Posted on 02/02/2006 5:35:30 AM PST by Lukasz
The emergence of new oil companies suggests that the present ruling team in Russia is taking ownership of economic assets
In recent years, thriving new private-owned oil companies have emerged in the Russian energy sector. We know of the existence of two of them: Russneft and the North-West Oil Group (also known by its Russian acronym SZNG). Indirect evidence suggests that the success of these companies may be because President Putin's team has been granted property rights to them. Putin's people came to power after the principal share of state property had already been divided as a result of the 1990s privatisations. The present process whereby private fortunes are being accumulated to a great extent requires a new redistribution of economic assets.
New private oil companies
The fact of Russneft and the North-West Oil Group's dynamic development became apparent on the occasion of a tender for 49 percent of shares in Slovakia's oil transport enterprise, Transpetrol. Both of the Russian companies made competing bids for the Slovak company. The manner in which the two businesses were established, as well as their sources of financing, are unclear. Both started as intermediaries trading oil, both in Russia and abroad. They built up their present position by taking over small and usually disputable assets in the Russian oil sector. Russneft, registered in 2002, is owned entirely by Mikhail Gutseriyev and his relatives. In 2005 the company produced more than 17 million tons of oil, thus establishing itself among the top ten oil companies in the Russian Federation. As for SZNG, all that is known is that the company was incorporated in 2004 and has ambitious plans, but its ownership structure and economic results are still unknown.
Businesses and the ruling elite
The emergence and dynamic development of new privately-owned oil companies would not have been possible without the Kremlin's knowledge and approval. The present power elite is particularly interested in the energy sector, as it has demonstrated in recent years by bringing the most important gas and oil establishments under state control; this has compelled the remaining private companies to be loyal, and restricted foreign investors' access to the sector. The connections between Russneft and SZNG on the one hand, and the ruling elite on the other, have been noted by the press, although they are usually only sporadically mentioned. For example, the Russian media have established a link between Gutseriyev, the head of Russneft, and numerous economic scandals in Russia; interestingly, however, he has never been brought to account for any of these. On the other hand, his services to the country have been appreciated, and Gutseriyev has been awarded many medals and state distinctions (including for his participation in special operations). In addition, Russneft has benefited from the UN's Oil for Food programme for Iraq. In a report by CIA advisor Charles Dolfer, it was claimed that Saddam Hussein had granted Gutseriyev quotas for the export of nearly 12 million tons of Iraqi oil. Knowledge of the links between SZNG and the government is limited to the fact that the company has been working closely with Gazprom and other Russian oil companies, as it revealed in a paid announcement published in the Russian press in which it thanked these companies for their contribution to SZNG's success. In addition, the CEO Ernest Malyshev boasted that his company had played a role in the reconstruction of St. Petersburg before the celebration of the city's 300th anniversary. Particularly impressive amounts were spent on modernising the palace compound in Strelno near St. Petersburg, where the Russian President's residence is located.
Conclusions
One possible interpretation of the new companies' successes in the oil sector is that it is the current political elite amassing economic assets. Most of Putin's people, who came to power with him in 2000, did not have any economic base of their own. The greater portion of state property had already been divided up in the 1990s. Initially, Putin's team profited from managing state property. The present process suggests that this group is proceeding to the next stage of 'getting rich' -developing its own business base. In addition to the new oil companies, RosUkrEnergo may serve as a further example of this kind of activity - this gas trade intermediary consolidated its market position in the aftermath of the Russian-Ukrainian gas dispute, and co-operates with Gazprom. Building private fortunes using political power is hardly a novelty in Russia. The Russian state leadership acquired business possessions in a particularly dynamic manner in the 1990s. Interestingly, however, the present team came to power claiming that state interests were superior to private interests, that it was necessary to develop state capitalism, that the state needed to take control of the most profitable sectors of the economy, and that it had to eliminate those intermediaries who had been stealing the state's profits. If the above interpretation of the emergence of new oil companies is correct, as the 2008 presidential election approaches, we should expect more private companies to arise, both in the energy sector and elsewhere. However, as most assets in Russia have already been divided, this process is unlikely to be smooth. Various interest groups will compete for the assets available, and new fortunes will develop at the expense of existing empires.
Appendix
The owners of Russneft revealed its shareholding structure in late 2005, as they prepared the company's initial public offering. They disclosed that 70 percent of shares belonged to Mikhail Gutseriyev, and the remaining 30 percent to his relatives. Within just over 3 years, the company managed to acquire over thirty small production companies, three refineries and a chain of petrol stations. In 2005 its production increased from 10 million tons of oil (2004) to 17 million tons. This was possible because the company had taken over new fields. Russneft plans to continue the rapid expansion of its production. As Gutseriyev was starting up the present business, he co-operated closely with the Swiss-registered Glencore, an intermediary company trading oil and oil products (it controls about 3% of world oil trade) and metallurgic products. Russneft was initially built on assets (oil fields, chemical plants) taken over from the Russian-Belarusian company Slavneft, of which Gutseriyev was head until 2003. Russneft has also benefited from the collapse of Yukos, as it took over that company's smaller assets, including its contract with Hungary's MOL for oil production in the Zapadno-Malobalykskoye field.
As for North-West Oil Group (SZNG), it is known that during the year and a half of its existence, the company managed to gain direct access to Russian fields (it holds six production licences) and to establish itself in the sectors of oil processing and trade in oil and oil products. SZNG has also reported that it is working with Hungary's MOL (a company called SZNG-MOL was created to bring online the Surgut-7 field in Russia, which had been taken over from Yukos). An SZNG daughter company, called North-West Oil Company S.A., is registered in Geneva; its task is to intensify co-operation with foreign partners (mostly in terms of the sale of oil and oil products).
Interesting article about tendencies in Russia.
Doesn't matter who is minority shareholder but who runs the business.
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Fight your corruption first, than research the others' one.
Well, well, well, it does appear we have a strong clue where most of these Polish posters work.
Sure we care. We have to care about the prosperity and well-being of our brotherly nation. Our dear neighbour. Why you care? You are from Kansas, right?
"We have to care for our brotherly nation."
Spoken like a true Soviet propagandist, rationalizing policies of intervetion in other nations.
Russians and Poles come from the same family of nations. That's a fact, not propaganda. Even Putin knows that and uses it fact in his public speeches. Call him Soviet propagandist - as ex-KGB colonel it would suit him better than me. :) Next try, please.
When I posted American or British sources it wasn’t wrong but Polish source is bad right? BTW I would be proud if I would work for Polish government.
No, there is nothing wrong with posting you sources, but what we discoved is the source of your propganda machine. Now we can read your articles, and discover your motives and talking points.
Who said that we don’t care about our problems? One doesn’t execute another.
So you claim that it is all Polish propaganda?
The Centre is a government funded propganda machine. It's 'care' is advancing causes that are strictly anti-Russian (a cusory glance at there site proves as much).
If I posted something from a Russian Government Ministry called 'The centre for Polish studies' and claimed that it was out of brotherly compassion such an agency existed I'd be heckled off the board.
LOL Recent Putin’s quote below, I hope (naively probably) that you will tell the same about him.
You think there's been an abuse. So report your moaning to board's Administrator. I'll give you a clue - it is not me.
That's a far cry from saying 'of course we're interested in affecting the work of their government because we're brothers'.
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