Russian woes

Patrick Crow
Washington, D.C.
[email protected]

The Russian energy sector is on hard times.

Oil firms could post losses of $9.2 billion this year, due to falling crude oil prices. A group of Russian oil companies recently appealed to President Boris Yeltsin to change tax policies they said were crippling the oil sector (OGJ, Aug. 10, 1998, Newsletter).

That prompted a summit meeting between Russian Prime Minister Sergei Kiriyenko and oil company managers.

They agreed to establish a commission to create a flexible oil tax system, taking into consideration "international circumstances and other external factors."

Deputy Prime Minister Viktor Khristenko will chair the commission, which will have representatives from the ministries of fuel and energy, finance, and the economy; the State Tax Service (STS); and oil companies.

The World Bank and the International Finance Corp. also were invited to participate, because they have extended loans to Russian oil firms.

Tax collections

Although Kiriyenko promised future relief, he insisted the companies pay their overdue taxes in full.

Under pressure itself, the Russian government has been very aggressive in collecting from major tax debtors in the energy sector.

It cut access to export pipelines for Sidanko, the fifth largest oil company, and Onako, the eighth largest, for their failure to pay taxes. Then STS ordered assets of Sidanko, Onako, and Eastern Oil Co. seized for non-payment of taxes. The firms were negotiating with the government over that.

That tactic worked recently with Gazprom, which paid the state 3.1 billion rubles in back taxes after the government ordered Gazprom assets seized.

In return, Kiriyenko pledged the government would help Gazprom and the national electric utility RAO UES collect cash payments from their customers funded through the federal budget.

Sell-offs

Although it seems like the worst possible time, Russia is resolved to sell state interests in six oil and gas companies this fall.

The government wants to sell up to $2.88 billion worth of state assets under its program to boost revenue and narrow the budget deficit.

But in recognition of the poor market, Yeltsin recently said Russia would drop its requirement that bidders in the six firms also pledge future investments.

Yeltsin signed a decree approving a government proposal to sell state-owned stakes in Tyumen Oil Co., Eastern Oil, Norsi Oil, Komitek, Sibur, and Vostsibneftegaz without investment conditions.

Earlier this year, investors were worried that the government would devalue the ruble because of debts, and a tender of the government share of Eastern drew no bids. Last March, the government could sell only a fraction of its stake in Tyumen.

The government also plans to sell 5% of Gazprom, reducing its share to 35%. Russia also may force Gazprom to accede to a World Bank demand that the giant gas firm open its pipelines to other shippers.

The bank conditioned a recent $1.5 billion loan for Russia on the government ending Gazprom's near monopoly on transportation by Nov. 1.