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Friday, January 28, 2005

Russian Senators Want TNK-BP Checked for Tax Evasion

Image by MosNews.com28.01.2005 14:01 MSK MosNews - Russian senators have asked the Tax Ministry to check whether the TNK-BP oil company company underpaid 22 billion rubles ($783 million) in taxes in 2000-2003, Reuters reported. They sent a letter to the ministry saying the company used tax evasion schemes similar to those reportedly used by Yukos oil company. Russian TNK became a vehicle of BP when the oil major agreed to buy 50 percent of the Russian company in 2003. Under the deal, back taxes for the periods prior to 2003 should be paid by Russian partners, who still control 50 percent of the firm, Reuters wrote. Senators acknowledged that TNK's tax minimization activities were legal under the legislation then in force. In its suits against the Tax Ministry, Yukos has been arguing that its schemes were also legal, but the company has lost all its legal battles. Analysts quoted by the agency said they did not believe the senators’ initiative would affect TNK-BP. "TNK cannot be checked by the tax authorities for the year 2000 because of the statute of limitations," said brokerage UFG. TNK has already received the results of the tax audit for 2001 amounting to just $87 million and is currently negotiating the amount with tax authorities. "This means that the tax authorities may only perform a tax audit for 2002-2003. We assign a high probability to a tax check being carried out at TNK but the amount of tax claims may be different to that suggested in the senators’ letter and is unlikely to reach the magnitude of those presented to Yukos," UFG was quoted by the agency as saying.

LUKoil to Become U.S. Brand

January 28, 2005 Reuters DAVOS, Switzerland -- LUKoil plans to rebrand its U.S. gas stations with its own name, giving the oil heavyweight the biggest public presence of any Russian firm in North America, a board member said Thursday.
The project, expected to eliminate the Getty and Mobil brand names from around 2,760 stations from Maine to Virginia, seeks to capitalize on Russia's positive image among the American public, said Richard Matzke, chairman of the strategic and investment committee of LUKoil's board of directors.
"You couldn't buy that for all the money in the world, and it makes a good commentary on the state of U.S.-Russian relations," Matzke said on the sidelines of the Davos economic summit. "Russia and Russians are not unpopular in the U.S." The move would give LUKoil, Russia's largest oil company, the highest profile branding of any Russian company in the United States, he said. "There's not a single Russian business logo hanging in the U.S. of any substantial size." The project, expected to last four years, will result in some stations being closed, he said.
To supply the stations, LUKoil plans to ship Russian oil products via newly built terminals in the Baltic Sea to the United States, where it will almost certainly require some form of processing or refining to meet U.S. specifications, he said.
To that end, LUKoil is considering taking an equity stake or a long-term lease on a U.S. processing facility, Matzke said. He said that the company would evaluate a U.S. stock market listing over time as turnover in the company's shares continues to increase on the London Stock Exchange.

Thursday, January 27, 2005

Conoco And Lukoil: Friends Forever

26.01.2005 11:05 [] - U.S. oil major ConocoPhillips plans to increase its stake in Russia’s oil giant Lukoil to 20 percent and invest into a joint project of developing Timan Pechora field.Kevin Meyers, the newly elected member of Lukoil’s BOD, and a former Conoco’s representative, said, "The development of Timan Pechora will cost several billions of dollars.”"We're going to continue acquiring shares in Lukoil. The pace will depend on market conditions," Meyers said.The venture of Conoco and Lukoil is called Rusco. Rusco's output is expected to reach 200,000 barrels per day by 2008. The crude will flow through the port of Varandei, which the two companies plan to expand to handle 240,000 bpd.

Tuesday, January 25, 2005

A Niche For Russia

The development of a new global economic system is under way. The challenge facing Russia is to ensure that it will not find itself in isolation and it will build up an economic weight so as to integrate in this system on acceptable terms and conditions 

25 January 2005 -  Pavel Bykov

A niche for RussiaThe main challenge facing Russia on the international arena for the next few years can probably be formulated thus: not to find itself in the backyard of the new world. On the face of it, there are no reasons for putting a question in such a blunt way, since Russia has established quite good relations with most of economically and politically significant states and it is not in their interest to ignore Russia. However, events of the last year demonstrated that Russia is still exposed both to the risk of economic and political isolation and to the threat of marginalization.

A real new economy
The global economic map is undergoing rapid changes. The collapse of the Soviet system, the end of ideological confrontation and the disappearance of dividing lines in the world had created conditions for the development of a fundamentally new global economic system. However, in the early 1990s no one of the leading players was ready for that. From the mid-1990s till the beginning of the new century, the whole world had been enthusiastic about mirages of the financial globalization and of the US unprecedented economic expansion and about the stock bubble of the new economy. The real overhaul progressed slowly.
In 2002-2004, the global economy developed in the context of new geopolitical realities. The last year brought a record number of news about launches of new large-scale infrastructure and industrial projects worldwide. The US ceased to be a world magnet for investments. Capitals, earlier run to financial speculations, began to flow into the real sector, which resulted in rapidly growing demand for raw materials and in high prices for energy resources and metals. And as a consequence, there has begun a new stage of resource-saving technologies development. For example, companies are increasingly active in introducing vehicles with hybrid and hydrogen engines. Painful restraints in the growth of demand for raw materials caused by highly attractive financial speculations have given way to the natural process of technological evolution under which industrial upturn and growing prices for raw materials encourage innovations and lead to ousting of less efficient producers.

Risks facing Russia
No special arguments are needed to prove that Russia has substantially benefited from this change in the quality of global economic growth. However, it is here where the main risks lie.
First, a new wave of engineering re-equipment in developed countries can result in Russian producers’ continuous development gap and their irreversible ousting from foreign and domestic markets and in assigning a status of the raw materials-producing appendage to Russia. Secondly, as a result of the rapid industrial growth of developing countries, the Russian economy’s relative weight in the global economy is declining. Today, Russia with its GDP of $ 1.3 trillion in terms of purchasing-power parity, according to CIA estimates, is simply lost against background of EC economic giants (GDP of $ 11 trillion), the US ($ 11 trillion), China ($ 6.5 trillion) and Japan ($ 3.6 trillion).
The combination of these two trends produces a rather gloomy picture. On the one hand, the quality of Russia’s integration in global technological chains leaves much to be desired. Unlike, say, France that doesn’t leave Russia behind too far in terms of absolute figures, Russian auto makers don’t help the Japanese establish order in their economy as French Renault does owning a nearly 50-percent stake in Japanese Nissan. On the other hand, the Russian economy is not able to have an impact on the global economy as the same China with its huge production capacity and consumer marker is able to do.
Finally, even in the newly developing global transport system Russia may find itself playing a subordinate role – the restoration of traditional transport routes and linked business complexes, which were destroyed in the period of the bipolar world, is now actively under way. In other words, the new global economic system is taking shape with Russia’s minimum participation in it.

Don’t panic
Yet, one shouldn’t paint the devil blacker than he is. Today, Russia’s position is relatively stable, and it is developing. GDP of $ 1.3 trillion arouses at least respect, if not pride. However, it is clear that it’s not enough, after all: objectively, Russia needs to develop its economy rapidly and increase its economic weight. And it is here where problems arise. Today, Russia is gradually pressed to make a “choice” – either economic marginalization at its own will or forced political marginalization. If Russia agrees to surrender its economic sovereignty, it will certainly secure the most-favored-nation treatment. And if it pursues a minimum realized policy designed to avert this, hysterics will begin.
Over the last few months, the western press has been literally stuffed with crazy articles about Russia filled with absurd accusations, in which everything is lumped together (there was no such a situation, perhaps, even at the height of the campaign against the “Russian mafia” in 1999). When reading them, one is at a loss: whether he/she should cry or laugh. The most remarkable thing in such publications is that their authors evidently give themselves away wishing Moscow to do anything of malevolent and hostile sort as soon as possible – they wish Moscow to present as soon as possible its insidious imperial plans in all its glory. But the trouble is that Moscow doesn’t present such plans. It has never assaulted Georgia (and according to western media, it did want to attack it!). Moscow is ready to work with pro-western Yushchenko. And in general, Moscow is carrying on a constructive dialogue with everybody, be it Beijing, Turkey, Chancellor Schroeder or the incumbent US administration. Apparently, this is exactly what makes them angry.
It makes them angry because the attempts to isolate Russia turn out to be a failure. It cannot be achieved by means of purely economic mechanisms – raw materials and weapons are specific goods, while economic and cultural ties with the post-Soviet countries are too close. As for provocations, the Kremlin doesn’t respond to them.
Here is what Emmanuel Todd, a brilliant French expert in social sciences cum publicist, wrote in his book After The Empire. Pax Americana – The Beginning of the End published in 2002, “They [the Russians] are intellectually trained quite well to make no mistake the adversary expects them to do: in this case, it’s silly to respond to provocations in Georgia or in Uzbekistan without real strategic grounds.
The conflict around the elections in Ukraine the western mass media fanned up to universal scales is of the same sort. Its objective is to convince Russia that it is losing Ukraine and to provoke a hyper-reaction. It also aims to convince Europe of Moscow’s imperial manners. Such tactics work one way or another at the level of public sentiments and they don’t work at the level of the real policy.

In search of a niche
Today, Russia is facing a task of crucial importance – to find a new geopolitical and geo-economic niche. Over three hundred years (in 18-20 centuries), Russia had specialized in military-and-political arbitrage in Europe. Russia’s decisive military superiority and disposition to mobilization development scenarios had been its trumps in the fight with European rivals. But once Europe had ceased to be at war, these advantages devalued. Fifty years of peace in Europe were enough for Russia to become disappointed with this model.
Not so much escalation of the cold war with the US as peace in Europe convinced Russia to dismantle its empire that had been turned into the Soviet Union. Since the break-up of the USSR is not at all the withdrawal from it made by Baltic states, Ukraine or Central Asian countries. It should be reminded that the break-up of the USSR is Russia’s withdrawal from under the power of the “Union center”. In the early 1990s, when all USSR’s outskirts expected with fear that Moscow was just about to make a decision “to establish order”, Russia gave up what it had ceased to consider its own. That was why there were no wars within the CIS similar to those in Yugoslavia, where the matter really concerned breakaway Slovenia and Croatia recognized in haste by recently united Germany.
The Russian expansion – the Russian policies in the Caucasus, Central Asia and Far East – was not a thing in itself. They were an element of the game the Russian empire was playing to keep a status of the European power. It was a Russian way not to turn into a province of the European capitalism as was the case with Poland and other countries eastwards. If you wish, that was a Russia’s know-how thanks to which it remained a competitive country as compared with innovation capitalism of the Western Europe. At the moment when it became obvious that the empire’s contents had ceased to bring dividends to Russia in Europe, the Russians abandoned it. Probably, there were more elegant withdrawals but whether or not we want it, Europe centricity in thinking is an element of the Russian national character. Therefore, the choice made in the early 1990s was by no means accidental, and we will have to live with its consequences.
What could be Russia’s new geopolitical niche and what could be its position in the world? It’s not totally clear. However, one can point out principles formation of the niche should be based on.
First, Russia remains one of the leading powers in military terms and it is naturally able to contain hegemonic claims no matter who they come from. At that, it is important to emphasize that Russia is the only industrially developed country that exports raw materials, which makes it, perhaps, most unbiased of geopolitical players. Secondly, Russia needs to work out a new model of relations with the post-Soviet countries. It is indispensable to rule out a possibility of Russia’s political marginalization as a result of conflicts within the post-Soviet territory and also to increase its economic weight up to the level sufficient for efficient internal development. Thirdly, it is necessary to carry on a multiple-vector policy in the framework of which Russia is establishing as constructive as possible relations with all the major centers of the power.

Sibneft, Shell Global Solutions Sign Agreement to Develop Omsk Refinery

25.01.2005 12:12 RusFinance - Sibneft and Shell Global Solutions have signed an agreement on a programme of exploitation and technical maintenance of the Omsk refinery as part of a long-term plan of improving its operation. The agreement signed for 4 years includes management and technical exploitation provisions.


MOSCOW. (Yana Yurlova, RIA Novosti political commentator.) The final economic results of a year are normally summed up in March in most countries. But it is already safe to say that last year was a good one for Russia.
World oil prices grew rapidly last summer. According to the Economic Development Ministry, the average price for a barrel of Russian oil was $34.5 between January and November. Oil-rich Russia naturally enjoyed a windfall. Production in 2004 totaled about 450 million tons, and exports, according to the State Customs Committee's statistics for September 2004, rose by 15.4%. The growing flow of petrodollars greatly improved Russia's economic results. Last year's federal budget ran a surplus of $25 billion (4.1% of GDP). Indeed, this was the fifth straight surplus. Budget revenues in 2004 totaled approximately $107 billion, or 104.5% in relation to the target for 2004, and spending came to $97 billion, or 98.8%.
Under the law, budget revenues earned when the oil price exceeds $20 per barrel go to the Stabilization Fund. As a result, it had received over $20 billion by January 1, 2005. The basic level of the Stabilization Fund is 500 billion rubles (the present dollar rate is about 28 rubles per dollar). It is an untouchable reserve that may be built up by investing in highly liquid foreign assets. The money gained in excess of this reserve may be spent on paying back the country's foreign debt and covering the Pension Fund deficit. And this is exactly what has happened - last year Russia's foreign debt was down a third on the 1999 figure and stood at $112.9 billion on October 1.
Moreover, Russia's gold and currency reserves over the past year increased by almost 70% and are approaching $120 billion. The like of this was never seen even in Soviet times. Today the gold and currency reserves exceed the country's foreign debt, and Russia may well be called a net creditor. GDP, according to preliminary estimates, was about$613 billion, and its average annual economic growth rate was 6.8%, which was not up to the Economic Development Ministry's year-end target of 6.9-7.1%. Nonetheless, this level is not below what Russia achieved in the past five years. Per capita GDP was nearly $4,000.
Investment in the country's fixed capital rose by more than 10% and direct investment in the past year totaled about $10 billion. The leading country investors in the Russian economy still are Germany, Cyprus, the Netherlands, Luxembourg, Britain, the United States and France. The investment result, of course, could have been better, but last year did provide hope that the figures would improve. At the end of 2004, the Fitch Ratings international agency increased Russia's long-term sovereign rating in foreign national currencies from BB+ to BBB-, the short-term rating from B to F3 and the rating of a country ceiling from BB+ to BBB-. The outlook for all the categories is stable.
Industrial output in Russia, according to the Federal State Statistics Service, increased by 6.2% in January to October, 2004, as against the same period in 2003. The highest growth was in the glass and porcelain-and-earthenware industry (16.7%) and the lowest was in power generation (0.3%). Output in mechanical engineering and metalworking went up by 12%, in the fuel and chemical industries by 7.5%, in the construction materials industry by 5.5%, and in the ferrous and non-ferrous metal producing industries by 5.3% and 3.6%, respectively. Food industry enterprises increased their output by 3.8%, the timber and woodworking industry by 2.9%, and the printing industry by 2.2%. Meanwhile, production in the flour and cereals industry and the medical and microbiological industries declined by 3.1%, 5.5% and 6.7%, respectively. Imports of goods increased almost by 25%, while exports exceeded import by nearly 100%. As result, the balance of trade was almost $80 billion in the black.
However, Russian producersare generally less competitive than many of their Western partners. The reason is that the considerable increase in the balance of foreign trade was achieved due to the favorable prices for oil and gas, and also metal. Unfortunately, Russia can offer little to global markets except oil, gas, metals and arms.
Although it may seem to be a positive factor, the growth of global oil prices appears to be having a negative effect on the country, because the economy remains oriented towards raw materials production. Meanwhile, other industrial sectors are of secondary importance and are developing very slowly. As a result, Russia, according to the Global Competition report for 2004 and 2005 circulated by the World Economic Forum in Geneva, is only 70th out of 104 countries in terms of economic competitiveness. Incidentally, the high oil prices prevented Russia from reducing inflation last year. It had been forecast that inflation would not exceed 8-10% in 2004, but according to the latest data provided by the State Statistics Service, it ran at 11.7%.
Nevertheless, as President Vladimir Putin said at a press conference in December, economic growth in 2004 led to real household incomes growing. They rose by 9%, whereas pensions went up by about 5%, and wages increased from 10% to 12.5%. The number of unemployed fell to 7.4% of the economically active population, or 5.5 million people. At the same time, according to the Russian State Statistics Service, Russia registered growth in household spending on end consumption. In the second quarter of 2004, as compared with the same period in 2003, spending on end consumption in Russia rose by 12.7%. In the U.S. this figure, including the expenditures of non-commercial organizations servicing private households, increased by 3.6%, in Japan by 3,5%, Great Britain and Canada - by 3.2%, while in France and Italy the increase was 2.8% and 1%, respectively. In Germany, household spending on consumption went down by 0.8%.

Monday, January 24, 2005


MOSCOW, January 24 (RIA Novosti) - "In 2005 we shall complete the commissioning of the Nakhodka gas field and we have big gas production plans. In the near future LUKOIL will become an oil and gas company," LUKOIL Vice President Leonid Fedun said at a press conference. Since the end of 2005 - beginning of 2006 gas production will be growing rapidly, he stressed. According to Mr. Fedun, in 2005 the company is to increase oil production up to 90 million tons. According to preliminary information, in 2004 LUKOIL produced 86.3 million tons of oil. Speaking about railway oil supplies to China, Mr. Fedun did not rule out that LUKOIL would increase them. In the end of 2004 LUKOIL and Russian Railways signed an agreement stipulating that in 2005 the oil giant would deliver 3 million tons of oil to China.


MOSCOW, January 24 (RIA Novosti) - ConocoPhillips has put its man, Kevin Meyers, in charge of Russia/Caspian region, on LUKoil's board of directors. The decision was adopted at the company's extraordinary shareholders meeting on Monday, reads LUKoil's press release. The meeting was convened by the holders of the minimum of 10% of voting shares. The meeting approved the composition of LUKoil's 11-member board of directors. It also approved the amendments to the company's charter, which give greater weight to minority shareholders in discussing major deals involving LUKoil assets. Valery Graifer, the RITEK General Director, was elected Chairman of the Board of Directors. On September 29, 2004, ConocoPhillips won the auction for 7.59% of LUKoil shares that had been owned by the state. The company bought the package for $1.988 billion. Seeking to be proportionately represented at the board of directors, ConocoPhillips intends to announce a tender to purchase another 2.4% of LUKoil shares in the free market. Mr. Meyers said at a news conference that ConocoPhillips intended to increase its stock at LUKoil to 20%. We have the right to augment our stock to 20% and we will do that, he said. Mr. Meyers said he could not disclose how fast the company intended to achieve that, and added that would depend on a market situation. LUKoil Vice-President Leonid Fedun told the news conference that LUKoil did not plan to acquire YUKOS-Samaraneft shares. He thereby responded to the rumors about LUKoil's interest in that asset of YUKOS'. "This issue has not even been discussed," said Mr. Fedun. He added he had not known whether the company was on sale.


YUZHNO-SAKHALINSK, January 24 (RIA Novosti's Pyotr Tsyrendorzhiyev) - Russia's first ever plant to liquefy natural gas has been 55% completed in Sakhalin, construction manager Hilary Mercer told reporters on Monday. Ms. Mercer said the construction of a temporary wharf for unloading cargoes and equipment to be delivered to Sakhalin by sea was being completed. Ms. Mercer added companies from Russia, Japan, the U.S., Great Britain, Ireland, Turkey, and South Korea were being involved in the project. The plant's processing line will be commissioned in July 2007 according to the schedule for the Sakhalin-2 project's second phase, while the first production batch of the environmentally clean fuel will be shipped to consumers as early as in November 2007. The second phase of the construction project will be completed in February 2008. Both lines' capacity will be 9.6 million tons of LNG a year.

Thursday, January 20, 2005

Merger Still on, Cap on Foreign Ownership to Be Lifted — Gazprom

Gazprom headquarters in Moscow / Photo from www.gazprom.com20.01.2005 MosNews - Russia’s state-owned gas giant Gazprom has said its scheduled plans to merge with Rosneft, a state-owned oil company, would lead to restrictions on foreign ownership of its shares being lifted.
Alexei Miller, Gazprom chief executive, said yesterday that a deal with Rosneft would be carried out “in the near future,” Reuters quoted him as saying.
Foreign investors had feared that after Rosneft acquired Yuganskneftegaz, a chief asset of the embattled oil firm Yukos, the planned merger might be delayed or called off. They had also pressed for some time for a cap on foreign shares to be lifted.
“The Gazprom share market will be liberalized in full and in the end will involve the removal of existing quotas for non-residents,” Miller added.
A merger between Rosneft and Gazprom, the world’s largest gas company, would create one of the world’s leading energy companies and raise the Russian government’s stake in the combined company to just over 50 percent.
The government has indicated that the “cap” that limits foreign ownership to 20 percent would be lifted as a result.
The Gazprom announcement came after it emerged that Rosneft might partly finance its $9.35 billion acquisition of Yugansk through a $6 billion loan from the China National Petroleum Corporation.
The loan would be secured by an agreement whereby Rosneft will supply China with 48.4m tons of crude oil by 2010.

Conoco, Lukoil To Create JV

20.01.2005 9:32 [] - Russian oil giant Lukoil and the US ConocoPhillips discussed Wednesday their plans for 2005, when the both companies are going to set up the new joint venture on the basis of Naryanmarneftegaz company, Lukoil said.
The company’s head Vagit Alekperov took part along with other top managers of both companies.
By 2008 200 thousand bpd are expected to be gushed out. The crude will be shipped to the Lukoil’s terminal at Barents Sea which capacity is assumed to be increased 240 000 bpd.

Conoco To Build LNG Terminal

20.01.2005  9:07  [] - US oil and gas ConocoPhillips is pending US Coast Guard approval to build a LNG terminal in the Gulf of Mexico as part of its effort to meet global gas demand.

The terminal would be located 56 miles south of Louisiana's coast with a throughput capacity of 1.5 billion cubic feet a day, said the company.

Construction could begin late next year and would take about four years to complete. The first delivery of LNG to the offshore terminal could take place in 2010, ConocoPhillips said.

Tuesday, January 18, 2005

Sakhalin Goes After ExxonMobil, Shell

Moscow Times 01.19.2005
The Sakhalin government is forcing an ExxonMobil venture to start producing gas for local customers to avoid losing its development permit, and checking a Shell-led venture for cost overruns that will lead to a "serious discussion" about the project.
"Exxon is delaying its gas part of the project. We convinced them to start, otherwise we could have withdrawn the permit," Galina Pavlova, director of Sakhalin's oil and gas department, said by telephone from Yuzhno-Sakhalinsk.
Exxon, the world's largest publicly traded oil producer, is heading the $12 billion Sakhalin-1 venture, which plans to start pumping crude and gas this year off the coast of Sakhalin Island.
Pavlova said Exxon is in talks with Japan and China about gas deliveries and may make a decision on exports in the next six months.
"The [domestic] gas price will be lower than the export price," Pavlova said, declining to be more specific. Russia "will help the venture to market gas."
Sakhalin-1 holds 2.3 billion barrels of oil and 485 billion cubic meters of gas in terms of recoverable reserves, according to Exxon Neftegas, the project operator. At least $5.3 billion will be spent on the project by 2006 with $1.8 billion invested this year.
ExxonMobil will initially pump 2 billion cubic meters of gas per year from the Yastreb land rig, the world's largest. The fuel will be shipped by Rosneft-Sakhalinmorneftegaz's pipelines to the Khabarovsk region on the continent, Pavlova said. The venture will also extract 30,000 barrels of oil per day.
Gazprom, the world's largest producer of natural gas, and Exxon are jointly studying opportunities for cooperation at Sakhalin-1.
Gazprom plans to enter the venture through the acquisition of state-owned Rosneft, owner of a 20 percent stake in the project. Gazprom is planning to link the gas fields by pipeline with those in eastern and western Siberia and may export the fuel to China and South Korea.
The government will also examine the costs of Sakhalin-2, a venture led by Royal Dutch/Shell, after the producer said investments in the project rose.
Sakhalin Energy Investment, in which Shell holds a 55 percent stake, had planned to invest about $12 billion in Sakhalin-2. The project partners plan to produce liquefied natural gas to sell in Asia.
Shell, which claims to be Russia's largest foreign investor, requested approval for more than $2 billion of spending on the venture this year.
Total spending will reach as much as $10 billion by the end of the year, said Pavlova.
"It's not a secret that Sakhalin-2's cost rose, and it's clear that it won't stop at $12 billion," Pavlova said. "We will have a government examination of the project costs and a serious discussion. So far, they are following their basis proposal for this year."
Pavlova declined to comment on the total increase in spending on the project .
"We are working with our partners, the Sakhalin administration and the government agencies on the budget approval along with the terms of the production-sharing agreement," Ivan Chernyakhovsky, a spokesman for Sakhalin Energy, said by telephone from Moscow. He declined to comment further.

Oil prices forecasted to tumble

Chamber of Commerce and Industry Chairman Evgeny Primakov predicts that this year, oil exported by Russia may drop in price to $30 per barrel, Novye Izvestiya reported today.

Analysts are tending to share the CCI Chairman’s forecast. Thus, data, provided by the Development Center, an analytical group, indicates that the average price for a barrel of the Urals blend will sink to $31 this year against $36 last year. Senior expert at the Development Center Valery Mironov puts this down to a possible decline in growth rates of the global economy. If, in 2004, growth was 4.5 percent, this year many specialists predict no more than 3.5 percent.

In the words of Evgeny Primakov, the drop in oil prices will “not be drastic”, yet “rather painful for the Russian economy”. According to his estimates, Russia’s exports, chiefly exports of raw materials, account for 50 percent of GDP growth. “The oil price factor” accounts for one third of total GDP growth.

But Russia’s economy will suffer the negative impact of yet another factor too. According to Primakov, oil production could decrease soon. According to Primakov’s data, in 2004 exploratory drilling sank at least 18 percent compared to 2003, and a number of wells, which became operational, fell 4.3 percent. This can be put down to the oil industry currently using only the most productive oil fields - which will be running empty in the near future. Once this happens there will be nothing to replace them with, since nowadays the state does not encourage the oil industry to develop new fields, the daily says.

In the opinion of experts polled by Novye Izvestiya, it is too early to speak about any decline in oil production. However, its growth is slowing. If in 2003, oil production exceeded the previous year’s levels by 10 to 12 percent - in 2004, preliminary estimates put the rate at 8 to 9 percent. This year, Mironov estimates, growth will be less than 5 percent.

Head of the Financial Research Institute’s corporate finance department Oleg Ordin gives two separate reasons for the decline. Firstly, the increase in the extraction tax rate and higher export duties have negatively affected investments in the oil industry. In 2004, the total volume of investments went down by 20 percent from 2003. Secondly, the transportation system does not allow a further boosting of production, since, in Ordin’s words, it is loaded to capacity. Construction of the new exports infrastructure is being delayed. For the moment, massive volumes of oil and oil products are being transported by rail. Experts point out that, given the current transportation conditions, and taking into account the higher extraction tax, an increase in oil production is unprofitable for some oil companies.

It was earlier reported that on December 17, the price for the U.S. benchmark, West Texas Intermediate (WTI) oil hit a six-week high of $48.38 per barrel. The Russian benchmark Urals blend cost $41.36 per barrel.

Russia and Kazakhstan divide gas field

Russian President Vladimir Putin and Kazakh counterpart Nursultan Nazarbayev are scheduled to sign an agreement on border delimitation between the two countries today. Russia and Kazakhstan have a 7,500 kilometre common frontier, the world’s longest.

Foreign minister Sergei Lavrov told Putin on Monday that Russia and Kazakhstan would divide the Imashevskoye gas condensate field equally. “The territory will be divided in equal parts, as well as the gas field itself,” Lavrov said, adding this was the last controversial issue of border delimitation.

The two leaders are also expected to sign an accord on environmental protection against pollution from use of Russia’s Baikonur cosmodrome in Kazakhstan. During his official visit to Moscow, the Kazakh leader is due to tour the Khrunichev state space center.

During Putin’s recent visit to Kazakhstan, the two presidents discussed implementing Russian-Kazakh oil projects. Nazarbayev told Putin at the time the Kazakh ministry for energy and mineral resources was considering three large oil projects and preparing to sign a deal with Russia’s LUKoil, ploughing an estimated $2 billion into the Kazakh energy sector.

Commenting on the planned upgrade of the Caspian Pipeline consortium from 28 million tons to 67 million tons a year, the Kazakh leader called it “very serious work that has somewhat slowed down.” Both Russia and Kazakhstan would benefit from the project coming on stream, Nazarbayev told Russia’s head of state.

Negotiations were under way to process Kazakhstan’s Karachaganak gas at Russia’s Orenburg processing plant, he said, having rated this “a very advantageous project for both sides.”

Putin is on record praising a high level of Russian-Kazakh ties over past years. “We are happy with progress in our relations,” the Russian president told his opposite number, as Nazarbayev called contact with Moscow Kazakhstan’s key foreign affairs priority.

After the close of a “Year of Russia” in Kazakhstan, trade turnover between the two countries had risen 47 percent to $7 billion, the Kazakh leader revealed. Russian goods represent a quarter of Kazakhstan’s foreign trade.

Monday, January 17, 2005

British-Russian Oil Company Details Its Plan to Streamline

MOSCOW, Jan. 14 - New York Times
Robert Dudley, chief executive of TNK-BP, and Viktor Vekselberg, right, in 2003. Mr. Vekselberg is a co-founder of TNK.
TNK- BP, the Russian oil company, showed stockholders on Friday its long-awaited plan to begin melding its more than a dozen subsidiaries into one overarching company. The plan set TNK-BP's value at no less than $18.5 billion.
Shareholders in TNK-BP, the British-Russian joint venture that is powering BP's growth, have been anxiously awaiting details of the restructuring. They will have a choice of swapping their shares for new stock in the umbrella company, or being bought out.
"We're offering shareholders a fair deal, something they don't get very often in Russia," TNK-BP's chief financial officer, Kent C. Potter, said at a news conference Friday.
TNK-BP's structure - a collection of more than 17 subsidiaries and about 600 legal entities like trading companies - was a legacy of Russia's 1990's privatizations. The company was founded by the Russian billionaires Mikhail Fridman and Viktor Vekselberg and the Russian emigre Len Blavatnik. They bought up oil wells and operations around Russia to create the country's third-largest oil producer. In 2003, BP purchased half of TNK in a deal blessed by both Prime Minister Tony Blair of Britain and President Vladimir V. Putin of Russia.
Amid increasing Kremlin scrutiny of the energy sector and huge tax claims against the troubled oil company Yukos, TNK-BP has also legally incorporated in Russia, in the region of Tyumen, near the Kazakh border. TNK-BP was registered in Cyprus and the British Virgin Islands, a sore point for Russia's government, which wants more control over collecting taxes from oil and gas companies.
TNK-BP expects production to grow 7 percent this year, Robert Dudley, its chief executive, said at the news conference. TNK-BP's output grew 15.6 percent in 2004, to 1.4 million barrels a day, making it one of the fastest-growing energy companies in Russia last year. TNK-BP has also helped BP's fortunes, pumping roughly a third of the British giant's oil.
The reorganization will be carried out in two stages. In the first, minority shareholders in the company's top three subsidiaries - TNK, Sidanco and Onaco - can swap for stock in the new TNK-BP Holding, or be bought out. TNK-BP controls 90 percent of the shares in the three units. Shareholders of those three subsidiaries, which produce at least 60 percent of TNK-BP's oil, will vote on the plan at meetings on March 1.
The company offered a buyback price of 92.50 rubles ($3.31) for each TNK share, 66.50 rubles ($2.38) for each Onaco share and 815.90 rubles ($29.20) for each Sidanco share. On Friday, TNK traded at $3.43; Onaco traded at $2.75; and Sidanco, whose shares trade in very small volume, at $23.50. TNK-BP also proposed swaps for 14 smaller subsidiaries scheduled to be consolidated this year in a second phase.
The restructuring does not include some valuable assets like Slavneft, which is jointly owned with its Russian oil rival Sibneft; some gas stations; and some operations in Ukraine. Mr. Dudley said that going forward without them was necessary to keep the restructuring on schedule.
"It would have delayed us from moving forward" with the swap terms, Mr. Dudley said. He did not rule out that they could be added at some point, and he also said he expected the company to list on a Russian exchange. Still, Deloitte & Touche, hired to do an independent valuation, said the entire new holding company was worth $18.5 billion, and industry analysts and investors roughly agreed with that estimate.
"The consolidation terms are very fair," said Steven Dashevsky, an analyst at Aton Capital. Based on a dollar value for each barrel of reserves, the company is offering the top of the range for Russian oil companies, he said.
Deloitte & Touche's equity valuation for TNK-BP, he said, "is roughly in line with our $20 billion to $25 billion estimated market value, which assumes TNK-BP becomes a normal publicly traded company."
Ian Hague, co-founder of Firebird Management, a hedge fund in New York, owns shares in the TNK-BP units and said the deal was appealing.
"TNK-BP will now assume the mantle of Yukos - a Western-style Russian operating company, and after the whole Yukos affair, that's extremely valuable," he said.

Russia, India deepening energy cooperation

AFP NEW DELHI, Jan 15: One of Russia's biggest oil and gas players said Saturday the country offers fuel-hungry India vast potential to meet its energy demands.
S.S. Neruchev, vice governor of Russia's giant Sakhalin-I oil and gas field project in the country's far east, said there were plenty of new areas in the region where Indian companies could make fresh investments.
Large areas are being explored in a day so scope for expanding cooperation exists, he told a weekend Indo-Russian oil seminar. The scale of cooperation is not sufficient. It can be much more.
India, which is able to meet only 30 per cent of its crude oil needs from domestic sources, has been exploring new investment opportunities in the oil and gas sector overseas to ensure uninterrupted fuel supplies.
India's ambassador to Russia, Kanwal Sibal, said the country's growing oil appetite to feed accelerating economic growth could be met by Russian oil and gas fields to a large extent.
Russia is one of the largest exporters of oil and gas in the world, and India one of the fastest-growing importers, Sibal said. It's therefore appropriate for us to address this complementarity of interests.
The overseas arm of India's state-run ONGC Videsh Ltd. (OVL) was one of the first to buy a stake in Sakhalin-I and is poised to look at more investments in Russia, Sibal told the forum. OVL has a 20 per cent holding in Sakhalin-I.
Natural gas production from Sakhalin-I is to begin in the third quarter of 2005 while crude production from offshore fields will start in January 2006. More and more Russian and Indian companies are coming together and we are sure more of them will together now, said India's petroleum and natural gas secretary Sushil Chandra Tripathi.
N. Tsukanova of international investment firm J.P. Morgan said India could examine several new investment opportunities in Russia for medium to short-term prospects such as in West Siberia, Timon Pachera and in Russia's Caspian area.
She added India's investments in Sakhalin-I had triggered interest from other big foreign investors such as Shell, BP and Conoco Philips. India is regarded as one of the most dynamic economies in the world, but the growth depends on hydrocarbon resources.
India will become a significant importer and therefore cooperation with Russia is significant, Tsukanova said. India faces a serious energy crunch. It produces over 100 million tons of petroleum and petroleum products annually but can supply only 30 per cent of its oil needs.
It expects to increase domestic oil production by 50 per cent in the next 15 years. But a booming economy means the amount produced domestically is likely to fall to 15 per cent of India's needs.

Russian oil giant TNK-BP tries to pull itself together

By Erin E. Arvedlund The New York Times
Saturday, January 15, 2005
MOSCOW Russia's No. 3 oil company, TNK-BP, on Friday gave shareholders details of a long-awaited corporate restructuring, which it said brought together more than a dozen subsidiaries, moves the company's operations onshore in Russia and sets TNK-BP's preliminary value at $18.5 billion.
Shareholders in TNK-BP, the British-Russian joint venture that is powering the energy giant BP's growth, have been eagerly awaiting details of the reorganization.
"We're offering shareholders a fair deal, something they don't get very often in Russia," TNK-BP's chief financial officer, Kent Potter, said at a news conference.
TNK-BP's structure - a collection of more than a dozen subsidiaries and roughly 600 other entities like trading companies - was a legacy of Russia's 1990s privatizations. The company's founders - the Russian billionaires Mikhail Fridman and Viktor Vekselberg and Russian-American emigre Len Blavatnik - bought assets around the country to create the third-largest oil producer. Then in 2003, BP purchased half of TNK in a deal blessed by both Prime Minister Tony Blair of Britain and Russia's president, Vladimir Putin.
In an effort to inculcate Western-style management, TNK-BP said it would create a new, streamlined holding company and swap minority shareholders into it, or buy them out in some cases. It also reincorporated in Russia from Cyprus and the British Virgin Islands, amid increasing Kremlin scrutiny of the energy sector and massive tax claims against the embattled Russian oil company Yukos. The registration in offshore tax havens was a sore point for Russia's government, which is eager to collect more budget revenue from its oil and gas companies.
Production at TNK-BP should to grow 7 percent this year, Robert Dudley, the company's chief, said at the news conference. TNK-BP's output grew 15.6 percent in 2004 to 1.4 million barrels, making it one of the fastest-growing energy companies in Russia last year. It has also bolstered BP's fortunes, pumping roughly a third of the British giant's oil.
The restructuring does not include some valuable assets like Slavneft, which is jointly owned with Sibneft, a Russian oil rival, some retail gas stations, and operations in Ukraine. Dudley said that going ahead without them was necessary to stay on schedule. He did not rule out the possibility that they could be added back sometime in the future, and he also said that he expected the company to list on a Russian exchange.
Deloitte & Touche, which was hired to do an independent valuation, said the entire new holding company was worth $18.5 billion.
"The consolidation terms are very fair," said Steven Dashevsky, an oil analyst at Aton Capital. Based on reserves, the company is offering the top of the range for publicly traded Russian oil and peer group deals, he said.
He said Deloitte & Touche's valuation was "roughly in line" with his firm's $20 billion to $25 billion estimate, "which assumes TNK-BP becomes a normal publicly traded company."
Russia seeks cheap loans
Russia is urging Japan to grant the country cheap loans to build a $15.5 billion oil pipeline to the Pacific coast, and will allow Japanese companies to bid for east Siberian oil fields that would help fill the link, Victor Khristenko, the Russian industry and energy minister, said Friday, Bloomberg News reported from Moscow.
"Russia counts on getting loans that won't be linked to the purchase of Japanese equipment or technology," Khristenko said at a news conference. "The participation of the development of oil fields will be decided by companies."
Russia will build the pipeline to the Pacific coast to supply Siberian crude to Asian states and to accelerate the exploration of fields in the eastern part of the country, the government has said on its Web site.
Japan expects east Siberia's reserves to total around 18.9 billion barrels of oil, according to a June 2004 report from the Institute of Energy Economics.

Sunday, January 16, 2005

CIS Oil and Gas Summit 2005

Paris, France, 1st to the 3rd June 2005
The oil and gas sectors of the CIS countries, have truly dominated international headlines over recent months. The recent announcement by the Russian government that Gazprom is to merge with Rosneft, coupled the recent sale of Yuganskneftegaz, will result in an oil and gas industry that operates in an entirely different way to that of the past.
Additionally foreign investors are continuing to pursue their goals of expanding their presence throughout the whole of the CIS with many looking closely at their involvement in countries such as Kazakhstan and potentially Ukraine given the recent government elections.
In order to learn the latest developments in this fast moving industry it is crucial to obtain up to date information and to establish a network of contacts. The Energy Exchange Ltd is delighted to announce that it will be hosting the 5th Annual CIS Oil & Gas Summit in Paris on 1 - 3 June 2005.
Delegates and speakers will be able to visit the cultural capital of Europe and enjoy the early summer weather. Paris is a city to discover. So see the sights, visit the museums - they're part of the experience. The Energy Exchange Ltd has arranged discounted travel and accommodation packages to ensure attendees are able to make the most of their attendance at the event.
More iformation...

Saturday, January 15, 2005


The Moscow Times, 12 January
Economic Development and Trade Minister German Gref has said he supports the privatization of both Rosneft and Yuganskneftegaz, in a move that appears to put him in opposition to the Kremlin's policy of greater state control over the oil industry.
Gref told the Kommersant newspaper in comments published Tuesday that state companies have lower growth rates than private companies because the state is "ineffective," and used Gazprom as an example.
"I consider that both Rosneft and Yugansk, if it becomes state-controlled, should be privatized," Gref told the paper. "Gazprom's lack of effectiveness is obvious."
That places Gref, one of the key architects of economic policy in President Vladimir Putin's first term, in opposition to current Kremlin policy, which seems to favor the creation of a state-controlled energy giant, possibly using some of Yukos' assets.
"I think Gref is seen as the investors' friend, but I don't think he pulls the reins any more," said James Fenkner, head of research at Troika Dialog.
"He jumpstarted reforms for Russia, and really not much has been done on reforms over the past few years. The market doesn't believe he has the ear of the president."
Putin last week stripped his maverick economic adviser Andrei Illarionov of one of his key duties as Russia's representative to the Group of Eight nations in what seemed to be punishment for his criticism of the Kremlin's conduct of the Yukos affair. State-controlled Rosneft took control of Yugansk, Yukos' main production unit, last month after buying Baikal Finance Group, a shell company whose backers are still unknown.
Business daily Vedomosti reported Tuesday that Rosneft had acquired Baikal Finance Group, which had paid a $1.7 billion deposit to participate in the auction, for just 10,000 rubles ($358). The paper reported that Rosneft paid the balance of $7.65 billion for Yugansk into Court Marshals Service accounts in MDM Bank on New Year's Eve.
A Rosneft spokesman declined to comment on the transaction or financing. It is also still unclear from where Baikal raised the $1.7 billion deposit.
Rosneft paid $7.65 billion through state-controlled Sberbank, according to bankers in Moscow who asked not to be named.
Investors and bankers said other state banks -- such as Vneshtorgbank and Vnesheconombank -- and possibly Surgutneftegaz, the country's No.4 oil producer, may have helped to finance the Rosneft transaction.
If that is true, then state-controlled banks helped a state-controlled oil company purchase a controlling stake in Yugansk, which was being sold by the state for tax debts owed to, and defined by, the state.
"On the question of 'Where will they get the money?' we can say: They will take the money from us, from the citizens of the nation," Illarionov told reporters at a Dec. 28 news conference, a few days before he lost his G8 brief.
Confusion persists over who will eventually own Yugansk and what is happening with the oil being produced there, about 1 million barrels per day.
When Yukos controlled Yugansk, oil was sent to the oil major's refineries in Samara, which Yukos now says are oversupplied.
Yugansk's former managers are being investigated by law enforcement agencies in the Khanty-Mansiisk autonomous district for large-scale tax evasion, Itar-Tass reported, citing a prosecutor in the Urals region, from where the investigation is being controlled.
The Khanty-Mansiisk regional budget did not receive about 2 billion rubles in taxes, Itar-Tass reported, without giving any further details.
A Yukos spokesman said reports that the company was slashing its workforce at its Moscow headquarters were incorrect. But after the loss of Yugansk, managers were preparing a restructuring plan as part of the bankruptcy proceedings that could involve layoffs, the spokesman said. No employees have been dismissed so far, he said.
But as Yukos prepares to defend its bankruptcy application against arguments by Deutsche Bank that the Moscow-based company has no right to Chapter 11 protection in the United States, a lawyer for Gazpromneft said the bankruptcy case is unfounded and that Yukos itself could be the subject of damages.
"Yukos should be more concerned with the damages they and their lawyers have caused with these improper threats and their wrongful Texas suit. We are confident that the court will see it has no jurisdiction and the bankruptcy will be dismissed," Michael Goldberg, a lawyer in Houston at Baker Botts, wrote by e-mail in answer to questions about the Houston court case. Baker Botts is acting for Gazpromneft.
"By sending over one of its 100,000 employees to Houston with his laptop and money for lawyers, Yukos is trying to manufacture jurisdiction to find a Texas judge to help them settle this Russian tax dispute," Goldberg wrote. That goes against what Illarionov told Ekho Moskvy radio last month, when he praised the Texas court for keeping Gazprom out of a costly legal battle.
"We should just thank the Texas court and the judge for having done everything possible to help Russia avoid falling into the abyss," Illarionov said.
In a frank interview published by Komsomolskaya Pravda on Tuesday, Yukos chairman Viktor Gerashchenko said a certain presidential aide told him that his involvement with Yukos went "against the line," and also said that he had been prevented from speaking on the telephone with Putin when he called the Kremlin.
Gerashchenko hinted that the aide could have been Igor Sechin, deputy head of the presidential administration, who was appointed chairman of Rosneft in July.

TNK-BP Holding to convert shares in 2005

RBC, 14.01.2005, Moscow 16:36:55.The conversion of shares in TNK, ONACO and SIDANCO into shares in TNK-BP Holding is scheduled for the second six months of 2005, a TNK-BP Holding representative said at a news conference in Moscow today. The official added that extraordinary meetings of shareholders of those companies had been scheduled for March 1, 2005 to discuss their incorporation into TNK-BP Holding. In the event shareholders approve this reorganization, shares of those who will vote for the incorporation will be converted into shares in TNK-BP Holding. Shareholders who will vote against this decision or abstain from the voting will be entitled to demand that their shares be bought back. The process of buying back shares from such shareholders is expected to finish in May 2005. TNK-BP Holding's official pointed out that the Boards of Directors of TNK, ONACO and SIDANCO had set the conversion rates and prices for buying back TNK, ONACO and SIDANCO shares on the basis of an independent appraisal by Deloitte, performed in accordance with Russian law. According to the representative, TNK-BP Holding plans to offer minor shareholders in 14 major industrial subsidiaries of TNK-BP to swap their shares for shares in TNK-BP Holding. The official added that this offer would be announced in the third quarter of 2005.


MOSCOW, January 13 (RIA Novosti) - Taking into account LUKOIL's holdings in its subsidiaries and foreign projects, the group's preliminary output was 86.3 million tons of oil in 2004, says a LUKOIL press release circulated after a recent meeting of LUKOIL's board of directors. Of the above output, 82.8 million tons were produced in Russia and 3.5 million tons were yielded by foreign projects the company pursues. As was highlighted during the meeting, the company operated in 2004 against a backdrop of favourable oil prices on the world's market, however, virtually all hard-currency earnings from Urals oil's price hike beyond $25 a barrel ended up in the governmental coffers as a result of adjusting the tax rates. Natural gas output grew last year by 8.9%, exceeding 6.2 billion cu.m. In 2004, LUKOIL's gas treatment facilities handled about 2.2 billion cu.m of associated gas. Preliminary data show that the company's oil refineries processed about 43.8 million tons of crude. The processing volume increased by almost 1.5 million tons over 2003. LUKOIL's refineries in Russia increased their output by 3% to 35.3 million tons. The plants abroad handled over 8.4 million tons of oil stock, which is a 6.2% increase over 2003. LUKOIL Group's net profit in 2004 is preliminarily estimated at about $4 billion, which is a 60% hike over the net profit earned in 2003, exclusive of the sale of its holdings in the Azeri-Chirag-Gyuneshli project. Retail sales of oil products via the company's gas station network climbed by 17% to account for 2.8 million tons. A daily oil product sales per a LUKOIL gas station increased by 16.7% to total 6.3 tons. LUKOIL Group's 2004 investment spending numbered $4.1 billion, according to non-audited data gathered by means of the corporate investment record methodology. In line with preliminary data, the total sum of taxes and duties paid by LUKOIL to the federal and regional budgets of the Russian Federation in 2004 stands at about RR261.6 billion, or $9 billion. This is twice as much as the average LUKOIL Group net profit anticipated. The group paid RR3,140, or $109, in taxes and duties per ton of oil extracted in Russia. The sum of taxes and duties paid in 2003 increased by more than 50% over that paid in 2003.

Wednesday, January 12, 2005

LUKoil reports upbeat figures

The company's figures for the third quarter of 2004 offer hope for high dividends, experts say

LUKoil achieved its best ever financial performance in the third quarter of 2004. It posted figures for July-September and January-September 2004 on Tuesday, reporting a record high net profit of $1.4 billion for the third quarter. Revenue data also beat expectations, and costs were stable. LUKoil has even got some spare cash, something that has not happened for a long time. Though, half of this success should be attributed to high oil prices, not the company's management. LUKoil reported a further rise in transportation costs, now accounting for more than 50 percent of total expenses, taxes not included. The company does not expect a turnaround before the end of 2005. However, this is unlikely to prevent YUKOS from paying high dividends for 2004. Analysts say LUKoil shareholders could receive RUR 25 to RUR 27.5 per share. LUKoil's net profit for January-September 2004, calculated in accordance with US GAAP, rose 1 percent on the year to $3.095 billion, while revenue for the nine months of 2004 jumped 50 percent to $24.431 billion. The company's Q3 revenue was up from $6.014 billion to $9.822 billion, and its net profit jumped from $701 million to $1.399 billion. Crude output in January-September climbed 8.2 percent to 64.1 million tons, and the production of oil products was 30.4 million, up from last year's 29.4 million. LUKoil's crude exports increased 25 percent to 34.6 million tons, and its export of oil products rose 7.3 percent to 11 million tons. Domestic retail sales of oil products increased 175,000 tons, or 9.3 percent on the year. LUKoil's capital costs in January-September rose 7.4 percent to $2.242 million. The company's financial performance in the third quarter of 2004 beat expectations. Its net profit remained almost unchanged but this is due to the 2003 sale of LUKoil's share in the Azeri project Azeri-Chirag-Guneshli. Without regard to this deal, LUKoil's net profit jumped 72 percent compared with the same period of 2003. "The results were even better than we expected, which is due to a higher revenue," Zarko Stefanovsky, analyst at ATON, told RBC Daily.

Small Rain Lays Great Dust: Lukoil

12.01.2005 12:05 [] Russian oil giant Lukoil posted a 1% rise in net profit for the first nine months of 2004 despite a 50.1% jump in sales. Using US accounting norms, Lukoil reported net profit for the first three quarters of 2004 of 3.095 billion dollars compared with 3.065 billion for the same period in 2003. It said that in 2003 it had benefited from a 1.130-billion-dollar gain from the exceptional sale of a 10% interest in a project in Azerbaijan, which boosted its results for that year. The company said it had sales of 24.431 billion for the first nine months of 2004, surging 50.1% from the 16.274 billion euros recorded in the same period in 2003He stressed that LUKoil had achieved its best quarterly performance in the third quarter. "Net profit beat expectations," agrees Alexander Razuvayev at Megatrastoil. Though, half of this rise was due to high oil prices, not to effective management. The average price of Brent crude was up 43 percent on the year, and it was 17 percent higher compared with the second quarter of 2004. Prices for Urals and Med crude climbed 35 and 14 percent, respectively. "Most likely, LUKoil's financial performance in the fourth quarter will be weaker," says Alexander Mikhailov of GUTA Bank. For their part, LUKoil officials admitted that the impressive performance reflected not only favorable economic conditions, but also slow wage rises. Stefanovsky at ATON agrees: "It is good that the company's capital costs almost did not rise compared with the corresponding period last year. LUKoil reduced costs for Caspian region, but this is not too bad; its costs in the area are highly volatile." Thanks to reductions in working capital and capital investment, the oil company achieved positive cash flows. "Despite its high profits in 2003-2004, LUKoil used all operational cash flows for capital investment and acquisitions (at the same time paying comparatively high dividends of 20-25 percent). Though LUKoil's investments helped raise its market value, the market will welcome LUKoil's spare cash," Stefanovsky said. As for the company's Q3 transportation costs, they were lower than in the previous quarter. But LUKoil managers said it was due to changes in the cost basis. In the first nine months of 2004, the company's transportation costs climbed 40 percent. "I would not be overly optimistic about it. Some improvement could be expected by the end of 2005, due to putting into operation new pipeline facilities,- says Andrei Gaidamaka, LUKoil's director for strategic planning and investment analysis. However, this is unlikely to prevent the company from paying high dividends for 2004. "We might expect a reduction in dividend payments for 2004 compared with the previous year, when the company sold a large stake in the Azeri project Azeri-Chirag-Guneshli. But we expect LUKoil to pay dividends at the same level as last year,- Megatrastoil's Razuvayev said. "The company paid RUR 24 per share for 2003, and it could pay RUR 25 to RUR 27.5 for 2004." "We can expect that LUKoil will pay some $700 million in dividends, or about $0.9 per share,- Lev Snykov, analyst with investment company Sovlink, told RBC Daily.

Russian Politician: Oil Firms Nationalization Necessary

12.01.2005 6:11 [] Rusian economy minister German Gref told reporters of Russian daily Kommersant that the government's direct involvement in oil business was "unjustified". He was talking about the sale of much of oil giant Yukos to cover back tax claims.On 28 December, another senior economic adviser called the sale "the swindle of the century". Earlier the main Yukos' production unit Yuganskneftegaz, had been seized and sold in December for less than $10bn to a previously unknown firm called Baikal Finance Group. German Gref, is a well-known opponent of nationalization in competitive parts of the market in Russia. He considers, the privatisation of companies such as Yukos in the 1990s had not been handled in a proper way. But he emphasized that the country's government needed to get out of oil. "I think that Rosneft and Yuganskneftegaz, should it become a state-owned company, must be privatized," he said.

50 Most Capitalized Russian Corporations

As of August 31, the capitalization of 100 Russian companies gained 5 percent to about $10.4bn in comparison to July. At the same time, growth in the top ten companies of the rating amounted to less than 4 percent despite the fact that even YUKOS' capitalization advanced.

Changes occurred in the top three places. LUKoil became second, having replaced Surgutneftegas. Market participants monitored the situation with selling a 7.59-percent stake in LUKoil over the whole of August. According to a document distributed by the Federal Agency for Managing Federal Property, the standard price for the state stake in the oil company was set at RUR36.8bn (about $1.26bn). This amount turned out to be at least 1.5 times lower than the market had expected. However, the situation changed in the middle of August. News appeared on the market that the American company ConocoPhillips, which was going to participate in the auction, was planning to increase its stake in LUKoil to a controlling stake in the future. The market reacted quickly - shares in the oil company started growing steadily, which allowed the company to occupy second place in the rating. The rest of the top ten remained in their places.

The capitalization of Gazprom dropped more than 2.5 percent in August. At the same time, these changes did not affect the position of the long-term leader, as its performance was almost twice that of LUKoil. Expectations for the prompt liberalization of Gazprom's shares were factored into their price long time ago. That is why a request made by a Duma deputy, which could have halted the process of liberalizing the trade system in the event the investigation had started, resulted in a fall in the company's shares. On August 18, Gazprom's securities plummeted more than 13 percent after Yury Savelyev, the Deputy Chairman of the Duma Committee for Production, Construction and High Technologies sent his requests to the Federal Security Service and the Interior Ministry to analyze the situation with illegal acquisitions of Gazprom's shares by foreigners. At the same time, an all-time record of $176m in deals with the company's securities was set on the RTS stock market that day. However, this sharp fall remained a one-day episode. The market calmed down because the government was not going to buy the company's securities and as such, it did not need to decrease the capitalization of Gazprom.

MTS, which was going up gradually every month, remained on fifth place in August. Rostelecom was in twentieth as in July. It is worth mentioning that announced information about an increase in the net income of MTS by 108 percent in the second quarter and in Rostelecom's net income by 37.8 percent in the first half of this year did not manage to raise the companies' rating positions. At the same time, the results of other representatives of the telecommunications industry were fairly positive. Five companies, namely VimpelCom, Uralsvyazinform, VolgaTelecom, CenterTelecom and Southern Telecommunications Company (UTK) occupied higher positions in the rating.

The volatility of YUKOS' shares remained high last month. Hardly did they increase when they dropped again. For example, this happened after information about the beginning of a scheduled tax inspection of the company's activities in 2002 by the Russian Tax Ministry, about freezing the company's assets in 20 regions and about a new freezing of Yuganskneftegaz.

Last year there were few isolated cases of suspending trade due to sharp changes in prices for the company's shares, whereas this summer their number surged. The way the situation developed led to the fact that on August 18, it was necessary to suspend YUKOS' trade twice. According to analysts, YUKOS' shares are the most liquid instruments of investing funds on the market at present. The intraday price range reaches more than 20 percent. However, it is possible to benefit from such fluctuations only if you know what decisions government officials will make. Taking into account all fluctuations, the price for shares in the oil company has changed by almost 1000 percent over the past year. Nevertheless, not all players are ready to take risks in the situation when the market became unpredictable. Large investors are waiting for the outcome of the YUKOS' case and that is why only speculators are active on the market.

The trend to target the sector of second-tier shares has appeared on the market. Such investments are usually made for a long term due to their low liquidity. In this connection, it is possible to assume that players are forecasting the restoration of upward dynamics in the foreseeable future. This is likely to happen in October after a state stake in LUKoil is sold at auction. So far, the absence of real changes in the issues of restructuring Gazprom and RAO UES and the expectation for an outcome of the YUKOS' case have not given such an opportunity to the market.

No. in AugustNo. in JulyIssuerCapitalization, End of August 2004, $mln.Capitalization, End of July 2004, $mln.Change, %
66Norilsk Nickel12010,1610956,679,6
88RAO UES10891,7210059,708,3
1716NGK Slavneft1949,242139,41 
2531Zapsib (West Siberian Steel Corp,)958,70639,1450
2927NTMK (Nizhnetagilsk Metallurgical Plant)887,53772,9014,8
3129Mechel Steel Group689,34689,340
3640Lebedinsky GOK579,66478,6921,1
4042Sayano-Shushensk hydroelectric power plant473,72454,384,3
4655Mechel (Chelyabinsk metallurgical plant)395,25316,2025
4747Krasnoyarsk hydroelectric power plant395,02395,020
4851Mihailovsky GOK392,66337,0016,5
4945Sayanogorsk Aluminium Plant389,37413,33-5,8

ConocoPhillips increases stake in LUKoil

RBC, 11.01.2005, Moscow 18:01:03.Springtime Holdings Limited increased its stake in the authorized capital of LUKoil from 7.6 to 10.1 percent, LUKoil reported. Earlier, LUKoil President Vaghit Alekperov declared that ConocoPhillips, which is the parent company for Springtime Holdings Limited, had increased its stake in the Russian oil company to 10 percent. As reported earlier, Springtime Holdings Limited, which represents the interests of ConocoPhillips, won the auction of 7.59 percent of the shares in LUKoil held on September 29, 2004. The price for the state stake totaled $1.988bn.

Tuesday, January 11, 2005


PARIS (by columnist Angela Charlton for RIA Novosti) - Russia at the dawn of 2005 little resembles the Russia of a year ago. A chasm divides western and Russian opinion on what the country does resemble, and whether 2004 was a disaster or just another bumpy year.

To Europe and the United States, Russia looks chastened and embarrassed after a battery of foreign policy setbacks over the past year, increasingly isolated in its authoritarianism. To Russians and some of their neighbors, Russia looks like a vigorous economy with an iconic president, a pillar of stability in an unpredictable world. The perception gap is only widening.

To Russian officialdom, the biggest political event of the year was Vladimir Putin's re-election in March. Yet to outsiders his re-election was a foregone conclusion and was eclipsed by other events, such as the ex-Soviet Baltic states joining NATO.

The Baltic governments' rejoiced at being welcomed into this western club and severing their last remaining ties to Moscow. Putin and his compatriots were unhappy, yet the president suffered no drop in popularity as a result. Most Russians had long ago resigned to NATO expansion and hold Boris Yeltsin to blame for the phenomenon.

Still, the expansion fed a fear among Russians that blossomed throughout 2004, the fear of a U.S.-led juggernaut advancing on Russia, trying to surround it, isolate and humiliate it, and pounce on its oil wealth. The West and Russia trade accusations of imperialism yet ignore their own imperial tendencies.

Yukos provoked another deep divide. Some western governments worried that the oil company's demise was a terrifying signal to honest businesses in Russia and their investors. Russia's rich started spiriting their money overseas again. Yet the rest of Russia cheered the prosecution of an oligarch whose riches were less than clean. And multinationals like GE inked major deals with Russia despite Mikhail Khodorkovsky's travails. The selloff of Yugansneftegaz, Yukos' main production unit, to state-controlled Rosneft outraged western observers, who called it a brash and unjustified renationalization. In Russia it was viewed as the safe and logical conclusion to the whole affair, even if it was not exactly fair.

The North Caucasus gave Putin little rest in 2004, and briefly rekindled global interest in the Chechnya war. The death of Chechnya's pro-Moscow president Akhmad Kadyrov demonstrated the Kremlin's lack of control over the province despite four years of insistence that the large-scale fighting is over. The horrific school hostage-taking at Beslan and other terrorist attacks gripped the world. Overseas viewers condemned the attackers yet found little sympathy for the Russian troops' plight.

Russia won diplomatic victories at the U.N. following Beslan but lost all chance of western support for the Russian government's policies in Chechnya when Putin introduced his electoral reforms in September. Western commentators and politicians were appalled at his plan to ban elections for governor and independent parliament deputies. Russians, however, largely agreed to Putin's promise of keeping them safe through stronger government.

Tensions with the West have been building for some time, and were fed by Georgia's revolution in 2003. Russia's relations with its southern neighbor continued to sour in 2004 as Georgia's president overtook the pro-Russian leadership of the Adjaria province, and then again when Moscow's involvement in elections in Abkhazia backfired.

This erosion of Russia's power along its periphery didn't stop there. Next came Ukraine, where Putin's blatant support and mountains of Russian campaign advice failed to get Viktor Yanukovych elected. The bungled election turned Ukraine upside down, pushing normally passive Ukrainians into the streets to demand and win a new vote, which Viktor Yushchenko easily won Sunday.

Many Russians agree that Putin's misstepped grossly in Ukraine, yet Ukrainians will hardly abandon their northeastern neighbor. Yushchenko's first trip abroad will be to Moscow, in an acknowledgement of how much damage Russia could do to his fledgling tenure.

The momentum of the end of the Cold War and its residual good will have at last died. The foreign policies of Russia and western countries in 2005 will reflect this. But Russia remains a country of great potential for oil investment, IT development, tourism. Whether 2005 taps these depends largely on Putin. He won a strong new mandate in March elections and endowed himself greater powers through his electoral reforms in the fall, yet his position on the global stage, and even his own backyard, is wobbly.

Russia's 2005 also depends on the outside world: WTO membership, whether Russia stays in the G8, its future role in Iraq. Western leaders must choose how much to punish Russians for their president's actions.

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