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Russia: Analysts Say Kremlin Seeks Control Of Oil Sector Through Yukos Sale
By Jeremy Bransten
Copyright (c) 2004. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036. www.rferl.org
Russia -- oil pipeline (man turning off valve)Russia's state-owned Gazprom monopoly has announced it will bid for Yukos's main oil production unit, which is being auctioned off by the government. Analysts say the move is likely to speed the demise of Yukos -- once held up as a shining example of private enterprise in the Russian oil business -- and create a massive state-controlled oil and gas company.
Prague, 1 December 2004 (RFE/RL) -- The announcement by Gazprom yesterday that it seeks to purchase the most valuable part of the troubled Yukos oil giant appears to confirm speculation that the Kremlin aims to at least partially renationalize the Russian energy sector.
Ever since last year when authorities jailed Mikhail Khodorkovskii, the chairman of Russia's largest oil concern, and slapped him with a giant back tax bill, analysts have suspected that the Kremlin's true aim was to break up Yukos and nationalize its assets. Former Economy Minister Yevgenii Yasin tells RFE/RL:
"Back in July of last year, when the whole campaign with Yukos began, it was clear that the main aim was to take over Yukos and establish government control over the company," Yasin says.
Yasin says that suspicion has now been confirmed -- and that the Kremlin appears set to use state-controlled Gazprom to achieve its aim.
Gazprom is already the world's largest natural gas producer.
Last month, it announced its intention to merge with the state oil company Rosneft. If Gazprom now acquires a majority stake in Yugansneftgaz, the Yukos production unit that is due to be auctioned off on 19 December, the company will become -- almost overnight -- the world's fifth-largest oil producer.
Most expect this to happen. Analysts say the fact that the starting price at the auction for a controlling stake in Yugansneftgaz has been set at a low $8.6 billion -- despite independent appraisals of nearly twice as much -- is a clear sign the government favors Gazprom.
Moreover, the likelihood that any private investors who purchase Yugansneftgaz would face legal action from Yukos shareholders is likely to discourage most outsiders from bidding. Adam Landes, an oil and gas analyst at the Moscow-based Renaissance Capital brokerage house, explains.
"Most of the foreign companies, I think, have ruled themselves out and those that have expressed interest are either not wanted within Russia, such as CNPC out of China -- or have expressed the view that they will then buy up participation from Gazprom," Landes said. "So in a way, Gazprom represents a legal risk barrier to any foreigner with deep pockets that may end up with a part of Yugansk."
Sergei Bogdanchikov, the head of Gazprom's oil division, said yesterday that it was time Russia had what he called a "world-class company" on the order of other global giants like Exxon Mobil or British Petroleum.
The question is: will creating a huge state-controlled oil and gas conglomerate serve Russia's interests? Economically, analysts are not so sure.
Heavily subsidized domestic oil and gas prices in Russia are far below global market rates and often do not cover the cost of production. This creates economic distortions that are a drain on state coffers and encourage inefficient domestic industries to avoid restructuring. Analyst Landes says that renationalizing the oil industry is not likely to improve the situation.
"If acquiring Yugansk just means there's more money from which to subsidize over a longer period of time low domestic gas prices, then Yugansk is valueless to its external shareholders," Landes said. "It may be of some value politically to the principal shareholder -- that is, the government."
And that, ultimately, may be the point.
Russian President Vladimir Putin appears to have calculated that re-establishing Kremlin control over Russia's most valuable resources will enhance Moscow's geopolitical power -- precisely at a time when the global demand for energy is growing at an unprecedented pace.