June 16 (Bloomberg) -- Russian billionaire Mikhail Fridman said relations with BP Plc have broken down over what he called the ``unacceptable'' performance of their venture TNK-BP and the ``arrogance'' of the British oil producer.

TNK-BP'S share price growth and total production growth have been worse than those of other Russian oil companies as BP ``fenced in'' the venture to Russia and Ukraine, Fridman told a briefing in Moscow today as he and fellow billionaire shareholders battle for control with BP.

BP owns half of TNK-BP, with the other half split between Fridman and TNK-BP Executive Director German Khan's Alfa Group, Viktor Vekselberg's Renova Group and Len Blavatnik's Access Industries, together known as AAR. Fridman said the billionaires had proposed firing TNK-BP Chief Executive Officer Robert Dudley and the rest of the company's senior management, and allowing a new CEO to pick fresh managers.

``We need foreign investors that will help ensure the growth of Russian companies, not constrain their development,'' Fridman said, describing TNK-BP's record as ``unacceptable.''

``We should be just the best,'' he added in comments to Bloomberg Television.

TNK-BP's market value has more than doubled to $38 billion as of June 1 since BP paid $7.7 billion for half of the venture five years ago, compared with a more than fivefold increase for Russia's second-largest oil producer, OAO Lukoil, to $95.2 billion. At the same time, shareholder returns shrank as dividends were cut, Fridman said.

High Returns

TNK-BP has delivered the second-highest average shareholder returns ``among major Russian companies,'' while organic output grew 5.8 percent a year and organic reserve replacement was 130 percent, BP spokesman Vladimir Buyanov said. ``The share price performance of TNK-BP Holding simply reflects its lack of liquidity and the continuing uncertainty over future ownership.''

Fridman said he and the other billionaire investors have no plans to sell their stakes and have not received a proposal from OAO Gazprom, Russia's state-owned gas exporter, or any other state company to buy the shares. ``We won't give anything away to anyone, especially the levers of control at the company.''

To resolve the dispute, BP must agree to AAR's demands for independent board directors, new management and the development of TNK-BP as a separate company with the right to compete with BP in foreign markets, Fridman said. BP treated the venture as a subsidiary, opposing AAR's proposals to expand abroad into countries such as Iraq and Poland, he said.

`Arrogance'

``There is a good English word -- arrogance,'' Fridman said. ``We have felt kind of condescension for a long time.''

Fridman said relations became more difficult when BP CEO Tony Hayward took over from John Browne last year.

The investors plan to go to court in Stockholm to cut the number of BP employees working under contract at TNK-BP and in Moscow to gain equal board representation at its units. It will also use all legal means to oust Dudley, Fridman said. BP, which relies on the venture for a quarter of total output and a fifth of proved reserves, has refused to sanction Dudley's dismissal.

BP offered to begin buyout talks with its partners, which could start only after reaching an agreement to keep on Dudley, stabilize operations and comply with existing governance, according to a June 10 e-mail from a BP representative on TNK- BP's board to a board representative from AAR.

AAR partners aren't interested in selling, the AAR representative said in the e-mail. A lock-up period on the shareholders concluded at the end of last year.

Share Swap

``We'd like to get an option'' to swap TNK-BP shares for BP as a way to ensure BP promotes the venture's development, Fridman said today. The shareholders had proposed the idea in a June 3 e- mail, a copy of which Bloomberg obtained.

AAR has no interest in exercising the swap itself, as the shareholders don't want to exit the venture and TNK-BP is growing faster than BP, Fridman said.

BP Chairman Peter Sutherland said on June 12 the dispute with the shareholders was a battle for control and a throwback to ``corporate raiding'' that took place in Russia last decade. He described it as an ``early test'' for President Dmitry Medvedev.

To contact the reporters on this story: Torrey Clark in Moscow at tclark8@bloomberg.net; Greg Walters in Moscow gwalters1@bloomberg.net

Last Updated: June 16, 2008 13:37 EDT