Category Archives: Deripaska

Integrum Update

Two weeks and five emails later:

Dear Hans,

In order to answer you question I had to make a very deep research within the company and the answer is no – we haven’t any connections with them [Integrum Technologies].
Please find all information about our businesses at our web-site – www.enplus.ru

Kind Regards,

Andrey [redacted]

Far from case closed, but at least some closure from that front

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FAS mum on Deripaska’s bid for Russneft as the oil firm prepares for leadership shakeups

Still no word on the sale of Russneft to Deripaska - From russneft.ru Russia’s Federal Anti-Monopoly Service (FAS) was expected to rule on Oleg Deripaska’s bid to buy the oil company Russneft by the end of November, but there is yet to be a word on their decision. The FAS had previously taken a one-week extension, allegedly due to changes in case examination procedure, but that deadline has also passed. They are now choosing to remain mum.

Rulings on two tax evasion suits filed against the oil company by Russia’s tax service, following the predominant trend, were also delayed.

Meanwhile, snap elections have been called for the boards of directors of five main Russneft subsidiaries. They are scheduled for late January through early February at the Varyerganneft, Saratovneftegaz, Orsknefteorrgsintez, Neftermaslozavod and Orenburgnefteprodukt subsidiaries. None of the five are those cited last month as having breached the terms of their resource licenses; investigations into those violations are currently underway.

A source within the company told Kommersant that two vice-presidents had also been recently replaced with Oleg Schegolev and Igor Marchenko, both former members of management at the natural gas firm Itera. Rumored to have been axed are Dimitry Romanov (vice president for corporate relations) and Olga Prozorovskaya (senior vice president for finances), both of whom shared seats on a majority of subsidiaries’ boards with embattled former Russneft head Mikhail Gutseriev. Another vice president, Sergei Bakhir, left for vacation and has not returned, theoretically opening his position for a management shift. He is facing a criminal charge along with Gutseriev, who is currently on the run from Russian authorities.

These leadership changes are seen as the first steps in preparing the company for inclusion under Oleg Deripaska’s holding company, Basic Element. The expectation seems to be that the FAS will have ruled before the scheduled votes for the boards of director, allowing Deripaska to insert his own management team into the boards’ makeup once his firm takes control.

Gutseriev's whereabouts are still a mystery - From russneft.ruSpeaking of Gutseriev, according to the British ambassador to Russia, he has not applied to England for asylum, nor are his whereabouts known by Interpol. He apparently used his connections in Belarus — stemming from a $90 million investment in the RussNeft-Bryansk oil firm there, 25% of which he then gifted to Lukashenko’s government — to escape from Russia. His final destination has been suggested as Switzerland (cited because of his close ties to Glencore, though I would imagine he would have had more dealings with the commodity trader’s London offices) or somewhere in the Middle East (referring to his Muslim faith and connections to the oil sphere). For now, though, it remains a mystery.

Russneft FAS ruling delayed a week, while decision by tax courts will come in “early 2008″

Still awaiting the fate of Russian oil company Russneft -- From russneft.ruDespite the expectation that by November 30th, Russia’s Federal Anti-monopoly Service (FAS) would rule on the applications of Oleg Deripaska’s Basic Element and Swiss-based trading firm Glencore to buy the assets of Russneft, the agency decided to postpone the decision until the next week. Citing a change in methodology which adjusted the time-frame alloted for such applications, this delay also gave the FAS a chance to observe the results of this weekend’s parliamentary election in Russia before making a ruling.

It also would have given the FAS a chance to see how a Moscow arbitration court ruled claims from the Federal Tax Service (FNS) on the seizure of Russneft stock due to tax arrears, but the court also decided to delay a decision. One case is postponed to February 6th with another pushed back to January 23rd. The muddled affair involves numerous defendants associated with various Russneft subsidiaries.

The State Property Management Agency is also involved in order to ensure that the agency will be properly represented in the resolution. However, the property agency’s representative failed to show up for a meeting on December 2nd, leading to the court’s decision to postpone a ruling. Instead, the court is pushing the parties involved to come to a peaceful settlement in these interim two months, though this was presumably already tried in early stages of the case.

The court may be hoping that the FAS’ decision on the sale of the shares along with the country’s “new” political situation following the elections will facilitate a settlement. Typically, the absence of a 3rd party representative has not been enough of a reason for such a delay, suggesting that this is the desire of influential forces.

Russneft ruling coming soon; frustrated Deripaska: “big company, big problems”

In a recent interview, Deripaska classified the situation he’s facing in securing the rights to go ahead and take control of Russneft — Mikhail Gutseriev’s former oil company — as “big company, big problems.” The Federal Anti-Monopoly Service, in a case muddled by tax problems and inter-governmental clashes, is expected to rule on his application to purchase most of Russneft’s assets by November 30th. As was reported earlier, Basic Element is joined by Swiss commodities trader Glencore in seeking Russneft’s assets. It now appears that the two firms are seeking to split the oil company 75%-25% respectively.

Deripaska also laid out his plans for Russneft, specifically how he hopes to concentrate on “the development of oil refining and petrochemical plants,” since the current oil situation in Russia is much more suited to profits from sales of refined products, rather than from crude (as explained by a recent Wall St. Journal article). This environment, combined with the fact that many of Russneft’s oil fields are apparently in decline, makes investing in refining capabilities the logical choice. Estimates for the cost of upgrading Russneft’s refineries stand at around $1 billion, however.

Oleg Deripaska’s attempt to buy Russneft is just one example of how the Russian billionaire is spreading his interests. His airplane unit is linked with Bombardier over a potential deal; his previous expansion into Canada’s auto-parts maker Magna has led to (denied) rumors that he’s interested in Land Rover, Jaguar, or other American auto players; he recently bought a quarter stake in the Austrian construction firm Strabag, with plans to cooperate on Russian infrastructure projects; and he is looking to partner with a Canadian mining company to enter into the gold industry, echoing the planned diversification outside of the aluminum industry for his mining behemoth RusAl. Despite these moves, Deripaska still pledges to stay focused on Russia.

Russneft Update — Glencore joins Deripaska in the fray

After it was leaked earlier this week that a mysterious second bidder had submitted paperwork to acquire parts of Mikhail Gutseriev’s beleaguered Russneft, speculation on the challenge to Oleg Deripaska’s earlier bid centered on Roman Abramovich and Lakshimi Mittal, or state firms like Rosneft and Gazprom. It turns out that the papers were instead filed by Glencore, the Swiss commodities trader that originally cooperated with Gutseriev in the founding of Russneft (and had since continued the relationship). From MSNBC (via FT):

Alexander Temerko, the former Yukos vice-president and a business associate of Mr Gutseriyev, said Glencore’s filing, first made in September, was an attempt by the trader to protect its interests in the company after the bid by Mr Deripaska failed…Glencore helped Mr Gutseriyev found the company in 2000, lending more than $3bn and taking shares and oil as collateral. Mr Temerko said Glencore already held a considerable stake in RussNeft itself, while a banker familiar with the situation said Glencore owns stakes in Russneft’s production units.

The bid Glencore submitted to Russia’s Federal Anti-Monopoly Service was for three of those production units, and appears to be an attempt to keep itself involved in the successful oil venture.

Glencore had previously cooperated with Deripaska in the creation of the world’s largest aluminum firm in 2006, made from a combination of the Deripaska’s Rusal, the Russian company Sual, and Glencore’s aluminum assets. This history together was seen as a potential plus in the efforts of Deripaska to take over the reigns from Gutseriev, after the former chief stepped down under pressure. However, with Deripaska’s bid sidelined by apparently competing factions within the Russian government, Glencore stepped in (supported by its weight in the mining and metals industries) to attempt to regain control of the production units.

However, Glencore is not trying to take over the entire company — these 3 production units only account for about 15% of Russneft’s entire output. Instead, the bid for the firms, which are valued at around $800 million, could be a deal for Glencore to ensure it will recoup some of its outstanding loans. Glencore already controls significant stakes in three other production units stemming from a 2003 deal with Russneft. The Swiss firm also has an exclusive 10 year exporting contract (beginning Jan 1, 2004) for those three subsidiaries.

Deripaska’s bid for the company had stalled, allegedly over incomplete paperwork. Apparently, the additional documents arrived “a few days ago” and are in the process of being investigated. The overall fate of Russneft — including the three units pursued by Glencore — may still be a ways in coming, however.

Deripaska expands his energy interests

Putin and Deripaska in 2006 - From Kremlin.ru Despite running into obstacles in his attempt to acquire Mikhail Gutseriev’s Russneft, Oleg Deripaska is continuing to pursue strategic energy assets. Vedomosti is reporting that Deripaska’s Basic Element is planning on bidding for a stake this fall in the electricity holding TGK-1. Gazprom, Viktor Vekselberg, and the Finnish company Fortum had all previously reported interest in the electricity firm, which powers St. Petersburg and was formed in 2005 from the assets of Lenenergo, Kolenergo, an Karelengro.

TGK-1 is currently controlled by Anatoly Chubais’ UES (of which Deripaska owns about 2%), but the electricity giant has been selling off some of its assets in order to raise money to modernize its aging infrastructure. Earlier this year, Fortum was blocked from gaining control of TGK-1 due to the firm’s strategic role of providing power to St. Petersburg. The Finnish company would likely seek to import some Russian power into Finland, since Finnish electricity rates are higher than Russia’s subsidized prices (and Russian energy sources — natural gas, specifically — are much cheaper than what is available in Finland). It seems Russia may allow Fortum to take part in the upcoming auction, so long as a balancing force could be found.

Gazprom already invested heavily into Mosenergo, the electricity firm that powers Moscow, and has about a 10% stake in UES. The electricity firm relies on natural gas (i.e. Gazprom) for about 70% of its power generation needs, and Gazprom views its investment in UES as a way to coordinate with its largest domestic customer on sales, modernization, and diversification. (Converting power plants to coal frees up more gas for the lucrative export market, for example.)

According to the Vedomosti article, Deripaska has been pursuing power generating assets in areas surrounding his aluminum plants, suggesting he is seeking control over a further extension of his industrial base. Pursuing TGK-1, however, has more strategic–and visceral–reach, due to its importance to St. Petersburg, which is Putin’s city. Some of his top aids in the energy sector were involved in Lenenergo early on, and it is doubtful he’d agree to have the firm passed into unqualified hands.

It will be interesting to see how Deripaska’s attempt to acquire TGK-1 will play out, especially concerning “competition” from Gazprom and Vekselburg (not to mention the foreign Fortum). Deripaska is already seemingly running into problems with Rosneft over the fate of Russneft — it would likely be tough for him to butt heads with Gazprom at the same time. One thing to look out for is whether Deripaska would be willing to cede control over Russneft in order to secure access to TGK-1.

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.