Thursday, July 28, 2005
OIL & GAS STAYS OUT OF INVESTMENT RECOVERY
07-27-2005 RMG News - A bundle of good news on the Russian economy encouraged foreign portfolio investors on the share market last week, but increase in the level of all types of foreign investment was itself part of the good news. Russian companies stepped up their borrowings abroad in the second quarter, and used the money to expand their businesses.
German Gref said last week that capex levels in the Russian economy in June were 11.1% higher y-o-y, nearly matching the y-o-y increase of 11.8% achieved in June 2004. Seasonally adjusted month- on-month declines in investment levels during the first three months of the year turned around in the second three months, rising to a crescendo in June.
A full breakdown of foreign investments in the second quarter by type and by sector has not yet been released, but it is fairly clear that readiness to lend is due to rouble strength and growing awareness in the West of a consumer boom in Russia, which can offer excellent returns.
It is ironic that the oil & gas sector, which is mainly responsible for the strong rouble, is a clear laggard by investment levels in recent months. As top Russian oilmen have commented, the tax environment, which confiscates extra profits due to higher export prices, does much to discourage investment.
Another major news item last week was release of a 14.5% stake in Sibneft from Russian court custody. The stake was frozen due to its involvement in the Yukos-Sibneft merger, and it had been feared that it might be confiscated in payment of Yukos tax liabilities. Its release lifts that threat and opens the way for purchase of Sibneft by Gazprom (a deal, which has been in the air for several months, and whose benefits for Gazprom we have questioned in our Weekly oil coverage).
Such a purchase will increase quasi-direct state control of the oil & gas sector still further, and thus increase potential pressure for more investment by the sector regardless of profit considerations. TNK- BP and Lukoil still maintain a clear distance from the state, and would presumably protest loudly against any such pressure, but we see it as a factor to consider in 2005-2006.
German Gref said last week that capex levels in the Russian economy in June were 11.1% higher y-o-y, nearly matching the y-o-y increase of 11.8% achieved in June 2004. Seasonally adjusted month- on-month declines in investment levels during the first three months of the year turned around in the second three months, rising to a crescendo in June.
A full breakdown of foreign investments in the second quarter by type and by sector has not yet been released, but it is fairly clear that readiness to lend is due to rouble strength and growing awareness in the West of a consumer boom in Russia, which can offer excellent returns.
It is ironic that the oil & gas sector, which is mainly responsible for the strong rouble, is a clear laggard by investment levels in recent months. As top Russian oilmen have commented, the tax environment, which confiscates extra profits due to higher export prices, does much to discourage investment.
Another major news item last week was release of a 14.5% stake in Sibneft from Russian court custody. The stake was frozen due to its involvement in the Yukos-Sibneft merger, and it had been feared that it might be confiscated in payment of Yukos tax liabilities. Its release lifts that threat and opens the way for purchase of Sibneft by Gazprom (a deal, which has been in the air for several months, and whose benefits for Gazprom we have questioned in our Weekly oil coverage).
Such a purchase will increase quasi-direct state control of the oil & gas sector still further, and thus increase potential pressure for more investment by the sector regardless of profit considerations. TNK- BP and Lukoil still maintain a clear distance from the state, and would presumably protest loudly against any such pressure, but we see it as a factor to consider in 2005-2006.
# posted by Deval : 2:29 PM
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