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Friday, June 17, 2005

Stockholm Arbitration Court Orders Moscow Refinery to Pay $28M to U.S. Company

Photo from www.rsaforensics.comHOT 17.06.2005 11:46 MSK MosNews - It was reported on Friday, June 17, that the Arbitration Court of Stockholm ruled that the Moscow Oil Refinery should pay more than $28 million in losses and fines to the Joy Lud International Distributors Inc (JLID), which belongs to U.S. businessman Tamir Sapir. The news was reported by the Interfax agency, which quoted the U.S. company's lawyer Larisa Ryabchenko. According to her, the court's decision was made on June 14. Nikolai Frolov, the press secretary of Moscow Oil and Gas Company which owns 38 percent of the refinery's shares confirmed that the court made such a ruling but declined to comment on the issue. JLID sued the Moscow Oil Refinery in the international court on claims of a failed contract that was signed in 1995 on orders from the Russian government. The Moscow Oil Refinery received quotas for the export of diesel fuel and black oil fuel. The proceeds from sales were to be used for the construction of a polypropylene processing complex. Under this scheme JLID served as the purchaser of oil products. After the shares of the Moscow Oil Refinery, which belonged to the state, were transferred into the ownership of the Central Fuel Company created by the Moscow government, the deliveries of oil products diminished and then ceased altogether in 1999. Larisa Ryabchenko said the claim that was submitted by the U.S. company to the Stockholm Arbitration Court, JLID listed six different methods for recovery of damages from the Moscow Oil Refinery. She also added that over the course of the hearings the refinery had already paid a duty of $150,000, thus agreeing to the Stockholm court's right to make a ruling on this case. "If the Moscow Oil Refinery fails to execute the court's decision voluntarily, we will have to file a suit in the Moscow Arbitration Court to force the refinery to execute the decisions of the international court". Meanwhile, as JLID's lawyer reported, the Moscow Arbitration Court is already considering a lawsuit that was filed by the Moscow Oil and Gas Company, Sibneft Oil Company (which owns 38.5 percent of the refinery's shares), the Central Fuel Company (which is the shareholder of the Moscow Oil and Gas Company) and Phoenix which demand that the contract with JLID be declared invalid. The plaintiffs claim $176 million for "allegedly unpaid oil" and another $141 million in fines from the U.S. company. Larisa Ryabchenko said that the claim will be examined on June 22.

Oil and gas production up in Russia

MOSCOW, June 17 (RIA Novosti) - Oil and gas condensate production grew by 3.2% in Russia in the first five months of the year to 191 million tons as compared to the same period of 2004, the Federal State Statistics Service said.The production of gas increased by 1.2% to 277 billion cubic meters and coal by 2.9% to 121 million tons.Russia produced over 39.9 billion tons of iron ore during that period, 1.6% up on the same period of last year.The production of petrol increased by 5.3% reaching 12.7 million tons, the volume of diesel fuel went up by 6% up to 23.9 million tons and fuel oil by 4.6% to 23.2 million tons.Electric power generation grew by 1.8% to 415 billion kW/hr and heat power by 2.8% up to 765 million Gcal.During the six months of this year, the volume of industrial production grew by 3.6% as against the same period of last year.In May 2005, industrial production growth amounted to 1.4% against the same period in 2004, or 6.4% lower than in April this year.

Russian natural gas exports grows by 10.8% in 5 months

MOSCOW, June 17 (RIA Novosti) - Russian natural gas exports grew by 10.8% in January-May, 2005 as compared to the same 2004 period and totaled 74.96 billion cubic meters, said Gazexport company, Gazprom's exporting subsidiary.Natural gas exports to foreign countries totaled 68.89 billion cubic meters as compared to 65.6 billion in January-May 2004.Western Europe accounted for 49.58 billion cubic meters (46.68 billion in the same 2004 period) and Eastern Europe - for 19.31 billion cubic meters (18.92 billion in 2004).The former Soviet republics received 6.07 billion cubic meters of natural gas (2.05 billion in January-May 2004).

Wednesday, June 15, 2005

TNK-BP, Sibneft Dividing Slavneft

TNK-BP, Sibneft Dividing SlavneftBRIEFLY 15.06.2005 17:21 FC Info News - TNK-BP and Sibneft are dividing the Slavneft oil and gas company, in which they are the main shareholders, said Mikhail Fridman, chairman of the TNK-BP board of directors. “The process is underway, but the time when it will be over has not been determined. We are working together and dividing some of the assets,” he said, refusing to give further comment.

The Service Oil Pipeline

06-10-2005 Kommersant - By Dmitry Butrin -
The imprisonment of YUKOS's owners and the division of their legacy was a powerful incentive to the development of democracy in Russia. It is not inconceivable that a two-party system will finally appear in the country: OOO Liberalneftegaz and ZAO Patriotneftegaz will be competing for power and property.
What will happen to Russian statehood in the nine years that former executives and still the largest owners of YUKOS, Mikhail Khodorkovsky and Platon Lebedev must serve in a medium-security prison camp according to the sentence handed down by the Meshchansky Court? For the time being, the following is most probable scenario for the development of events on Russia's oil and gas scene: genuine competition and a progressive movement towards democracy will appear by 2006. Instead of a single political hydrocarbon concern, i.e., Presidential Administration - Gazprom - Rosneft - United Russia with subsidiaries in the White House and the Prosecutor General's Office, two competing structures will appear - OOO Liberalneftegaz and ZAO Patriotneftegaz - representing the two most popular ideologies in Russia in both corporate policy and business practice.
Khodorkovsky accomplished a fair amount in the recent history of the Russian economy. Leaving aside State Prosecutor Shokhin's ideas of the achievements of YUKOS's management in the organized crime business, which are of little use for discussion anywhere except in the Meshchansky Court, you can't ignore the fact that it was Khodorkovsky who influenced the formation of two parties in near-Kremlin circles (a group of like-mined people in the old European interpretation of this term). And a juicy chunk of YUKOS property, Yuganskneftegaz, which, during its owner's time in prison, was thrown out for division into the political and economic field and became the missing link for the splitting of these parties in the business environment. We have only to wait until the parties form into holdings in the business field and into political parties in the political field. In the purely human sense, it seems that a division into us and them has already occurred in the Kremlin, despite the appeals of Vladimir Putin and the head of his administration, Dmitry Medvedev to preserve unity in the face of ill-wishers.
Dmitry Medvedev, head of OOO Liberalneftegaz
In principle, you could very well say that Khodorkovsky's fate was not decided in the Meshchansky Court, the Kremlin, in Old Square, or at meetings at Rosimushchestvo, where an unprecedented battle for and against the merger of Gazprom and Rosneft took place in the spring of 2005. Recall that it was Yuganskneftegaz that decided the fate of the deal during a murky Russian Federal Property Fund (RFFI) auction held on December 19, 2004. Rosneft's purchase of Yuganskneftegaz became the main argument against the formation of the largest oil and gas company in Russia, which was supposed to emerge from the united Gazprom and Rosneft and in which the state had a controlling interest.
The formation of the order-bearing, efficient, socially oriented state company Gosneftegaz based on Gazprom in a quasi-compulsory alliance with Surgutneftegaz and Transneft was almost declared outright, for example, in documents dealing with development strategies for the oil and gas reserves of Eastern Siberia and the Far East. But Yuganskneftegaz, which went to Rosneft in the end, wrecked this orderly plan. As a result of a compromise in the Kremlin and surroundings, each kept its own.
But what does "its own" mean? The dispute between Medvedev and Igor Sechin, the chairmen of the boards of Gazprom and Rosneft, respectively, led the Russian government elite to create two state oil and gas companies, which were supposed to take shape by the end of the summer of 2005. The first was Rosneft, which already controlled 60 percent of YUKOS's production and probably controlled the remaining 40 percent of production and at least part of the refining operations. The second was Gazprom. Officially, it received nothing; but there was a very high possibility that the $8-10 billion it was supposed to receive from the state through Rosneft loans would be spent on oil projects. This might well be both the purchase of Sibneft and the acquisition of a stake in TNK-BP, if the Russian shareholders decide to get out of this business. Asset swaps with Western investors in Russia cannot be ruled out.
Igor Sechin,
head of ZAO Patriotneftegaz
If there are no problems with their formation, by 2006, both companies could very well claim the role of the largest players in the Russian fuel and energy complex, including the power industry. But what is more interesting is that the two state companies have been quite clearly delimited according to a different characteristic, namely, according to their business strategies, which represent fundamentally different versions of state dirigisme in the economy, and, given the economic centrism of all present-day politics, two different state ideologies.
Gazprom (tentatively OOO Liberalneftegaz) can already lay claim to consolidating relative liberals in the government around it, from German Gref to Viktor Khristenko, albeit not without some friction. And in both corporate governance and state ideology, this is a party oriented toward cooperation with the EU and the United States, a social state, technocracy as distinct from the rule of ideology, and phraseology borrowed from Harvard and Boston. Theoretically, this is the Latin American model.
Rosneft (the future ZAO Patriotneftegaz) is another version of dirigisme, appropriately known as Chinese. This is narrow-minded isolationism, the elimination of competition by means of rigid state control, a rejection of the social state ideology, total state capitalism in the well-known sense, politicized rather than business cooperation with the West, native phraseology, and unbounded patriotism.
Of course, the words "economic liberalism" can be applied to politicians and managers of the first group only with well-known reservations. The matter concerns two models of an economic policy that assumes active intervention by the state and its agents in market processes and as a direct player, regulator, and guardian of state interests, which are fundamentally different from the interests of private business and, ultimately, of society, whatever the claims to the contrary. In this sense, Aleksandr Lukashenko is a more liberally inclined politician than his Turkemen counterpart.
It would be no great exaggeration to suggest that, under certain circumstances, Liberalneftegaz and Patriotneftegaz will become opposing forces in the political sphere in the pre-election cycle in 2007-2008 in one form or another; and in the business sphere, the stiff competition between the two conglomerates will obviously become even stiffer. Khodorkovsky and Lebedev may be pleased. Their nine-year sentence may well be considered a sacrifice on both the altar of competition in Russia's fuel and energy complex and the altar of political freedom. The rivalry of the two ideologies will inevitably enter the public realm; but isn't this democracy? At the very least, the struggle for power of the two political parties is still more democratic than United Russia's autistic internal power struggles.
However, the most predictable scenario should not be confused with the most likely one. Politics in Russia consists of barely predictable events. Who could have imagined three years ago that Mikhail Khodorkovsky would be on the prisoner's dock?

Gas prices may grow 14 percent next year

RBC, 15.06.2005, Moscow 19:51:46.The rate of growth in gas prices should be at least 14 percent in 2006, a source in the Russian government has told RBC. The source added that the industry and energy ministry had submitted the corresponding proposals to the government. In the ministry's opinion, this increase in prices would guarantee profitability of gas supplies to the domestic market. Additionally, the federal tariffs service believes that gas supplies would be profitable, if prices were raised 17 percent. At the same time the forecast for Russia's social and economic development for 2006 provides for increasing gas prices by not more than 11 percent, and the corresponding figures for 2007 and 2008 are 8 percent and 7 percent respectively. The source noted that this issue would cause serious discussion at the next meeting of the Cabinet. The limit on growth in fees for electrical power has been set at 7.5 percent for 2006, and the corresponding figures for 2007 and 2008 are 6.5 percent and 5.5 percent respectively. Railroad tariffs are to increase 8 percent, 7 percent and 5.5 percent in 2006, 2007 and 2008 respectively. The source did not rule out the possibility that the federal tariffs service would suggest that railroad fees should be raised more substantially.

Tuesday, June 14, 2005

$24 billion invested in Azerbaijani economy in 10 years

ST. PETERSBURG, June 14 (RIA Novosti - Northwest) - Investment in Azerbaijan is on the up and likely to experience unprecedented growth, the republic's President Ilkham Aliyev announced, citing International Monetary Fund data. "This investment policy has resulted in the investment of $24 billion into the Azerbaijani economy in the past ten years. This is one of the highest indexes in the region per capita," Aliyev said Tuesday at the 9th International Economic Forum in St. Petersburg. "According to the data of the International Monetary Fund, this year the economic growth rate in Azerbaijan will amount to 18%, the highest index in the world," he said. Aliyev said that though the poverty level in the republic has dropped by 9% in the past year and a half, it still cause for great concern. "Economic contacts between Russia and Azerbaijan are now in a period of a rapid rise. At the beginning of 2004, the presidents of the two countries set the task of doubling trade, and now, in less than two years, it has been fulfilled," Aliyev said. "The growth in trade is very high, some 50-60%. The main thing, however, is that the potential of our countries makes it possible to achieve more," he said. "The further development of our economic and political contacts will enable us to carry out our joint projects more closely and to cooperate even more actively at the regional level."

Russian, Azeri presidents to discuss Caspian and Azeri oil export issues

MOSCOW, June 14 (RIA Novosti) - The Tuesday summit of the Russian and Azeri presidents, Vladimir Putin and Ilkham Aliyev, is to focus on the whole range of the bilateral relations, a Kremlin source told RIA Novosti. Moscow believes the mainstay of the bilateral relations is the trade and economic cooperation resting upon the interstate treaty on long-term economic cooperation until 2010, singed on January 25, 2002. Last year, bilateral trade turnover grew by 50% to $757 million. Over the first five months of this year, the growth has equaled 40%. The showings are another step towards implementing the interstate agreement on doubling the goods turnover to drive it to $1 billion, the source said. According to the Kremlin source, the presidents of Russian and Azerbaijan during their Tuesday meeting in St. Petersburg are to look into stepping up the fuel and energy cooperation, particularly, boosting the Azeri oil transit via the Northern Route, the Baku-Novorossiisk oil pipeline. "Cooperation on the Caspian issues with emphasis placed on drafting a Caspian legal status convention" is to be touched upon as well, RIA Novosti's source in the Kremlin said. The situation in the Commonwealth of Independent States (CIS) is to be analyzed, with the two presidents to exchange their views on the Nagorno-Karabakh settlement (Nagorno-Karabakh is an area in Azerbaijan with the ethnic Armenian population). Aliyev is to attend the 9th St. Petersburg International Economic Forum. The Azeri republic presentation timed to coincide with the Year of Azerbaijan in Russia is to be held during the forum This is going to be the third visit of Azerbaijan's president to Russia this year. Aliyev paid a working visit to Moscow on February 15-16 and attended the celebration of the 60th V-E Day anniversary on May 9.

Thursday, June 09, 2005

Export of Russian Oil to China to Rise 1.5 Times - Chinese Oil Chief

Photo: AFP09.06.2005 14:25 MSK MosNews -
Export of Russian oil to China in 2006 will be 1.5 times bigger than in 2005, the president of China National Petroleum Corporation, Chen Geng, said on Thursday. Speaking at the second Russian-Chinese Investment Forum in St. Petersburg, he said the export of Russian oil to China in 2005 will be over 10 million tons. In 2006, it will rise up to 15 million. "The tendency for the rise of Russian oil exports will remain in the future," he said.

India Still Wants a Piece of Russia's Rosneft

Rosneft Logo / Image by MosNews.com09.06.2005 15:59 MSK MosNews - India is still interested in buying a stake in state-owned Rosneft Oil Company, despite legal questions that arose after it purchased a core unit of the embattled Yukos Oil Company, India's Petroleum and Natural Gas Minister Mani Shankar Aiyar said on Thursday, June 9. "I am in constant contact with the (Russian Energy) Minister (Viktor) Khristenko (about the possible purchase of a stake in Rosneft)," Aiyar told Reuters on the sidelines of a conference in Baku. "The Kremlin has told us that they will come back to us at the appropriate time so we can resume talks about possible acquisitions. We're still interested in buying stakes in Rosneft or whatever they plan to offer." Russia wants to sell a stake in Rosneft to fund a purchase of shares in natural gas monopoly Gazprom. It originally planned to merge the two firms but abandoned the plan after Rosneft bought Yukos' main production unit, Yuganskneftegaz. A U.S. court had earlier put a stay order on the sale of the unit. Russia now plans to use an elaborate funding mechanism for the Gazprom share purchase. It has created a special financial vehicle which will borrow money for the Gazprom share purchase, and then pay back the loans by selling part of Rosneft. Last month a source in Russia's Energy Ministry said Russia hoped China would also be interested in buying a Rosneft stake. Russia has not yet said how much of Rosneft it will sell, but the proceeds will have to be enough to buy 10.74 percent of Gazprom, the stake it needs to get a majority of Gazprom. It has also yet to say how much it will pay for the Gazprom stake, but Russia's Economy Minister German Gref already said that the state considers it fair to pay $6 billion to $8.5 billion for the shares.

Russian Oil and Gas Giant Lukoil Faces Tax Evasion Charges

Lukoil Logo / Image by MosNews.com09.06.2005 15:36 MSK MosNews - The Russian Interior Ministry Thursday filed a criminal suit against Naryanmar Oil and Gas Company, a subsidiary of Lukoil, one of Russia's biggest oil businesses, agencies reported. The Interior Ministry department in the Nenets region in the North of Russia has revealed that Naryanmar Oil and Gas Company failed to pay more than 24.5 million rubles in taxes in 2004, the Ministry's press release says. The company's management falsified the tax declarations by submitting false VAT information, concerning its deal with the System Trade company, the report adds. With 1.3 percent of global oil reserves, Lukoil is the second largest privately-owned oil company in the world in terms of proven reserves. Lukoil produces 20 percent of the total Russian oil output and is responsible for 18 percent of total Russian oil refining. At the moment Lukoil and U.S. firm ConocoPhillips are transforming Naryanmar to set up the joint Rusco company that is expected to produce 10 million tons of oil a year by 2008.

Tuesday, June 07, 2005

Director of South Russia's Main Oil Terminal Arrested for Tax Evasion

Novorossiysk Sea Port07.06.2005 11:23 MSK MosNews - A Novorossiysk court Tuesday sanctioned the arrest of the city’s Sea Trade Port director general at the request of the local Interior Ministry on suspicion of tax evasion. Defense lawyers claim the arrest is part of a fight for control over one of Russia’s major ports, reported. The Novorossiysk Prosecutor's Office filed a lawsuit against Vladimir Kovbasyuk at the beginning of May, charging him with evading almost 40 million rubles ($1.4 million) of taxes in 2003-2004. Kovbasyuk is in hospital at the moment and his reaction to the court's decision is unknown. Kovbasyuk's lawyers claim the court's ruling has more to do with the fight for control over the Novorossiysk port, Russia's major oil terminal in the south, than with tax evasion. The lawyers also said they thought somebody could have "ordered" the case, considering the fact that the port even surpassed the estimated tax payments for the period in question.

Ist Siberian Energy Congress to open in Novosibirsk

07.06.2005 RBC News - The I Siberian Energy Congress will open today in Novosibirsk. The aim of the congress is to assist actual establishment of eastern energy centers that meet Russia's strategic interests. Expectedly, the forum will invite representatives of federal and regional authorities, the home and foreign business community, and research and design organizations. Viktor Khristenko, Russia's industry and energy minister, Yuri Trutnev, natural resources minister, top managers of Irkutskenergo, Norilsk Nickel, Rusia Petroleum, RAO UES of Russia, Rosneft, RusAl and other large energy enterprises are to take part in the congress.
The program of the congress has been designed for two days, with eight subject-matter sessions. During the sessions, the government's energy policy priorities, subsurface management and electric energy reforms, and projects and market-development forecasts are to be handled.

Japan to buy more Russian natural gas from Sakhalin II

MOSCOW, June 7 (RIA Novosti) -- Sakhalin Energy, the company that operates the Sakhalin II project providing natural gas to Asia, has almost completed the signing of all long-term, natural gas contracts, which include an increase in sales of liquefied natural gas to Japan, the Vremya Novostei daily said Tuesday. Sakhalin Energy (SE) said Monday that a contract had been signed with Toho Gas to increase annual liquefied natural gas deliveries by 0.2 million metric tons over the course of the next 20 years. This is the third commercial success for SE in the last seven days, the company's commercial director Ate Visser said. Japan will receive 0.8 million metric tons more liquefied natural gas per year (over $3 billion). SE signed even more lucrative contracts with Tokyo Gas (1.1 million metric tons of liquefied natural gas over 24 years), Tokyo Electric (1.5 million tons over 22 years), Kyushu Electric (0.5 million tons over 22 years), Baja Mexico (1.6 million tons over 20 years), and Kogas (1.5 million tons per year with a possible additional 0.5 million tons). The Japanese buying frenzy is motivated by projected mid-term Asia-Pacific liquefied gas price hikes. Experts think that liquefied natural gas will cost 75% more on Asian markets in five years. These estimates hinge on greater U.S. and European gas demand. North American liquefied gas futures now cost 50% more than those in Asia. Wholesale Asian buyers spend $234 per metric ton of liquefied natural gas (minus delivery costs). The same amount costs $345 per ton in the United States. Analysts think that a ton of liquefied natural gas will cost $400-430 per ton by 2010. The Sakhalin II project calls for developing the Piltun-Astokhsky and Lunsky deposits on the northeastern shelf of the island. The latter mostly contains gas, gas condensate, and oil. Both deposits together contain over one billion barrels (150 million tons) of oil and more than 500 billion cubic meters of natural gas.

Monday, June 06, 2005

Saudi-Russian Oil Ventures

06/06/2005 (10:43) RZD News - BRIEFLY Saudi Arabia and Russia, the world's two largest oil producers, plan to set up joint ventures in the developing world, Al-Jazeera reported, citing Russia's ambassador in Riyadh, Andrei Baklanov. The countries' largest oil producers, Saudi Aramco and LUKoil, are in talks with Oil and Natural Gas Corporation, India's largest oil explorer, about investing to expand ONGC's Managlore Refinery and Petrochemicals, Al-Jazeera said on its web site, reports The Moscow Times referring to Bloomberg.

Friday, June 03, 2005

Putin's Economic Adviser Calls to Privatize Russian Oil And Gas Complex

Putin's Economic Adviser 03/06/2005 (10:13) RZD News - To privatize oil and gas industry and remove whatever available limitations of overseas capital participation in the fuel and energy complex is what the Russian economy presently needs, Andrei Illarionov, economic adviser to President Vladimir Putin, said in Moscow on June 2. Those are the principal remedies he sees to cure Russia's economic troubles, which repeat Dutch and Venezuelan problems. Illarionov offered other measures, particularly, to remove limits of private capital investment in pipelines, ports and power grids, sell energy assets to nonresidents, and put an end to the OPEC monopoly. The expert figuratively described the economic problem he terms "Dutch disease" as "obesity, cancer and neurosis all in one." Excessive economic dependence on raw materials has sharply deteriorated the quality of Russian economic policies to make them "childish," he added. "Economic authorities' head is swimming with growing petroleum export profits, so they think they may do whatever they like," Illarionov said. He also highlighted symptoms of the "Venezuelan disease," which had recently appeared in Russia. The presidential adviser substantiated that point with a retrospect of developments in Venezuela and certain other OPEC countries, which nationalized petroleum industry several years ago making their gross domestic product decrease, reports RIA-Novosti. "The Russian economy has developed a cluster of bad diseases that demand complicated treatment," the expert said. He warned against spending Stabilization Fund money on domestic purposes, in particular, to finance ambitious infrastructure projects offering another medical metaphor: such allocations will allow "a tumor to spread its infected cells throughout the body".

Thursday, June 02, 2005

Russian Oil Companies Fail to Increase Production for 8th Month Straight

Photo from www.imagebank.com02.06.2005 12:34 MSK MosNews - On Thursday, June 2, the Russian Industry and Energy Ministry released figures which showed that in May Russian oil output rose 30,000 barrels per day compared to April and amounted to 9.33 million barrels per day. The figure still remains below a post-Soviet high that was recorded last year. These figures also mean that the period of stagnation in Russia's oil output, which experts say is mostly due to the Kremlin-led campaign against oil major Yukos, has extended into the eighth consecutive month. Having risen to a new post-Soviet high of 9.42 million barrels per day last September, oil production has since fallen due to seasonal factors, the Yukos crisis, and higher taxes. In April, output fell to 9.30 million barrels per day from 9.33 million in March. Analysts, interview by the Reuters agency, have said the slowdown in output is further confirmation that the Kremlin's breakup of Yukos and high taxation has sapped the Russian oil industry's ability to respond to booming global demand and record prices. As MosNews reported last week, Russia's Economy Ministry cut its 2005 gross domestic product growth forecast to 5.8 percent from 6.5 percent, citing slower oil growth as the main reason. Russian oil production has risen more than 50 percent since 1999 prompting President Vladimir Putin to set an ambitious goal of doubling the size of the economy within the next decade, a target which many analysts say is now almost impossible.

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