YUKOS/Sibneft

A Gift for the President

Roman Abramovich has the government’s blessing to take over the giant oil company.

Yana Galukhina, Maxim Rubchenko

The extraordinary YUKOS shareholders meeting on November 28 was supposed to approve the final decision to unite the two companies, rename YUKOS Yukos-Sibneft, and select a new board of directors to be headed by the current Sibneft president, Evgeni Shvidler. However, during the meeting itself Sibneft unexpectedly announced that the YUKOS-Sibneft merger had been suspended by mutual shareholder agreement. As a result, the majority of shareholders voted against the entire agenda connected with the unification of the two companies.

The next day, the British newspaper The Daily Telegraph wrote that Roman Abramovich, Sibneft’s primary shareholder, refused to merge until Evgeni Shvidler was appointed CEO of the new company, not the current head of YUKOS, Sergei Kukes. According to Abramovich, Alexander Voloshin, the former head of the presidential administration, should be the new chairman of the board. After YUKOS shareholders did not agree to the proposed conditions, Sibneft’s representatives announced that the deal was off.

On the morning of December 1st, Sibneft sent out a press release stating that “the decision to suspend the merger of YUKOS and Sibneft was solely connected to business relations between the two companies” and that “the political situation did not have the slightest effect on this decision.”

However, there is every reason to believe that this conflict is about more than just business.

The surprisingly simultaneous December 2nd attacks on YUKOS by state agencies make it hard to believe Abramovich’s “just business” story. Only someone who sincerely believes in Santa Claus and the incorruptible cop would buy that Duma deputy Yudin, the taxmen, and the Ministry of Natural Resources made announcements creating new problems for YUKOS completely coincidentally right after the announcement of the company’s refusal to reexamine the merger deal.

It seems far more likely that the YUKOS-Sibneft merger, as well as the YUKOS Affair itself, is a link in the chain of Abramovich’s evil scheme to gain control over Russia’s biggest oil company.

This is the perfect time to recall two deals made with Abramovich’s direct participation. The first one involved his acquisition of the controlling stake in Sibneft in 2000. Up to that point, Boris Berezovsky owned 50% of the company. However after Vladimir Putin was elected president and began a campaign of “equidistance” from the oligarchs, a criminal case was initiated against Berezovsky. The only way for Berezovsky to avoid prison was to sell his Sibneft shares to his buddy Roman Abramovich for $1.3 billion. Berezovsky still thinks to this day that the price was too lows. It’s hard not to agree with him, especially if we take into account that the company’s capitalization was estimated at $2.5 billion at that time and that usually the controlling stake is sold at a premium. As Abramovich explained in an interview with Reuters, the YUKOS situation today is the exact repetition of Sibneft sale. Khodorkovsky, just like Berezovsky in his day, was made a deal he couldn’t refuse, and the main reason behind the suspension of the merger deal was that “the directors at YUKOS were not ready to hand over the administration to Abramovich.”

The other major deal that comes to mind in connection with the YUKOS scandal is Abramovich’s purchase of Berezovsky’s controlling stake in the ORT television channel. In January 2001, Berezovsky, who had already left Russia for good, announced he was selling his 49% stake in ORT to a new owner and that “Abramovich will act as middleman in this deal,” as, according to Berezovsky, “the authorities have more faith in him than in me.” In fact, the purchaser of the ORT stock was Runikom, a company belonging to Abramovich. The most interesting development was yet to come, however. Roman Abramovich handed over the ORT shares to the government for a song.

Obviously, the events surrounding YUKOS fit very naturally into the Kremlin’s scheme of “equidistance from the oligarchs” via Roman Abramovich. An oligarch who has fallen out with the Kremlin ends up with Abramovich as a partner and then the criminal case against him begins, with the clear hint that either he hands his assets over to his partner or goes to jail for a good long while. This scheme foresees the next step. The Kremlin will gain full control over companies by appointing its man to their boards of directors. This person has already been appointed: Alexander Voloshin.

“The government simply does not want to see Khodorkovsky’s group as the owners of YUKOS,” says Evgeni Satskov, a senior oil and gas analyst at Metropol IC. “Something similar happened to Berezovsky when the government didn’t want him to own Sibneft, and Berezovsky’s partner, Abramovich, bought Berezovsky’s shares. Now it’s possible that a similar deal is being offered to Khodorkovsky and his partners. I think Abramovich has a certain understanding with the government. In other words, the government sees him as a manager who will bring company policy in line with its wishes, and the state gets indirect control over the company’s finances.”

The Kremlin’s aim in this scheme is clear. YukosSibneft means huge financial resources for the authorities. Another important goal is to teach businessmen a lesson that is doesn’t pay to oppose the Kremlin.

Some analysts see YUKOS’ position in this conflict as hopeless. If the company’s owners do not agree to sell their stakes to Sibneft shareholders, the company will be destroyed.

Nonetheless, however the YUKOS-Sibneft confrontation ends, it could cost both the company and the entire Russian economy a pretty penny. “Even if Sibneft’s merger with YUKOS takes place, recent events could have a negative effect on investment planning and, as a result, on the company’s oil production,” says Andrew Neff. “It’s possible that YUKOS will no longer be the leader of the Russian oil industry it was in recent years, especially if it has its oil field licenses revoked. If its eastern Siberian licenses are revoked, the future of the Angarsk-Datsin pipeline will be in doubt, as YUKOS wanted to use it to pump oil first from its oil fields in Tomsk Province and then from eastern Siberia. It’s a major question who will end up with these fields. For this reason the pipeline to China, which from an economic point of view is more viable than the pipeline to Nakhodka, could remain at the planning stages for a long time yet.”

Let’s not forget that on the eve of the announcement that YUKOS and Sibneft were calling off the merger, one of China’s biggest oil companies, Sinopec, made public that three Chinese oil giants—Sinopec, PetroChina, and the China National Offshore Oil Company—had decided to speed up their search for alternatives to Russian oil. The Chinese themselves admitted that the unclear future of their relationship with YUKOS was the reason behind this move. The news of the halt in the merger only further encouraged the Chinese to look for more stable partners. If the YUKOS Affair drags on, oil companies from Kazakhstan will take its place on the Chinese market, which will have dire consequences for the Russian economy. “Long-term projects initiated by YUKOS shareholders are at risk, especially the Chinese project,” warns Sergei Suverov. “I think that it is at risk of falling apart because there will be no one to lobby for it. Thus, the Chinese companies’ caution is completely justified. This is bad for the business environment, as it reflects how politicized business in Russia is and how unpredictable the business elite’s decisions are, as they exploit their partners’ weakness to serve their own ends. In other words, it reflects the low level of business ethics in Russia.”

Foreign analysts have a more diplomatic view of the situation. “Western oil companies are a bit confused by what’s happening in Russia,” say Neff. “For this reason, some time will have to pass before they want to buy something here again.” One has to admit that Western businessmen have plenty of reasons to be confused. “In the eyes of the world investment community the YUKOS-Sibneft merger was a done deal,” notes Evgeni Satskov. “Clearly, recent events have changed investors’ views. Prior to the arrest of YUKOS shareholders, Russia appeared to be following the path of liberal reform. YUKOS was one of the most transparent and progressive companies, and the majority of institutional investors kept most of their resources in YUKOS stock. Now investors have to reexamine the risks associated with investing in Russia. The YUKOS situation will have a negative effect on the market for a long time to come.”