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Russia: State Monopoly Gazprom Takes Over Sibneft

  • Claire Bigg --> State-controlled gas monopoly Gazprom clinched a $13.1 billion deal on 28 September to take over Sibneft, the Russian oil company controlled by billionaire Roman Abramovich. The biggest corporate takeover in Russian history will give President Vladimir Putin’s administration control over one-third of the country’s crude oil output.

Moscow, 29 September 2005 (RFE/RL) -- Under the deal, Gazprom will purchase 72.7 percent of Sibneft from its owner, Millhouse Capital, an investment company controlled by Roman Abramovich.

Gazprom and Millhouse Capital released a statement on 28 September saying both sides had signed binding documents.

Together with its previous 3-percent stake, Gazprom will now hold a 75.7-percent holding of Sibneft.

The deal means the world’s largest natural gas producer is now able to pursue its main objective of becoming a global and diversified energy giant.

Eric Kraus, chief strategist at the Moscow-based investment house Sovlink, says buying Sibneft was vital for Gazprom following its unsuccessful attempt to take over state-owned oil producer Rosneft earlier this year.

“For Gazprom, it marks their emergence into a global energy major," Kraus said. "Gazprom had wanted to buy Rosneft, or to merge with Rosneft, but this did not happen. So this is, in some way, also a consolation prize for Gazprom, which wanted to have some oil.”

The deal will put some 900,000 barrels per day in oil output into Gazprom’s hands, making it Russia’s fifth-largest producer behind Lukoil, TNK-BP, Rosneft, and Surgutneftegaz.

Chris Weafer, chief strategist at Alpha Bank, says the takeover will give the state direct control over about one-third of Russia’s total oil output.

“This deal just increases the government’s direct ownership in the oil sector, so that now government-controlled and owned companies are responsible for pumping about one-third of Russia’s daily oil output," Weafer said. "If you include the state-friendly companies as well, then that gets up to more like 50 percent.”

The agreement comes as no surprise. President Vladimir Putin told a meeting of the G-8 group of industrialized countries earlier this year that negotiations were under way for a Gazprom takeover of Sibneft.

Weafer argued that the purchase of Sibneft will help the government fulfill its bid to boost popular support by channeling the windfall from oil and gas into social programs.

The Kremlin, he adds, is also seeking to consolidate its role in world affairs by securing control of energy resources amid growing demands for oil and gas.

“The government basically sees the fact that it is already a big energy partner with Western countries and has the potential to become much bigger as replacing nuclear weapons as the reason why it can keep a seat at the top table of global politics and why it can have an important place in organizations such as the G-8," Weafer said.

Apart from being the biggest-ever corporate purchase in Russia, the takeover is also unprecedented since the state is paying market price to buy a firm it sold to Abramovich and his former business partner Boris Berezovskii for a mere $100 million a decade ago.

Experts actually say the 38-year-old Abramovich -- Russia’s richest man, who gained world fame by buying the Chelsea soccer club two years ago -- could have sold Sibneft to a foreign firm for a much higher price.

But since Mikhail Khodorkovskii’s Yukos empire was dismantled and he was sentenced in May to nine years in prison for fraud and tax evasion, oligarchs have been keeping a low profile.

Kraus says Abramovich, who is based in London, has since been eager to sell off his Russian assets despite being seen as one of the few oligarchs on relatively friendly terms with the Kremlin.

Eric Kraus has little doubt the Kremlin stood behind the Sibneft takeover.

“The Kremlin has probably instructed him to sell," Kraus said. "And they’ve offered him a reasonable exit price. Undoubtedly, as it has been pointed out, he could have got more money for it selling it to a foreign major. But Mr. Putin does not intend to have Russian strategic resources owned by foreign companies anymore.”

Abramovich’s exact share in Millhouse Capital is unclear, but analysts estimate that he will get between 75 and 85 percent of the $13.1 billion payout.

See also:

"The End Of Loans-For-Shares"

"Tightening The Screws With Gazprom"

"Putin, Schroeder Ratify Pipeline Deal"

"State-Controlled Gazprom Buys Leading Independent Daily 'Izvestiya'"
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    Claire Bigg

    Claire Bigg covers Russia, Ukraine, and the post-Soviet world, with a focus on human rights, civil society, and social issues. Send story tips to​