Just the right size for the Kremlin
Analysts note that by creating an oil group on such a large scale that its founders are taking a considerable risk, both economically and politically. There is the risk that the state may be tempted to nationalise the group.
Just the right size for the Kremlin
Yevgeniy Kalyukov and Pyotr Ivanov, Gazeta.Ru, Russia, 23 April 2003
Plans for the giant YukosSibneft Oil Co have done something that the opponents to privately-owned oil businesses in Russia have been dreaming of for the past ten years: they have assembled a so-called ''oil ministry'', an enormous oil empire, in the hands of one entity. Now there is the risk that the state may be tempted to erase the 'so-called' part and nationalise the group.
Since Tuesday, when Yukos and Sibneft officially announced their merger plans, the TNK-BP merger has faded into the background. And it is not just because of the financial difference between TNK-BP's $6.75 billion deal, and the 92 per cent stake that Sibneft has agreed to sell to Yukos exceeding $11 billion. As a result of the Yukos-Sibneft deal there emerges one of the largest oil and gas giants in the world; second in terms of oil and gas reserves, and fourth in terms of crude output.
Even the largest Russian oil firms, both financially and technologically, lag far behind their foreign rivals. As a result Russia's oil rich fields are a dead weight, while an indispensable condition for their development has been considered the emergence of major foreign companies in the country.
Russian companies entering the world market in any role other than crude exporters has been out of the question. Numerous attempts to launch oil production and processing abroad have usually proved futile. LUKoil's recent failures in Poland, Germany and Greece bear this out.
YukosSibneft's founders now hope they have been given another chance. ''By combining with Sibneft, we'll maximize our competitive advantages thanks to the synergy gained by uniting excellent management teams, highly professional labour forces and the profitable industrial assets of the two companies... The new industrial giant with its huge industrial and financial potential will reach even greater business efficiency, moving closer to our strategic goal of becoming a leader of the global energy market,'' Mikhail Khodorkovsky told a news conference on Tuesday.
YukosSibneft is set to make that first step towards becoming a leader on the global energy market here in Russia. According to Khodorkovsky, in the near future the company is to tackle ''large and complicated'' projects in eastern Siberia, in the Far East and on the Caspian Sea shelf.
YukosSibneft is planning to develop the Talakana, Chayandy, Yurubcheno-Takhomskoye oilfields to name but a few. The size of the group is expected to help it cope with the tasks ahead.
''The size of the company helps to make many things which up to now have been beyond us or extremely risky... The thing of no small importance that a truly large company can afford is the creation of its own technology. Both Yukos and Sibneft are using high-tech procedures, but from the standpoint of developing [our] own technology neither of the companies has reached the critical mass yet,'' the first vice-president of Sibneft Alexander Korsik said.
At the same time, analysts note that by creating an oil group on such a scale its founders are taking a considerable risk, both economically and politically.
''In the short-term the problem will be the loss of the amount that Yukos will have to pay for the 20 per cent stake in Sibneft,'' Erkin Nusurov of NIKoil told Gazeta.Ru. ''$3 billion is a large amount and to justify it, as well as for the integration of the two companies, time will be needed. During that time a certain decrease in share price is possible.''
An analyst with BrokerCreditService, Mikhail Shein, noted that given the high price Yukos will have to pay for the merger, it is highly unlikely that dividend payments for the 4th quarter of 2002 will be high.
But then, there are reasons to doubt that the companies' shareholders, by agreeing to the $11 billion merger, have calculated all the economic risks down to the last cent. There is also the other risk, impossible to calculate in principle, that the state will be tempted to establish control over the newly formed group.
This is especially realistic since the volume of oil output by the two companies (85 million tons in 2002) is more than half of Russia's entire domestic oil consumption (some 140 million tons); and in 2005, should the new company's 20-25 per cent growth predictions materialize, it will practically reach the same level.
As a result, there will be a company capable of supplying the entire country with oil products, moreover, with a modern style of corporate governance (unlike state-owned Rosneft) - in fact, a ready-made oil ministry. By seizing control of such a company, the state could solve many problems in a flash, ranging from supplying all boiler-houses with fuel oil to financing election campaigns at all levels.
An additional risk is posed by the ambiguity of the Putin team's plans for the incumbent's second term in office. Since it will be the second and last term in office for Vladimir Putin, his entourage will have nothing to lose, and therefore, the degree of security services' interference and impertinence towards major corporations may increase significantly.
What will happen then, if even now the authorities admit that the banishment of 'oligarchs' from their television networks and the deputy prosecutor general's barefaced demands that a certain entrepreneur transfer $140 million to the state coffers in exchange for criminal charges not being brought against him, no-one can tell.
The oil company subject to especially harsh abuse from the state has traditionally been LUKoil - probably owing to the fact that it was until now Russia's largest. So large, that even the Kremlin noticed it. And then, so obedient, that it agreed to help the Kremlin in ousting a disagreeable oligarch from a federal television network. [At LUKoil's request - which held a minor stake in Boris Berezovsky's TV6 channel - an arbitration court ruled to shut down the company.]
In general, by forming a new mega oil group Yukos and Sibneft are exposing themselves to a considerable political risk, especially given the fact that LUKoil has already been subdued. The TNK-BP alliance is unlikely to be disturbed by the Kremlin for fear it causes an international scandal. Perhaps by attracting a strategic foreign investor YukosSibneft could avoid unwanted attention from the authorities, not to mention covering the merger costs.
Prime Minister Mikhail Kasyanov hailed the deal on Tuesday calling the new company ''the flagship of the Russian economy''. ''There is no doubt that the enlargement of the companies will benefit both the state and private owners,'' he said. ''It means winning new positions on the international market.''
That may have been nothing more than mere politeness. It will be possible to judge the true intentions of the state regarding the new oil company, by how easily the antimonopoly authorities endorse the merger, and by whether they will be allowed to sell a stake in the company to a foreigner, and how large that stake is.
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