Category Archives: Deripaska

Russneft’s sale

From russneft.ruAs rumored, Oleg Deripaska’s investment firm “Basic Element” will purchase a controlling stake in Russneft, pushing Mikhail Gutseriev out of the successful oil company he cobbled together from various smaller production units since 2002. Gutseriev, however, had recently run afoul of Russian tax regulators, likely stemming from a contentious relationship with a Kremlin higher-up. From Kommersant:

Oleg Deripaska’s Basic Element holding and Mikhail Gutseriev’s Russneft will officially announce the sale-purchase of Russneft today. Gutseriev will receive $3-3.3 billion for leaving one of Russia’s largest oil companies and, it seems, criminal charges against him and the general directors of Russneft subsidiaries will be dropped.

The sale is confirmed by a press release on Russneft’s website (.doc), pursuant to (expected) approval by Russia’s anti-monopoly regulators.

The press release states Gutseriev “temporarily suspends his business activity, resigns from all the business projects and is going to devote himself to scientific activity,” removing himself from the operations of Russneft while leaving his vice president Oleg Gordeyev as acting head of the company, Russia’s seventh largest oil firm.

According to the Kommersant article, Gutseriev made enemies with FSB general Murat Zyazikov while running for a State Duma spot from Ingushetia, the semi-autonomous region where Zyazikov is president. Gutseriev also apparently clashed with Chechyan president Ramzan Kadyrov over Gutseriev’s plan to create a free economic zone within the the conflict-ridden republic . Russneft had also bought assets from Yukos while Khodorkovsky’s company was being shackled by tax evasion accusations, drawing ire from the Kremlin by becoming involved with the black-listed oil firm. Russneft denies directly purchasing (.doc) any of Yukos’ assets, however.

Gutseriev was an ambitious businessman, and his insistence on entering the political sphere and propensity to make powerful enemies, combined with his unwillingness to kowtow to the Kremlin’s unwritten rules governing the behavior of companies within “strategic” sectors, led to his removal from the oil company he almost single-handily constructed.

Deripaska has a more Kremlin-friendly reputation, which will likely lead to a closer adherence to expected behavior within the oil sector. However, it seems that the major concern with the company was not with its overall performance, but rather with the single figure at its top. With Gutseriev gone, operations are expected to continue largely as they had before. However, while under investigation for tax fraud, Russneft’s investment and development operations apparently suffered, likely leading to a necessary influx from Basic Element before production levels can regain–and maintain–their past levels.

Glencore, Gutseriev’s key financing partner while he was acquiring the various facets that would become Russneft, is still owed about $2.5 billion, a debt that will be assumed by Basic Element, along with the nearly $1 billion in possible tax penalties (though the tax charges will likely be dropped, or at least significantly reduced).

Glencore holds the rights to export the oil from Russneft through 2014, and maintains holdings in some of the companies subsidiaries. Glencore has a previous relationship with Deripaska through last year’s giant aluminum merger, which included Deripaska’s Rusal and aluminum assets of Glencore. The Swiss commodities trader allegedly had input on the sale of Russneft to Basic Element, suggesting that the new ownership structure will not unduly affect their relationship with the “new” Russneft. Much of the past cooperation between the two firms, however, was apparently centered on Gutseriev personally, rather than the company as a whole, so some restructuring of the relationship could be expected.

This story is getting far less Western media attention than the Yukos affair, likely because it lacks some of the more flashy elements. Gutseriev is only the 40th richest man in Russia, after all, rather than at the top of the list as Khodorkovsky was. But many of the basic elements between the two stories are similar. Essentially, the business leader was becoming too “political,” and refused to fall into line with the Kremlin. Economic crimes from the past were dredged up and used as a lever to exact some revenge. While there may very well have been some sort of “wrong-doing” on the part of Gutseriev around the creation of Russneft–he was, after all, the former head of Slavneft where many of the new company’s assets derived from–lately, the firm had been strictly following all tax and governmental regulations. Regardless, (and unsurprisingly) those who opposed Gutseriev and his operations were able to find ways to force him out in the end.