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Friday, March 30, 2007

Annals of the Neo-Soviet Robber Barons

The Economist explains how, after liquidating Mikhail Khodorkovsky as a political rival, the Kremlin then turned it's attention to pilfering his assets.

There were no bids from mysterious bimbos, and the auctioneer was not wearing a bow tie. Although the sale on Tuesday March 27th of a 9.4% stake in Rosneft, a state-controlled Russian oil firm, lacked some of the quirks of previous Russian auctions, it did exhibit some traditional features. It lasted only a few minutes, and the goods went for a song to the expected winner—in this case, Rosneft itself.

This was the first in a series of auctions of the remaining assets belonging to Yukos, once Russia’s top oil company, which was forced into bankruptcy (wrongly, it says) last year by alleged tax arrears and penalties amounting to roughly $33 billion. Yukos’s stake in Rosneft was a leftover from the knock-down sale, in 2004, of most of its main subsidiary to a farcical front company, which was itself acquired by Rosneft soon afterwards. The price for this week’s lot, which included some lesser assets, of 197.8 billion roubles ($7.6 billion), represented a 10% discount on market value: nice business for Rosneft, though less good for the Russian state and people.

Other would-be buyers—including Gazprom and some foreign energy firms, possibly in collaboration with Russian ones—are likely to come forward. Most important for the future of the Russian oil industry will be the fate of Yukos’s two remaining production units and its network of refineries. Having just borrowed $22 billion from a clutch of foreign banks, Rosneft looks poised for more bargain buys. Since it is also Yukos’s second-biggest creditor, after the taxman, Rosneft should recoup much of its outlay swiftly.

The most interesting aspect of this week’s sale, which was held at Yukos’s now-sombre headquarters, was not the identity of the winner but that of the only other bidder: TNK-BP, an Anglo-Russian oil firm that British Petroleum (BP) bought into before the Kremlin circumscribed foreign participation in Russia’s energy sector. In a replay of Shell’s experience on Sakhalin island, TNK-BP is having trouble holding onto its investments, in particular the giant Kovykta gas field in Siberia that it controls. Ludicrous licensing requirements are helping Gazprom to muscle its way into that project—and perhaps into overall control of the company.

Lord Browne, BP’s chief executive, visited Russia’s president, Vladimir Putin, last week. Speculation has it that TNK-BP’s participation in the auction was meant to confer legitimacy on the event (Russian law requires there to be at least two bidders), and thus to curry favour with the Kremlin—and perhaps also with Rosneft, who might be a more palatable partner than Gazprom. Though TNK-BP insisted that its interest in the auction was real, it seemed to wane pretty quickly. Meanwhile, more charges are being brought against Mikhail Khodorkovsky, Yukos’s former boss, who was arrested in 2003, and PricewaterhouseCoopers, Yukos’s auditor, has also been targeted by prosecutors. Those cases also seem designed to help justify the sell-offs. But larceny, even with a (relatively) respectable face, is still larceny.

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