early November President Boris Yeltsin signed a decree
that allows foreigners to acquire complete control of
Russia's oil companies. And First Deputy Prime Minister
Boris Nemtsov, who also served as Minister of Fuel and
Energy at the time the decree became law, said
foreigners could now own up to 100% of domestic oil
companies instead of the 15% cap on allocations of
domestic oil firms to foreigner buyers.
the decree may sound sensational, analysts and industry
sources are agreed that its impact is unlikely to be
very significant. Russia's oil majors are already
largely privatised, or scheduled for privatisation
within weeks, predominately to buyers dominated by
domestic banks and Russian consortia.
although lots of foreign companies hold stakes in
Russian oil majors, these stakes are small enough to
stay on the safe side in Russia's risky economic
environment. The situation on global financial markets
remains uncertain and may well prevent many potential
investors from rushing into Russia in the near future.
Privatisation of the oil sector is also a key political
issue. The State Duma, Russia's opposition-led and
predominantly xenophobic lower chamber of parliament,
likes to question any privatisation deal, especially
those involving foreigners.
don't think we will see any big rush [by foreigners], at
least in the near term," Jukka Viinanen, chief
executive of Finnish oil group Neste, told Reuters.
"The West is still taking a cautious view of
fuel and energy minister Yevgeny Morozov appears not to
disagree. There would be "no surprises or
revolutionary changes" in terms of foreign
investment in the energy sector, he said.
government's motivation to privatise is clear-to raise
more cash to cut big gaps in the budget caused by poor
levels of tax collection. It is no surprise the decree
was signed right after the International Monetary Fund
decided to postpone its regular quarterly US$ 700
million tranche to Russia. "The government's fiscal
problems were the key factor behind the decision,"
said Christopher Granville, head of research with United
is an increasing part of the revenue base. It has been
this year, and will continue to be so next year."
which controls 5% of the world's oil reserves, accounts
for 10% of the world's annual oil production, and takes
almost three-quarters of its hard currency earnings from
oil exports, is certainly seen as an attractive
investment opportunity. "Will Western oil companies
be interested in buying Russian oil companies? Of course
they will," a top Western industry source told
Reuters. "Whether they choose to participate is
if foreigners had the will to buy major oil stakes in
November's auctions they would not have been able to do
so. The auctions of state holdings in oil companies, all
announced before the date of the decree, were not
subject to it, said Maxim Boiko, Minister for State
Property at the time. He was referring to auctions of
stakes in Tyumen Oil (TNK) and Eastern Oil.
"We don't have the right to make any changes in the
conditions of auctions and tenders while they are being
carried out, or to change the rules of the game
announced earlier," Boiko said.
foreigners are likely to be able to apply the decree to later
auctions of stakes in LUKOil and Slavneft, said Vladimir Malin,
deputy chairman of the Federal Property Fund. "The documents
have been handed to the government. As soon as they are confirmed we
can look at the issue of whether we will succeed or not," said
Malin, adding that the fund had welcomed the long-awaited decree.
it came out a bit late," he said, referring to the fact that
foreign investors had little or no time to prepare seriously for the
auctions. "We are holding a commercial tender for 15% of LUKOil,
and expect to sell 0.96 % of LUKOil at a cash auction for about US$
150 million," Malin said. "By the end of the year we could
have sold 19% of Slavneft."
which is fully owned by the state, is soon to be auctioned too, with
several foreign companies planning to bid. "The decree will
open up bidding for Rosneft quite considerably," Julian Lee of
the Centre for Global Energy Studies told Reuters.
Duma - busy fighting First Deputy Prime Minister Anatoly Chubais on
many issues, including privatisation, and pondering whether to
debate the 1998 draft budget in its first reading - has shown little
interest in Yeltsin's decree so far. But analysts suggested that
when slow-minded deputies find time to take a closer look at the oil
decree it could cause storms of protest over foreign ownership of
Russia's most important sector. "It will be contentious,"
Lee said. "It's difficult to say whether it will stand the
passage of time."
First oil flows from Azerbaijan
Azerbaijan International Operating Company (AIOC), which is
developing the country's offshore Caspian Sea fields, began pumping
its first oil in November. The US $8 billion valued AIOC originally
scheduled its first output for 28 August but moved the target
several times. The first crude flow of 1,000 tonnes per day came
from a platform in the Chiraq field, one of three under development
by AIOC. Output at the well is expected to total 7,500 barrels per
from the platform is delivered through a pipeline to a shore-side
storage and pumping facility. A day after AIOC started delivering
the first crude through the pipeline, Russian and Chechen officials
officially opened the Chechen section of a 1,000-km international
oil pipeline linking Azerbaijan's offshore Caspian fields to
Russia's Black Sea port of Novorossiisk.
Chechen and Russian negotiators reached a deal to transport 200,000
tonnes of Azeri oil to Novorossiisk by the end of 1997, the two
sides remain divided over long-term transit fees.
Azerbaijan State Oil Company, SOCAR, and AIOC will pay US$ 15.67 per
tonne in transit fees to Russia's pipeline monopoly, Transneft. AIOC
said it planned to ship 120,000 tonnes of crude via this route,
which passes through Chechnya, by the end of the year. Another
pipeline to Georgia's Black Sea outlet at Supsa is being refurbished
and will be ready to handle AIOC crude by the end of 1998, AIOC
Azerbaijan plans to start loading crude onto its first tanker at
Novorossiisk in mid-December, a spokesman for Transneft said. The
spokesman said that by mid-November Azeri crude had already reached
the Chechen sector of the pipeline.
this week Transneft will pump Russia's Urals oil into the pipeline
at the Tikhoretsk intersection where several pipelines meet. Urals
oil will meet Azeri crude in the pipeline. Then the crude mixture
will flow to Novorossiisk. That's why Azerbaijan will receive the
crude mixture at Novorossiisk."
is led by an alliance of British Petroleum and Norway's Statoil. BP
has a 17.13% share in the project, and Statoil 8.56%. Other
participants are Amoco with 17.01%, Exxon with 8%, Unocal with
10.05%, Pennzoil with 4.82%, Britain's Ramco with 2.08%, Russia's
LUKOil with 10%, Turkey's TPAO with 6.75%, Saudi's Delta Nimir with
1.68%, and Japan's Itochu with 3.92%. SOCAR has a 10% share.
deals, if fully implemented, are worth US$ 30 billion in total
long-term investment in Azerbaijan which will receive about 80% of
the proceeds from a planned 30-year project. The three fields are
estimated by AIOC to contain at least 650 million tonnes of
recoverable reserves. Output is expected to reach 700,000-800,000
barrels per day by 2007-2010.
Yeltsin appoints new energy minister in a government shake-up
In an apparent move to avoid political turmoil and pacify parliament
ahead of discussions on the 1998 budget, Russia's President Boris
Yeltsin sacked two reformist politicians - First Deputy Prime
Ministers Anatoly Chubais and Boris Nemtsov - from their respective
jobs at the finance and energy ministries.
was forced to sack Chubais as finance minister on 20 November, but
tempered the blow by retaining him as Deputy Prime Minister after
the opposition-dominated parliament called for his dismissal over a
US$ 450,000 fee that Chubais and four other government members
reportedly received for an as-yet unpublished book on privatisation.
stepped down to give way to State Duma deputy Mikhail Zadornov, a
former member of the liberal Yabloko faction and head of
parliament's budget committee. During his four years in parliament
Zadornov has built good relations with both government and
was not directly linked to the scandal over the book, but was forced
to resign as Minister of Fuel and Energy in line with a Presidential
Decree which prohibits deputy Prime Ministers from holding ministry
jobs along with their governmental responsibilities.
successor is his First Deputy, Sergei Kiriyenko, the former head of
Norsi Oil, who is widely expected to continue Nemtsov's policy of
structural reforms in the industry.
insiders said Nemtsov was never accepted as a true oil or gas
professional, but was generally regarded as a competent manager and
a useful tool for lobbying on behalf of the interests of the energy
departure from the fuel and energy ministry won't be a big loss,
especially now that we have Kiriyenko in his place," an oil
analyst said. Other analysts agree that Yeltsin's decision was
designed to pacify the Communist-dominated parliament, which has
already turned down the second draft reading of the new federal Tax
Code and has put off discussion of the draft 1998 budget until early
had already been offered the job, in August 1996, following
Yeltsin's re-election as President, but turned down the offer when
Prime Minister Chernomyrdin reportedly refused to sack corrupt
officials from the ministry.
Zadornov is generally valued as a good signing to handle the
government's argument with the Duma on monetary policy and fiscal
matters, his appointment is seen primarily as restoring
Chernomyrdin's leverage over the White House. Zadornov is rumoured
to have taken the job on condition that he would report to the more
conservative Chernomyrdin rather than his liberal deputy Chubais.
also supported in parliament Yabloko's criticism of the draft Tax
Code, which the government hoped would reduce pressure on the
economy and lead to economic growth. Although he has formally quit
the party, it is not clear whether Zadornov would unequivocally
support the proposed tax changes.
a leader of parliament's conciliation commission that worked on the
draft budget for 1998, Zadornov is also known to have endorsed a
proposal from deputies to add RR 27 trillion (US$ 4.6 billion) to
the government's draft, which could lead to a rise in existing tax
rates, or the introduction of new taxes
warned that slackening of the government's spending policy could
undermine Russia's efforts to climb out of crisis. "In a bad
scenario, if the budget is not fixed, Russia could lose its
stability in terms of exchange policy and stock market rates,"
said Simon Johnson of the Russian-European Centre for Economic
analysts agree Zadornov is a dark horse in the government, the new
energy minister, Kiriyenko, indicated at his installation ceremony
that he would follow up the course laid down by forerunner and close
voiced support for Nemtsov's policy of attracting foreign investment
in the Russian energy sector through open and fair privatisation of
the state oil holding Rosneft and indicated Moscow was keen to keep
its grip on the Azeri oil. The new energy minister also signalled
his support for reducing the tax burden on the oil and gas sector to
make the industry competitive.
1. BP buys 10% stake in Sidanco
British Petroleum has acquired 10% stake in Russia's sixth largest
oil company, Sidanco. The purchase from Russia's Uneximbank,
Sidanco's majority shareholder, was completed in mid-November.
Sidanco purchase, worth US$ 571 million, would be BP's first major
investment in Russian crude oil operations. BP has already moved
into the downstream side of the business by setting up filling
stations in Russia.
with 10% of Sidanco's shares, BP gets one seat on the board and 20%
of the voting rights. BP committed an additional US$ 172 million
investment in Sidanco's projects. BP plans an involvement in
developing East Siberia's Kovyktinskoye gas field, operated by Rusia
Petroleum, which is in turn 34% owned by Sidanco.
has been negotiating the agreement for several months. A BP official
said that the Kovyktinskoye gas field was one of the major goals of
the deal. "It will be the first big upstream project BP
operates in Russia," he said.
Gazprom secures a US$ 3 billion loan
Gazprom has signed a US$ 3 billion eight-year financing deal with
banks Credit Lyonnais and Dresdner Kleinwort Benson, and a group of
12 co-arrangers. The deal includes a three year grace period, while
the repayment rate was fixed at six-month LIBOR+1.75%.
loan was secured against the receivables from an existing gas supply
contract between Gazprom, Gaz de France and Neste subsidiary Gasum
OY.Gazprom's president, Rem Vyakhirev, said the loan was
oversubscribed by US$ 1.6 billion, which lead banks to subscribe for
US$ 313 million each, instead of the US$ 600 million initially
agreed. The 12 co-arrangers signed for US$ 210 million instead of
the originally planned US$ 300 million.
to Vyakhirev, Gazprom was unable to find the money at home, because
domestic banks were able to supply only around US$ 400 million in
loans.Among the subscribing banks are Banco Santander, Bankers
Trust, Bayerische Hypotekenund Wechsel-Bank and its partner
Bayerische Vereinsbank, Bayerische Landesbank, Citybank,
Commertzbank, Deutsche Bank, IMI, ING, Kreditanstalt fur
Wiederaufbau and Societe Generale.
to Gazprom, part of the US$ 3 billion will replace a bridging loan
of US$ 1.2 billion arranged by Credit Lyonnais and Dresdner Bank in
June. The balance will help to finance a 4,000 km trunk gas pipeline
that would link Gazprom's vast reserves in Yamal peninsula in
Russia's Far North, with Europe.
said earlier that the total cost of the project was estimated at
between US$ 24 and US$ 40 billion. When construction is completed in
2007, Gazprom will be able to boost its production for export by an
annual 67 billion cubic metres.
AIOC approves preliminary 1998 budget
Azerbaijan International Operating Company (AIOC), the international
consortium that develops Azerbaijan's offshore Caspian oil fields,
has approved its preliminary 1998 budget, which is expected to total
US$ 207 million, said SOCAR vice president Akhmed Zeinalov.
to the budget, AIOC's capital investment next year would amount to
US$ 82.3 million, and US$ 124.9 million would be invested in the
company's operating programme. Zeinalov said the 1998 programme
included drilling nine oil wells in the Chirag field.
construction of Georgia's pipeline, which is to be used for Azeri
crude exports, has not been included in the programme. It includes
only the contractor's preparatory works in the field," said
CPC delays 1998 budget vote
Caspian Pipeline Consortium (CPC) has decided to consider its 1998
budget on 17-18 December, rather than at the shareholders' meeting
held on 4-5 November, a consortium official said. Meanwhile,
shareholders approved a US$ 25.8 million budget for the final
quarter of 1997.
official said disagreements among CPC's shareholders over the level
of the budget had prevented them from approving the 1998 allocation,
which is expected to total around US$ 600 million. The official also
said that in 1998 the Russian government's stake in CPC was likely
to remain in trust with Deputy Minister of Fuel and Energy Viktor
is to build a US$ 2.5 billion pipeline from West Kazakhstan's Tengiz
oil field to Russia's Black Sea port of Novorossiisk. The
consortium's shareholders include Russia with 24%, Kazakhstan with
19%, Oman with 7%, Chevron with 15%, the Russian-US joint venture
LukArco with 12.5%, Mobil with 7.5%, an alliance of Russia's Rosneft
with Shell, 7.5%, Agip with 2%, British Gas with 2%, Oryx of the US
with 1.75%, and Kazakhoil and Amoco's joint venture with 1.75%.
LUKoil launches syndicated loan
Chase Investment Bank is inviting banks to commit as co-arrangers to
the US$ 100 million debut syndicated loan facility for Russian oil
producer LUKoil. LUKoil has guaranteed the facility and is using its
domestic funding affiliate Bank Imperial as the borrowing entity.
The 364-day term loan is priced at 270 basis points (bps) over LIBOR.
Co-arrangers are being invited to commit US$ 10 million apiece and
are being offered a flat fee of 50 bps.
is expected to be completed at the co-arranging stage and therefore
the deal is unlikely to be launched into general syndication. The
transaction is only the third unsecured loan to be arranged for a
Russian corporate to date.
May the European Bank for Reconstruction and Development co-financed
a US$ 300 million loan for Gazprom, US$ 200 million of which was
syndicated to commercial banks. That three-and-a-half year facility
was priced at 300 bps over LIBOR.
1. Russia grants Chechnya extra oil export quota
Russia's Ministry of Fuel and Energy has granted an extra,
34,000-tonne oil quota to the break-away republic of Chechnya to be
applied by the end of 1997, a senior official at the ministry said.
official said that Chechnya now was allowed to export 68,000 tonnes
of oil by the end of 1997 via Novorossiisk. A source at Russia's
pipeline monopoly, Transneft, said Chechnya might have difficulties
exporting oil through the Russian customs because the quota was
given to Chechnya's Yunko company, which was earlier dissolved by
Chechnya's president Aslan Maskhadov.
should appoint Yunko's successor to avoid problems with customs and
delays in crude export," the Transneft official said. Despite
possible problems with customs Yunko said it was optimistic that
Chechnya's new oil transportation company would be in charge of all
Chechen oil exports.
Sibneft boosts reserves, reports first half profit
Sibneft's first half net profit totalled US$ 13.7 million in
accordance with US Generally Accepted Accounting Principles, the
company said. Sibneft's total revenues were US$ 1.5 billion for the
half-year to 30 June.
company's total assets amounted to US$ 7.9 billion in the same
period. The company also said that its oil reserves were updated on
15 September to 4.11 billion barrels, 100 million barrels up on
April. The data came from Miller & Lents which recently carried
out an audit of the company's oil reserves.
main oil producing subsidiary, Noyabrskneftegaz, produced 10.5
million tonnes of oil in H1 1997, while another Sibneft subsidiary,
Omsk refinery, processed 7.5 million tonnes of oil during the six
months. Sibneft said the figures compared with oil production of
18.6 million tonnes for the 1996 fiscal year and a refining
throughput of 15.6 million tonnes.
said audited GAAP accounts showed it made a net loss of US$ 2.35
million for the whole of 1996, compared to a net loss of US$ 206.70
million in 1995, expressed in unaudited GAAP accounts.
Texaco set to explore KazakhOil venture
Texaco said it agreed to pursue establishment of a joint upstream
development company in Kazakhstan with KazakhOil, the state oil and
gas company. Texaco said the agreement was reached during Kazakhstan
President Nursultan Nazarbayev's visit to the US where bilateral
agreements were signed between the two governments, along with
agreements with industry to develop Kazakhstan's vast oil and gas
the proposed agreement, the new company would hold selected upstream
assets in Kazakhstan and provide KazakhOil with the opportunity to
participate with Texaco in selected international exploration and
agreement to jointly consider the establishment of an alliance with
KazakhOil represents a significant advancement in our strategy to
build a strong operational presence in the Caspian Region,"
said Texaco's chief executive, Peter Bijur. "Texaco would
consider a substantial equity position in this proposed venture in
addition to providing technology and management expertise.
Russian crude output up in October
Russian crude oil production totalled 26.1 million tonnes in
October, up 0.9 million tonnes on the previous month, according to
preliminary data received from Russia's Ministry of Fuel and Energy.
output increased to 4.5 million tonnes from 4.4 million tonnes and
Yukos' production rose to 3 million tonnes from 2.9 million tonnes
the previous month. Surgutneftegas produced 2.9 million tonnes
following 2.8 million tonnes and Tatneft produced 2.1 million tonnes,
from 2.0 million tonnes.
Oil's production rose to 1.9 million tonnes from 1.7 million tonnes.
Sidanco's production rose to 1.7 million tonnes from 1.6 million
crude production went up to 1.6 million tonnes from 1.5 million
tonnes. The total output of crude produced by other oil companies
rose to a combined 8.4 million tonnes from 8.3 million tonnes.
Azerbaijan oil output to end-October dips
Azerbaijan produced 7.5 million tonnes of oil in January-October
1997, 0.9% down from the same period 1996, an official with the
Azerbaijan State Oil Company, Socar, said.
official said that oil output in October totalled 772,000 tonnes.
Azerbaijan also produced 497.5 million cubic metres of gas in
October. Output from Azerbaijan's offshore Caspian fields amounted
to 6.2 million tonnes in January-October.
Azeris ratify Apsheron contract with Chevron
Azerbaijan parliament has ratified a contract signed August 1
between Azerbaijan State Oil Company, SOCAR and the US Chevron to
develop the Apsheron oil field in the Azeri sector of the Caspian
the contract Chevron is to provide US $4 billion during a 25-year
development period. Chevron which is the operator of the project
holds a 30% stake in the project, Socar 50% and France's Total 20%.
Estimated reserves at the field are 120 million tonnes of oil and
400 billion cubic meters of gas.
1. Gazprom may join Turkmen gas project
Gazprom is likely to be involved in the construction of a gas
pipeline that will run from Turkmenistan to Pakistan across
Afghanistan, if the project's safety is guaranteed, said a spokesman
late October a multinational consortium to build the US$ 2 billion
pipeline was formally set up in Turkmenistan. The spokesman said
Gazprom had preliminary agreements with Turkmenistan on its
participation in the project: "Several years ago we signed a
protocol of intent with TurkmenGazprom, which outlined the basic
principles behind Gazprom's joining the project. The situation has
changed and we need additional guarantees about the project's safety
to start negotiations on our participation," he said.
multinational consortium Gazprom plans to join includes Unocal of
the US, Saudi Arabia's Delta, Japan's Itochu and Inpex, Pakistan's
Crescent Group, South Korea's Hyundai, and Turkmenistan's Ministry
of Oil and Gas.
is likely to sign a new protocol with Turkmenistan once the
project's research is complete and it obtains all the required data
on the pipeline's construction," the Gazprom spokesman said.
Tchary Niyazov, Turkmenistan's ambassador to France, said his
country was studying four other routes to export its gas. These
include: a route through Kazakhstan to markets in the CIS; a link
under the Caspian Sea; a route through Kazakhstan to China and,
eventually, Japan; and a line running through Iran to Turkey and on
early November a spokesman for Turkmenistan's oil and gas ministry
said his country would deliver four billion cubic metres of gas
direct to Iran in 1998 through a new 200-km pipeline linking the two
neighbouring states. The link is to be opened by the Turkmen and
Iranian presidents in mid-December.
Kazakhstan to pay debts to Hungary with gas
Kazakhstan said it would supply Hungary with 900 million cubic
metres of natural gas to settle some of its debts dating back to
Soviet times. After meeting Hungarian President Arpad Goncz in
Almaty, Kazakh President Nursultan Nazarbayev said the debts date
back to the late 1980s and early 1990s, when Hungarian construction
firms worked on the giant Tengiz oil field in Western Kazakhstan.
said the gas could be delivered to Hungarian consumers through
Russian pipelines, but did not say when. In 1992 both countries
agreed that Kazakhstan would clear some of its debts to Hungary by
deliveries of its natural gas, and Nazarbayev said that Hungary was
ready to receive annually more than 1 billion cubic metres of the
1. Azeris ratify PSA deal with Exxon
Azerbaijan's parliament has ratified a production sharing deal with
Exxon to develop the Nakhchivan oil deposit in the Azerbaijan sector
of the Caspian Sea. The contract was signed in August.
parties hold equal equity in the project and, now that the Azeri
parliament has ratified the deal, it becomes valid. Under the
agreement Exxon is to pay a first US$ 10 million tranche of the
production sharing bonus within 30 days. The second tranche,US$ 1
million for each 100 million barrels produced, will be paid if
reserves are proved.
Oil trader wins Vietnam offshore tender
Russian oil trader Zarubezhneft has won an international tender to
develop the 09-3 oil block on Vietnam's southern shelf, the
company's general director, Oleg Popov, said.
to the terms of the tender, the block will be developed under a
production-sharing agreement. Vietnam's oil company, PetroVietnam,
will hold a 50% stake in the project. Zarubezhneft's stake has not
said that Russia and Vietnam would in future probably set up a
consortium including other foreign oil companies. The 09-3 block
borders the contract territory of the Russian-Vietnamese joint
venture VietSovPetro, a company that is operating the White Tiger
and Dragon oil fields on the Vietnamese shelf.
Russian October crude oil exports up
Russian crude oil exports totalled 9.25 million tonnes in October,
up 0.59 million tonnes from 8.66 million tonnes in September,
according to preliminary data received from the Ministry of Fuel and
crude exports under government quotas (mainly by trading companies)
totalled 0.3 million tonnes, compared with 1.14 million tonnes the
previous month. Exports from foreign joint venture operators were
0.9 million tonnes compared with 0.6 million tonnes the previous
from major oil producers totalled 6.97 million tonnes compared with
6.15 million tonnes the previous month. Small oil producers and
Gazprom exported an additional 1.08 million tonnes, up from 0.77
million tonnes the previous month. Exports through the four main
loading ports reached 4.98 tonnes, from 4.8 million tonnes in
oil supplies to Ukraine, Kazakhstan and Belarus in October declined
to 1.86 million tonnes from 1.89 million tonnes in September.
Russia's October oil supplies to Ukraine totalled 0.86 million
tonnes versus 0.77 million tonnes in September.
received 0.99 million tonnes of oil, compared with 0.87 million
tonnes of crude in September. Kazakhstan's oil imports from Russia
were nil, compared with 0.25 million tonnes the previous month.
1. LUKoil gets smart on fuel retail
LUKOil plans to boost its fuel and lubricants sales with the launch
of a joint programme with its strategic partner Imperial bank to
install smart card payment systems at its growing chain of filling
stations in Russia and abroad.
Sharifov, LUKOil's vice president in charge of fuel retailing
operations, said the company planned to introduce the card payment
system, which employs SmartCity off-line authorisation technology,
at most of its outlets by 2003. Private cardholders would enjoy a 3
-7% discount on fuel and lubricants.
also said LUKOil planned to export the technology to the US, where
the company wants to invest US$ 240 million over the next three
years towards building a fuel retail network of 2,000 outlets by
than 100 LUKOil filling stations in eight regions across Russia are
already fitted with SmartCity terminals. The equipment is scheduled
to arrive in Moscow, Kirov and Lithuania by the end of 1997.
separate processing company, LICard, will develop and oversee the
day-to-day operation of the system. The company currently has seven
processing centres across Russia and plans to open new centres in
Moscow, Lithuania, Belarus and Kazakhstan in the near future.
Lezner, head of LICard, said the company would employ smart cards
manufactured by French supplier Gemplus Card International. Card
processing equipment would also come from Gemplus and VeriFone of
the US, Crypto AG of Switzerland and DataCard of the US.
to Sharifov, LUKOil will also introduce smart card payment in a
chain of filling stations the company plans to build on roads
linking Moscow with Azerbaijan's capital, Baku, and with St
fuel retailing programme includes the construction of 320 new
filling stations in Russia by 2000, through an overall investment
estimated at RR 1 trillion.
said that LUKOil increased the proportion of its own fuel and
lubricants sold at its stations by 9.5 % to 93 % of their total
sales in the nine months of this year.
Bashkortostan lures crude suppliers to boost home refiners
Russia's autonomous republic of Bashkortostan is seeking to build a
steady flow of crude to the region to keep its vast oil refining
industry running at full capacity by offering tax privileges to oil
companies and traders that would supply crude to the region's
of Bashkortostan, Murtaza Rakhimov, signed a decree on Nov 11
offering exemptions on taxes levied into regional budget and local
budgets, like the road tax, to companies and traders that would
supply crude to the republic's four refineries - Novo-Ufimsky,
Ufimsky, Ufaneftekhim and Salavatnefteorgsintez - currently running
below their total capacity of over 1m b/d.
Melnichuk, head of Bashkortostan's fuel and energy department, said
crude supplies from Russian oil majors and traders under the
proposed scheme could begin my mid-December. The companies include
LUKOil, Surgutneftegaz, Tyumen Oil Company and Moscow-based fuel
traders Alfa-Eko, Sovinkom, Korus-Trading and MPKA, now part of the
Central Fuel Company.
said Russia's second biggest oil company Yukos was not invited, but
refused to elaborate on the reasons.While the decree stipulates that
only companies resident in Bashkortostan are entitled to tax
benefits, Melnichuk said that the oil majors would be able to bypass
this clause by setting up representative or front companies in the
1. E. Europe makes its case for Azeri exports
As the first oil from Azerbaijan flows to the Russian seaport of
Novorossiisk, more countries are joining the political battles
surrounding the issue of Azeri oil exports to Western markets.
the current Russian route seems to be the most efficient, it is not
necessarily the safest and most reliable. It may also lack
throughput capacity when peak oil production at Azeri fields is
reached in 2004-2007.
Bulgaria and Romania have offered their territories as possible
export routes. In late October Romania's President Emil
Constantinescu said his country was the most reliable route for
bringing oil from the Caspian region to Europe. "Oil is best
sent through routes in countries where conditions are stable,"
officials suggested that tankers could bring oil from the Georgian
port of Poti across the Black Sea to Constanta, where there is a lot
of unused port capacity. Bulgaria's Minister for Foreign Affairs,
Nadezhda Mikhailova, discussed the issue with Azerbaijan's President
Geidar Aliyev when she visited Baku in November.
said Bulgaria wanted to join the existing trilateral agreement on
Azeri crude transit between Azerbaijan, Georgia and Ukraine. She
said that the new, Western-orientated Bulgarian government was also
looking for alternative ways of importing crude. At present Bulgaria
imports its crude from Russia.
said Bulgaria's Black Sea port at Burgas was likely to be used for
loading Caspian crude. "The US and Japan agreed to finance the
terminal's renovation and upgrading," she said. Meanwhile a
spokesman for Azerbaijan's State Oil Company, SOCAR, said that
Azerbaijan would hold negotiations with all countries that suggested
Azeri officials had indicated that the government was seriously
considering two routes - the Russian and Turkish links. US Energy
Secretary Frederico Pena, who visited the celebrations in Azerbaijan
when early oil started to flow in November, said the US would back
construction of an oil export pipeline from Azerbaijan to Turkey's
Mediterranean port of Ceyhan. Pena also said that the US would back
the construction of a pipeline crossing Armenia, which is in
conflict with Azerbaijan over the Nagorno-Karabakh territory.
pipeline from Azerbaijan to Turkey via Armenia may be the most
efficient export route for Caspian crude if the conflict between
Azerbaijan and Armenia is resolved," Pena said.
officials said Azerbaijan should not be pressured politically but
should chose the most economically sound and profitable export
route. In November Russian Prime Minister Viktor Chernomyrdin said
that the pipeline from Azerbaijan to Novorossiisk was the most
efficient export route for delivering peak crude volumes from
Caspian offshore oil fields
markets & trading
1. Parliament slaps tax on fuel imports
Russia's lower house of parliament, the State Duma, has approved the
first reading of a draft bill that slaps a 25% tax on all fuel and
lubricant imports.The tax is the latest stage of a government
campaign announced by Prime Minister Viktor Chernomyrdin to protect
the domestic refining industry against cheap imported petrol,
primarily high octane RON 95 fuel.
to the State Customs Committee, Russia last year imported 1.3
million tonnes of petrol, against 6.6 million tonnes produced by
domestic companies. Private fuel traders warned that the new tax, if
it comes into force, will lead to higher retail prices, which have
already climbed by 10-15% this year.
Auctions & Tenders
1. Russian majors look to the West as contest for Rosneft
sell-off heats up
The Royal Dutch/Shell group, Russian gas giant Gazprom and oil
leader LUKOil have joined forces to take part in next year's
privatisation of the last remaining lucrative piece of property in
the energy sector, the state-owned oil holding Rosneft.
president, Rem Vyakhirev, said the alliance was set up to offset
another powerful coalition in the struggle for Rosneft - the
alliance between BP and Russia's fourth biggest oil company, Sidanko
which is in turn controlled by financial heavyweight Uneximbank.
Uneximbank guys are quite serious about buying Rosneft, so we are
going to work on that," said Vyakhirev. "We will buy all
the shares they put into the auction." BP and Sidanko announced
in November the launch of their strategic alliance over the planned
Rosneft sell-off. The agreement was sealed in London by BP president
John Brown and Uneximbank's head, Vladimir Potanin, in the presence
of British Prime Minister Tony Blair and Russian First Deputy Prime
Minister Anatoly Chubais. Under the terms of the deal, BP pledged to
buy a 10% stake in Sidanko for US$ 571 million until the end of this
will also take a seat on Sidanko's board and is expected to have
some leverage - naming new executives, for instance - in the
day-to-day running of the company. The involvement of foreign majors
in the Rosneft sale became possible when President Boris Yeltsin
signed a decree in early November that lifts an earlier, 1992 ruling
that prohibited non-residents from owing more than 15% of Russian
is at the heart of bitter rivalry between Russian financial tycoons
Boris Berezovsky, owner of mini-major Sibneft, and Uneximbank's
Potanin, both of them looking to expand their business empires.
needs Rosneft to be able to recapture a jewel oil producer,
Purneftegaz, after Sidanko formally surrendered the former Sidanko
subsidiary in court in early November, following two years of bitter
disputes to wrestle it from Rosneft.
the original privatisation plan approved by the Russian government,
1.6% of the preferred shares in Rosneft should be distributed free
among company employees until the end of this year. A 0.48% stake of
ordinary shares will also be distributed to employees free before
company's management will receive a 1.67% stake based on ordinary
shares before the end of 1997. A specialised cash auction for 63% of
the ordinary shares in the company has been delayed until a date to
be announced in 1998. The remaining 33.25% of the company's ordinary
shares will be sold at a commercial tender, also to take place in
to Vyakhirev, Gazprom also stands to gain from its alliance with
Shell by winning access to foreign markets and to expert advice on
how to run Rosneft. "The alliance will serve the interests of
the entire country, not just Gazprom's," he said.
first fruits of the Shell-Gazprom alliance will be development of
the Zapolyarnoye gas and gas condensate field in Western Siberia.
Production is due to start in 2003. The partners are also
highlighting future deals that would feature development of the
Asian gas market, including a transportation project involving
is a framework agreement in place between Turkey and Gazprom to lay
a 360 km pipeline under the Black Sea to supply Russian natural gas.
The pipeline would run at depths of up to 2 km from Tuapse on
Russia's Black Sea coast to Samsun on the Turkish shore, and could
carry an annual 8 billion cubuc metres (bcm) of natural gas by 2000,
rising to 16 bcm by 2003.
is also an important factor in the BP-Sidanko coalition. Sidanko now
owns a controlling stake in a regional gas company, Russiya
Petroleum, which hold an exploration license for the Kovykta field
has pledged to supply an annual 25 bcm of natural gas to its
neighbour China under a deal signed between the Russian Ministry of
Fuel and Energy and the Chinese Petroleum Corporation.
project, worth an estimated US$ 5-7 billion, includes construction
of a gas trunk pipeline with an annual capacity of up to 30 bcm that
will carry the fuel from the Kovyktino gas field in Western Siberia
to China via Mongolia. The contract was signed at the end of June
during a visit to China by a Russian delegation headed by Prime
Minister Viktor Chernomyrdin.
gas field in Irkutsk region is estimated to hold approximately one
trillion cubic metres of gas and condensate. The initial stages of
the project are expected to cost some US$ 750 million and a total of
US$ 480 million has been invested in the exploration of Kovyktino
gas deposit this year. BP has plans to invest US$ 172 million in
exploration of the field.
part of its agreement, Shell pledged itself to invest in Gazprom's
forthcoming issue of convertible bonds. Gazprom had decided to delay
issuing a US$ 1 billion convertible bond in November, but claimed
this was unrelated to a threat of sanctions by the US over the
company's role in an Iranian gas project. Instead, Gazprom said, the
bond issue was postponed until the first quarter of next year when
the stock market is expected to stabilise.
the 1996 Iran-Libya Sanctions Act, US can punish companies that
invest more than US$ 20 million in Iran's energy industry. Gazprom
is a member of a US$ 2 billion international consortium, headed by
France's Total, which aims to develop the Southern Pars gas field in
the Iranian sector of the Persian Gulf.
field's reserves are around 8000 bcm of natural gas. The third
member of the consortium is Malaysia's oil and gas corporation,
Petronas. Total has a 40% stake in the venture, and Gazprom and
Petronas hold 30% each.
officials have been reportedly contemplating sanctions against the
company's plans for the US$ 1 billion convertible bond issue and
against its American underwriter, Goldman Sachs.
Gazprom insisted the decision to put off the bonds issue was a
result mainly of a slide of more than 30% on the Russian stock
market, most analysts agreed the delay probably eased wider
anxieties in Washington.
involvement in Iran is putting US diplomacy to the test. How far is
the White House prepared to go to punish European or Russian
companies? The US Congress has already started hearings on how it
could punish Goldman Sachs for non-compliance and is also rumoured
to have recommended that EximBank should put on hold any credits to
former Minister of Fuel and Energy, Boris Nemtsov, who recently met
Iranian oil minister Bijan Namdar Zanganeh in Moscow, said Russia
would defend Gazprom's interests in developing Tehran's vast oil and
gas reserves. Nemtsov also predicted a greater involvement of
Russian oil companies in Iranian energy deals following Gazprom's
swift move into the region.
Russia cuts short privatisation campaign
Russia's giant privatisation campaign ground to a halt in late
November when officials called off two major auctions within a week,
so endangering the government's hopes of meeting its budget targets
with their proceeds.
24 November the Federal Property Fund cancelled the commercial
tender for a 34% stake in Eastern Oil Company (VNK) when one of the
bidders withdrew. This setback came less than a week after a cash
auction for a 48.68% stake in Tyumen Oil (TNK) was suspended.
fund said it cancelled the VNK tender because a company affiliated
with Inkombank withdrew its bid. That left only one contender in the
running, a group representing the Menatep banking group and its
industrial affiliate, Rosprom-Yukos. Under Russian law, there must
be at least two bidders in the tender. The next round of the VNK
sale can not now take place before next February.
which reportedly approached a consortium of Western banks to collect
the US$ 1 billion it needed for the auction, said it was upset by
the decision and would challenge it in court. Rosprom's chairman,
Mikhail Khodorkovsky, said the company could also challenge an
earlier auction for 50% minus one share in VNK, in which it also
auction, which closed earlier in November, attracted total bids
worth RR12.66 trillion (US$ 2.13 billion), said the Federal Property
Fund. The fund received a total of 3,741 bids from individuals and
companies, and its results, which could produce several winners,
will be announced by 5 December.
bidding in both rounds of the VNK sale was limited to 15% ownership
of the company. This is because the oil company was scheduled for
privatisation before 4 November when President Boris Yeltsin signed
a decree lifting the 15% limit on foreigners in future auctions,
Rosneft's for instance.
whose only production unit is Tomskneft, said earlier that its crude
output for the first half of this year was 111,960 barrels per day.
Its crude production target for the whole of 1997 was set at 224,000
barrels per day.
& energy minister Sergei Kiriyenko said the delay in TNK's
auction arose from a legal complaint filed by one of the bidders,
which claimed that the property fund had illegally turned down its
application to take part.
company, identified as Treffold, was reportedly backed by TNK's
dissident subsidiary, Nizhnevartovskneftegaz, and its director
Viktor Pali, who claims the July auction for a 40% stake in the oil
holding was rigged in favour of the bank, with the help of senior
privatisation officials. TNK produced 21.3 million tonnes of crude
CIS Oil & Gas Report went to press, the Federal Property Fund
announced that there would be a new investment tender for 34% of
Eastern Oil on January 20 . Bids will be accepted until 15 January,
and deposits also will be accepted until the same date. All other
conditions are the same as in the postponed auction. Meanwhile,
further details of the bid fiasco surrounding the sell-off emerged.
only bid came from a company called Opus, which represents the
interests of the Rosprom-Yukos group, while the other potential
bidder, Inkombank, reportedly failed to transfer the required sum to
support its bid. The envelope with the bid from Opus was not opened
and the offered sum remains unknown. The results of the auction
would have been televised live for the first time.
Norsi Oil public offering opens
Russia's State Property Fund has opened a public offering for a
14.9% state stake in Norsi Oil. A fund official said the issue price
is set at RR 3,140 per share for 89,245,040 shares, or a total of
US$ 45.5 million.
official said bids would be accepted between 5 November and 19
December. It is not clear whether there will be restrictions on
foreign bidding in the special cash auction which divides the stake
among a number of bidders and has no investment requirements. The
results of the auction are likely to be announced on 16 January.
Govt begins Slavneft privatisation
The first stage in the privatisation of Russian-Belarussian oil
company Slavneft saw a 2.14% stake in the company sold at a special
cash auction for US$ 0.38 per share - a four-fold increase on the
original starting price.A total 2.17% stake in the company was put
up for sale at the auction.
Russian Federal Property Fund will now sell a further 19.68% stake
in Slavneft in an investment tender, which started on 12 November
and closes for bids on 17 December. The starting price for the
19.68% share package is RR 1.993 trillion (US$ 337 million). The
successful buyers will be required to invest a further RR 540
billion in the company.
rounds of Slavneft's privatisation are open to full foreign
participation.Slavneft, whose main production unit is Megionneftegaz,
produced 248,000 barrels of oil per day in the first half of 1997,
down 5% on the equivalent figure for 1996.
Nemtsov calms fears on Rosneft sale
Russia's First Deputy Prime Minister Boris Nemtsov promised that the
privatisation of Rosneft oil company will go ahead as planned
despite setbacks. He said that the government will do its best to
ensure that the declared auctions for the sale of shares in Rosneft
would take place in the near future.
that the recent tender to sell shares in the Eastern Oil Company had
to be cancelled because there was only one bid, he said a new
auction would nonetheless be held soon. Regarding the Tyumen Oil
Company, he said a number of arbitration disputes had arisen which
were preventing large scale capital from being attracted. Nemtsov
said it was crucial to go ahead with privatisation if the state was
to meet its wage obligations. "Without attracting money via the
sale of stock in Russian companies, we will not cope with the task
of repaying overdue debts to employees of budget-financed
organisations which has been set by the President," Nemtsov