Continued tribulations for Russneft

Putin and Deripaska in 2006 - From Kremlin.ru Despite news of the sale of Russneft to Oleg Deripaska’s Basic Element, Mikhail Gutseriyev’s embattled oil company is facing increasing difficulties from state regulators.

On Wednesday last week, a Russian court froze Russneft’s assets and claimed 100% of the company’s shares in light of the pending criminal investigation into Gutseriyev’s economic history. Then on Friday, a Moscow arbitration court ruled to uphold a $670 million tax evasion lawsuit against the company. As a result, Russneft’s aggregate debt has risen to over 20 billion rubles ($785 million). Russneft also still owes its creditors–including the Swiss trading firm Glencore–about $3 billion in loans.

The market value of Russneft is estimated to be between $6 and $9 billion, and money to repay the tax suit and associated fines could likely be found. However, the effect of this continued economic beating on the company will likely sour Deripaska’s enthusiasm over taking control of the oil company. There has been no word suggesting Deripaska will pull out of the deal to buy Russneft, however, approval of which is pending before the Federal Anti-Monopoly Agency.

Gutseriyev announced his resignation following news of Russneft’s sale, and, in a letter briefly posted on his company website, went on to condemn the manner in which he left. Gutseriyev claimed essentially to have been forced out following a series of coordinated attacks through the use of state regulators and officials. He later withdrew his comments, saying that the decision to sell and for him to leave was a normal procedure approved by the company’s board after careful deliberation.

It was expected that the attacks on Russneft would quiet once Gutseriyev left the scene. However, the incendiary letter (despite the hasty retraction) may very well have prolonged the company’s travails, while seriously denting the price he may get for the company.

The events also suggest that more than one faction is involved in the process, each with slightly different aims. One faction likely had a personal issue with Gutseriyev and wanted him out, another may be coveting his oil assets, and still another (represented by Deripaska himself) is seeking to further cement its place within the Kremlin, Inc hierarchy (that is, the network formed between the Russian government, political leadership, key business figures, and strategic economic sectors).

From “Russia Profile:”

All Russian media, including Kremlin-loyal outlets covering the affair confirm that a group of siloviki (high-placed officials affiliated with security services and police with a hand in business) had a role to play in Gutseriyev’s removal. It should be noted that the news of the stock-freezing came at the moment when Gutseriyev was finalizing the sale of Russneft to Oleg Deripaska, owner of the Basic Element conglomerate, and one of Russia’s richest men.

Russian business and information daily Vremya Novostei, citing sources inside Russneft, claims that the arrest of Russneft’s stock could be an action of a “third party,“ which, unlike Deripaska and Gutseriyev, “strives to transfer the property of Russneft to the state.” This third party, in the Russian newspaper’s opinion, is acting in the interests of Russia’s biggest state-owned oil major Rosneft, as well as in the interests of those behind the destruction of YUKOS.

Analyzing the situation, Moscow-based Vremya Novostei points to the fact that Russneft can be bought by Deripaska only when the court lifts the freeze on the company’s shares. The court can only do so when Russneft’s new owner pays for the unlicensed extraction of oil in Ulyanovsk. If the state does receive due compensation for the over-extraction, it can renationalize Russneft’s shares. This seems to be the scenario most preferable to the siloviki.

This obviously would not be the preferable route for Deripaska, nor what he was expecting when he agreed to pursue Russneft, a decision which likely required the Kremlin’s approval (or was perhaps done at the Kremlin’s request).

In an article in the Novaya Gazeta (site currently down, article accessed from the JRL) from August 13th, Yulia Latynina labels Deripaska as a “white knight” from the annals of Russian folklore:

A white knight, Russia-style, is the person who helps you fight off your enemies, then takes away whatever the enemies were trying to take away from you. Deripaska has also acted as an intermediary: his interview with the Financial Times, where he said he is prepared to give all his assets to the state, came out just as the Russneft negotiations were at their height — and this comment appeared to be about Russneft.

She also adds a further rationale behind the attack on Gutseriyev (beyond the oft-quoted unapproved pursuit of Yukos assets):

Gutseriev is an ethnic Ingush; and president Murat Zyazikov of Ingushetia, whose region is being swept by a wave of bombings, needs to come up with some sort of explanation to present to the Kremlin. There are only two possible explanations: either Zyazikov has completely lost control over Ingushetia – or Ingushetia is peaceful and prosperous, but Gutseriev is funding terrorists. The latter explanation is more convenient.

While it’s currently unclear exactly who is driving what, the resolution of this conflict with Russneft and Gutseriyev should give outside observers a better idea about the power struggles and relative weights of potentially competing Kremlin factions. This understanding, of course, comes at a rather high price–especially for Gutseriyev, whose future remains unclear.

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3 responses to “Continued tribulations for Russneft

  1. Pingback: Kremlin, Inc » Deripaska expands his energy interests

  2. Pingback: Kremlin, Inc » Warrant out for Gutseriev, who has fled

  3. Pingback: Kremlin, Inc » Russneft Update — Glencore joins Deripaska in the fray

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