Bula claims Russian firm `hugely' overcharged

Bula Resources is claiming it was "hugely" overcharged by a Russian drilling company it used in its Salymskoye oil project in Siberia. The drilling company is a subsidiary of Bula's Russian partner in the project.

Mr Pat Mahony, managing director of Bula, said it has carried out an audit on the work done by the drilling company, Pravdinsk Expedition. "We have huge queries with them about the charges they made. We have given them a substantial report on our objections to the charges and we are looking for refunds."

Pravdinsk was paid $4.7 million (£2.8 million) in 1996 by Eastern Resources, a joint venture established as part of the Salymskoye deal. The money had been transferred to Eastern Resources by Bula. A further, smaller sum was paid in 1997.

The drilling company is a subsidiary of KMNGG, Bula's Russian partner in the Salymskoye deal. Another KMNGG subsidiary, Tyumennedra, was paid $349,000 (£209,000) in 1996. According to Bula's 1996 annual report, Tyumennedra provided management services to Eastern Resources.

The Bula claim is not accepted by the Russians. A senior executive with KMNGG, Mr Nikolai Bogatchev, has said that Bula still owes up to $4 million (£2.4 million) to contractors engaged for work on the project. Mr Bogatchev said that because of the structure of the Salymskoye deal, negotiations between his company and Bula, aimed at resolving their differences, were "deadlocked".

Mr Mahony said the deal had been that Bula would supply finance to Eastern Resources and KMNGG would supply the oil licence. "We are saying we honoured our obligations, and they failed on theirs".

The Salymskoye licence has not yet been transferred, and Mr Bogatchev has said it is unlikely it will be. There were technical reasons for this, he said. Mr Mahony rejected this. "They are trying to be smart after the event, taking the money and then not transferring the licence".

Last week, Bula announced it was making a provision for £12.3 million in its profit and loss account for the year ended December 31st, 1997, arising out of the Salymskoye deal. The amount is made up of Bula shares worth £2.5 million which were transferred as part of the deal, and just under £10 million of investors' funds, the bulk of it spent on work in the Salymskoye field.

Bula has said that if it cannot negotiate a successful resolution to its involvement in Salymskoye, it will take legal action against KMNGG. The structure of the Salymskoye project is complicating matters. Eastern Resources is jointly owned by KMNGG and a Virgin Island company, Mir Space. Bula's involvement is by way of Mir but who owns Mir is not clear. There is no direct contractual relationship between Bula and KMNGG.

The Salymskoye deal was negotiated by the former chairman and managing director of Bula, Mr Jim Stanley, for Bula, and Mr Vladimir Tokarev, a former general manager of KMNGG, for KMNGG. It is not known who represented Mir.

Mr Tokarev was a director of Bula until November 1994, having been appointed to the board as part of the Salymskoye deal. He is a director of KMNGG and of another Russian company involved in oil exploration in Siberia, AkiOtyr.

A 1994 deal involving Bula and Aki-Otyr, also negotiated by Mr Stanley and Mr Tokarev, ended with Bula writing £8 million off its books. That deal is now the subject of litigation between Bula and a firm of solicitors in London which gave advice on the deal.

Aspects of the Salymskoye deal are currently being investigated by a government appointed inspector, Mr Lyndon MacCann.