- WASHINGTON (UPI) -- Just
nine years ago, the Russian state sold off half of its most-productive
Siberian oil operation for a paltry $100 million, a fire-sale price because
President Boris Yeltsin had to reward Russia's new capitalist tycoons for
the campaign funds and media time he so desperately needed to get re-elected.
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- On Wednesday in Moscow, the state bought it back for
$13 billion more than Yeltsin's Russia had received. The state-owned Gazprom
agreed to pay $13.1 billion for the 72.7 percent of Sibneft owned by Roman
Abramovitch, the soccer-loving Russian tycoon who lives in Britain and
also owns London's Chelsea Football club.
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- For Russia, this was the biggest takeover deal in its
history. For Abramovitch, it may have been the biggest return on investment
of all time -- his precise profit is not clear, because mystery still shrouds
the price he paid to the exiled tycoon Boris Berezovsky, the man who bought
the core of what became the Sibneft group and the man who orchestrated
Yeltsin's re-election.
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- But the difference between the $100 million of 1996 and
this week's $13.1 billion price reflects not only the absurdly low price
of the original sale in 1996, but also the soaring current price of oil.
Above all, from the Kremlin's point of view, it demonstrates the success
of Yeltsin's successor, President Vladimir Putin, in stabilizing Russia's
economy, its currency and its body politic. Russian energy assets, and
its industrial and managerial ability to exploit them, all look much more
reliable in Putin's Russia than they ever did in Yeltsin's day.
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- And for Putin, it represented a decisive strategic achievement,
the moment when the plundered Russian state was able fully to reassert
its authority over the country's richest natural assets, its energy supplies.
State-owned Gazprom controls Russia's natural gas resources and boasts
the world's largest gas reserves; with the Sibneft deal, the Russian state
now owns a third of the oil currently being pumped from Russian soil, and
a sizeable share of its refining capacity. Adding the oil and gas together,
and throwing in the state-owned Rosneft, the Kremlin now owns 57.4 percent
of Russian's energy sector, according to figures released by the Moscow-based
Novosti agency.
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- Last year, Russia's was the world's second-leading oil
producer, with an average 9.3 million barrels of oil a day, close behind
Saudi Arabia's 10.6 million barrels a day. But there is plenty more where
that came from. Sibneft lists its own oil reserves at 6 billion. On paper,
and without allowing for extraction costs and assuming it could all be
recovered and sold, these reserves are worth around $350 billion at current
prices. In reality, even Exxon's reserves are valued by the markets at
a much more modest $20 a barrel, and Siberian oil assets tend to get a
valuation of less than half that. Even so, for Abramovitch and the other
Sibneft shareholders, Sibneft has been a license to print money -- the
company paid more than over $2 billion in dividends last year.
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- Moreover, Sibneft pumped just a fraction less than a
million barrels a day on average last year. Given Russian extraction costs,
that means Sibneft should bring in the Kremlin something between $10 billion
and $12 billion a year, which means the purchase price should be recovered
by the end of next year -- if oil prices stay where they are. Although
there is some grumbling in Moscow that Gazprom is overpaying, the Russian
state is regaining a strategic asset and building a mega-sized energy group
that can compete directly with the giants like Exxon, Shell and BP.
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- This suggests that Alexei Miller, Putin's aide back in
St. Petersburg who now runs Gazprom, is on track to deliver on his promise
in June to shareholders to turn Gazprom into the world's top energy supplier,
a dominant force in oil and gas, in refining and in electricity. Miller's
main shareholder, of course, is now the Russian state. Back in June, the
Kremlin paid $6 billion to increase its stake in Gazprom from 38 percent
to 51 percent, which implied a total price tag for Gazprom of some $42
billion. That is far, far less than most Western energy market analysts
would value the company, but then market rules hardly apply when foreigners
are not allowed to buy Gazprom shares on the Russian market, but may only
buy U.S.-based depositary receipts. And foreign participation in Gazprom
is limited to a maximum 20 percent.
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- Still, the fact the Russian state is paying a serious
market price is of real symbolic importance. Putin's Kremlin has not always
played by the rules and simply bought its way to control of Russian energy
supplies. But the Putin administration has evidently now judged there was
a price to pay for a raw display of state power, after what the European
Parliament condemned as the politically inspired and cynical looting of
the Yukos oil empire with the arrest of the tycoon Mikhail Khodorkovsky
and the demand for $28 billions in back taxes.
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- Abramovitch has not been similarly expropriated. He has
been bought out, and Sibneft is changing hands in the kind of way that
Western markets and stock exchanges understand. It still signals the end
of an era for Russian capitalism, the passing of the oligarchs, but in
a far-less worrying way for international investors and ambitious young
Russian entrepreneurs. The world's biggest single agglomeration of energy
power is back in the hands of the Kremlin, but at least they are now rich
enough, self-confident enough, and thoughtful enough to see that it makes
sense in the long run to pay for control of Russia's assets rather than
just steal them back.
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