Slavneft sell-off: A lesson for India

India has couple of lessons to learn from sell-off of Russian oil and gas company Slavneft especially the lightening fast speed at which the decisions are taken and executed. In India, on one hand the saga of selling off of BPCL and HPCL does not seem to conclude ever, the Russians are all set to auction their 9th largest oil company through an open auction in just 4 months!

Slavneft sell-off: A lesson for India
December 7, 2002
India has couple of lessons to learn from sell-off of Russian oil and gas company Slavneft especially the lightening fast speed at which the decisions are taken and executed. In India, on one hand the saga of selling off of BPCL and HPCL does not seem to conclude ever, the Russians are all set to auction their 9th largest oil company through an open auction in just 4 months!

Speaking on the development, Yogesh Garg, Director Infraline Technologies (I) Pvt. Ltd. said -- Russian method of a efficient, transparent and sensible disinvestment process should be emulated by the Indian Government."

In October, 2002, the Russian government announced its plans to sell its controlling share in Slavneft. Prime Minister Mikhail Kasyanov signed an order for the privatisation of the oil and gas company, one of Russia's top 10 oil producers by the end of this year. Kasyanov has called for the sale of the state's entire 74.95 % stake, which is likely to become the largest ever privatisation deal in Russia's history. By selling its stake in Slavneft the government hopes to fill up budget holes, while analysts assume that after the sale is made, the balance of power in Russia's oil industry will shift substantially. Earlier the government said it was planning to sell 19.68 % of its shares in the company at an open auction. The sale would have brought some $ 300 mm to the country's budget. However, the Ministry for Property Relations submitted a draft plan to the government calling for the sale of the state's entire stake in Slavneft. The document, which was reviewed and endorsed at lightening speed, was signed by the PM.

Kasyanovs order calls for amendments to the 2002 privatisation plan by adding Slavneft to the list of enterprises for sale this year. At the same time, Kasyanov ordered Slavneft be excluded from next year's privatisation programme. Kasyanov instructed the Ministry for Property Relations to prepare the sale of the state's share in Slavneft at an auction with open bidding, and to choose the buyer by December. The money raised by the sale is to be transferred to the federal budget no later than February 15, 2003. The minimum price at which the state can sell its stake in the oil company is estimated at $ 1.3 bn. Experts assume the stake will be sold in the region of $ 1.5-$ 2 bn, making the Slavneft sell-off the largest privatisation deal in Russian history. The auction will attract a number of bidders and the price could go up to $3bn. Slavneft is the ninth largest oil company in Russia with crude oil reserves of over 700m tonnes and annual production of more than 13.5m tonnes. It owns two crude oil refineries, 600 retail fuel stations in Russia and 21 in Belarus. It is also the "last major integrated oil asset" being privatised by Russia, which is keen to sell a 75% stake.

So far, Roman Abramovich's Sibneft is considered the most likely buyer. Sibneft has already purchased a minor stake in Slavneft and was planning to purchase the 19.68 % stake that the government was to put on sale this year. Earlier this year the company's owner Roman Abramovich won a power struggle for control over Slavneft, which resulted in the former Sibneft executive Yuri Sukhanov being elected Slavneft's new president. However, it would be wrong to say that the results of the December auction are already pre-determined. Other oil giants, including Yukos, the Tyumen Oil and Surgutneftegaz have also expressed interest in Slavneft, and undoubtedly they will be able to raise $ 1.5-$ 2 bn, if need be. Perhaps, the only passive participant in the forthcoming events will be the Belarusian government. It still has a 10.83 % stake in Slavneft, but Minsk is in no position to influence the company's fate.

Governments reluctance in the disinvestment process is adversely affecting the potential Indian bidders. Khemka group, after getting disenchanted with poor response in Indian oil and gas sector, has decided to focus its efforts in Russia only. Khemka group has capitalised on some remarkable opportunities in oil and gas sector Russia in recent past. ONGC Videsh has, however, rejected the proposal calling it too short a notice.

About Infraline
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