of TNK-BP. It provides gasoline for agricultural use and for TNK-BP filling stations, a network of more than 1000 franchised facilities.

At the TNK-Ukraine public relations office, they told Kommersant immediately that they had no information about a suit being received. We have not received specifications of the implementation of the suit, a company release states. But, judging from the statements made by several members of the administration in recent days, we do no exclude the possibility of the existence of such a suit. In connection with the situation on the petroleum products market, representatives of the administration have repeatedly called for a reexamination of the results of the privatization of the Lisichansky oil refinery and have used that possibility to apply pressure on the TNK-BP Co.

The announcement of the suit put Timoshenko is a much better bargaining position with Khan. The meeting began at about 1:00 p.m. Moscow time. At that time, the Ukrainian Prosecutor General's Office has already told Kommersant that it knew nothing about any suits being filed in the economic court in Kiev. At the court itself, Kommersant was told that no suit had been received. The official denial appeared in the Prime TASS news feed considerably later, around 4:00 p.m. Moscow time.

Immediately after the meeting, the prime minister announced that TNK-BP will lower prices for gasoline at its filling stations to the level set by the government. We agreed that, at 8:00 in the morning [of April 22], the TNK chain, which consists of 1000 stations, will go to the prices set by order of the Economic Ministry, she said. Moreover, she said that she had reached an agreement with the company on sales of TNK-BP diesel to the agricultural sector for $475 per metric ton, instead of the market price of $549.

All that was left for TNK-BP to do in its press release was to confirm that the Lisichansky refinery will produce the cheap diesel for agriculture and freeze prices at their gas stations at the level set by the government. Company president Alexander Gorodetsky is quoted in the press release as saying that our sales partner TD TNK-Ukraine will make every effort to settle the situation with the franchised chain, as much as his influence permits. The company is emphasizing, however, that prices will be frozen only until May 1. We cannot agree with the government for a longer term because we have significant conceptual differences in our vision of the model of the work of the petroleum product market of Ukraine, Gorodetsky said. The company hopes to reach a compromise with the government on fuel pricing policy by May 1.

The Ukrainian government shows no signs of willingness to compromise. Yesterday, the Economic Ministry announced that it plans to extend the effectiveness of its order fixing fuel prices to May or June. It had previously been intended to last until May 1.

Timoshenko stated that she has a meeting scheduled with the LUKOIL management on Friday (Kommersant has information that company president Vagit Alekperov flew to Kiev last night). I think the results will be the same, she said. They think the same at LUKOIL. A source in the company told Kommersant that information had been received on the possible nationalization of Odessa oil refinery should the company fail to reach an agreement with the prime minister.

Kommersant will follow the development of the situation.

Anna Skornyakova; Oleg Gavrish, Kiev

All the Article in Russian as of Apr. 22, 2005

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