The Russian Ministry of Property Relations has submitted draft resolutions to the government on the sale of 19.68% of the shares in the Slavneft oil company and 85% of Onako in what could herald a new phase in the carve-up of the Russian oil industry (OGJ, July 3, 2000, p. 30). The government has long been mulling the idea of amalgamating Slavneft, Rosneft, and Onako as a state oil company but has now decided to privatize Onako and Slavneft separately.
Observers say the three companies combined could have been hard to manage and would have been unbalanced. Also, the combined company would have cost too much to establish.
Privatizing each company on its own now appears to be a more lucrative option. There are potential buyers for each company, while it would likely be more difficult to find a buyer for an amalgamation.
The first carve-up of oil industry assets began in 1992 with the creation of major oil companies Lukoil, Yukos, and Surgutneftegaz in Western Siberia. Sidanko followed in 1994. Then came the loans-for-shares auctions of 1995, which altered the alignment of forces in the sector. The latest round has its roots in the financial crisis of 1998.
Meanwhile, what started as a struggle for supremacy between Slavneft and Tyumen Oil Co. (TNK) is now escalating toward an out-and-out war.
Privatizations
The Russian government appears to be moving forward with plans to sell its stakes in the three state oil firms despite some internal opposition.
The state's share in Slavneft will be sold at a special cash auction (i.e., the package will be divided between auction participants in proportion with their bids). The auction is scheduled for later this year.
The prime contender for the Slavneft stake is TNK, which already owns 12.5% of Slavneft shares. But Sibneft Pres. Yevgeny Shvidler also has displayed interest in purchasing the state holdings in both oil companies.
The stake in Onako will be sold through an investment tender. This plan is opposed by Yukos, which says it would buy the package at a cash auction.
An investment auction is also planned for the state's 25% share of Rosneft. The Fuel Ministry opposes the Property Ministry's plan, however, and is still campaigning for creation of a state oil holding based on shares in Rosneft, Slavneft, and Onako.
Ownership shift reasons
There are clear reasons for the continuing shift in ownership of Russian oil companies.
First are the latent conflicts of interests and internal problems in the sector. These include the property disputes among Sidanko, TNK, and Slavneft. And Central Fuel Co. and Norsi Oil do not possess their own production capacity. Meanwhile, Tatneft does not have enough refining capacity, and Onako's Orenburgneft production unit and Orsk refinery are not technologically compatible.
Second, many oil companies were saddled with heavy debts after the August 1998 crisis. Foreign banks already own 35% of Yukos, and TNK has taken over former Sidanko assets Chernogorneft and Kondpetroleum.
Also, aggressive new market players have appeared since the presidential elections that are keen to get a slice of the oil industry cake.
The battle for Onako is poised to be the most interesting, as it appears to be a contest between Lukoil and Yukos. Lukoil would seem to have the upper hand because it has more financial and political clout. But Yukos has been buying up Orenburgneft shares.
Ironically, Onako is headed by the former director of Lukoil subsidiary Lukoil-Uraineftegaz.
The situation around Slavneft is less clear-cut. Three potential runners here are the TNK-Alfa Group combine, the Sidanko-BP alliance, and MDM-Bank, an industrial group that has been gaining momentum of late. BP might have more financial power than its Russian rivals, but the latter can count on protection from the government.
And Slavneft is not just a holding company, but a Russian-Belarussian holding company, which carries with it additional political nuances. Belarussian Pres. Alexander Lukashenko has asked for the sale of the state-owned shares in the company to be put off until 2002.
Arguably the best slice of the cake, though, is Rosneft. It is thought that only Gazprom has the political and financial weight to make a decent bid for this company. However, preparations for the sale of 25% of Rosneft planned for this year have not yet begun.
Takeover battle
Slavneft has officially announced plans to acquire stakes in TNK subsidiaries. Slavneft's announcement confirms that the company is struggling to ward off a hostile takeover bid by TNK.
For its part, TNK says it recently acquired blocking stakes in Slavneft's main subsidiaries and now intends to buy the state's holding in Slavneft itself when the government shares are tendered later this year. Moreover, TNK plans to become a consolidated company by means of a share swap combined with an American Depository Receipts issue early in 2001.
Slavneft could well foil these plans through its ownership of stakes in TNK subsidiaries. There should be plenty of remaining room for bargaining between the two companies, however.
Industry observers surmise that Slavneft, as a precautionary measure, has avoided buying shares in Tyumen subsidiaries directly, instead relying on proxy firms affiliated with company management. Of course, should Tyumen win control of Slavneft in a tender, all of Slavneft's assets would automatically go to TNK.
Slavneft management claims that the company has already acquired a 10% interest in TNK unit Nizhnevartovskneftegaz, 5% in Samotlorneftegaz, and 5% in Nizhnevartovskoye NGDP. Slavneft is also seeking to buy TNK's Ryazan refinery.
In recognition of all these related risks, many believe TNK is likely to begin actively buying up shares in its own subsidiaries. In the short term, share prices for TNK subsidiaries could well rise as a result of such speculative buying.
