Russia proposes new stage in oil industry carve-up

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.


MOSCOW�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.

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 between Sidanko, Tyumen Oil Co., and Slavneft. And Central Fuel Co. and Norsi Oil do not possess their own extractive 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 Tyumen Oil has taken over former Sidanko assets Chernogorneft and Kondpetroleum.

Also, new aggressive market players have appeared since the presidential elections that are keen to get a slice of the oil industry cake.

Battles brewing
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 Amoco PLC alliance, and MDM-Bank, an industrial group that has been gaining momentum of late. BP Amoco 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 President 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.

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