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Russia: Onako Privatization To Test Putin's Pledge Of Fairness

The result of the bidding for Russia's state-owned Onako oil company is to be announced tomorrow. The Onako privatization is seen as the first test of Russian President Vladimir Putin's pledges of fair and transparent bidding, an important part of his economic-reform program. RFE/RL Moscow correspondent Sophie Lambroschini talked with Russian oil-investment analysts about their views of Onako's future.

Moscow, 18 September 2000 (RFE/RL) -- Investors are focusing on tomorrow's announcement of the winner in Russia's first big privatization tender under President Vladimir Putin. At stake is an 85 percent share in Onako, Russia's 11th-largest oil company, which has been open only to Russian bidders.

In the past, privatization tenders were seen by many analysts as rigged contests. They said the bidding served merely as a cosmetic cover for behind-the-scenes division of state property among those business tycoons -- the notorious oligarchs -- who managed to cut a deal with the authorities. The Onako decision should show whether the Kremlin's methods have changed.

Ivan Mazalov is an analyst for the oil investment firm, Troika Dialog. He told RFE/RL that the result of the Onako tender will show whether the government is willing to act on its own pledges to act independently of the oligarchs:

"[The announcement will make] clear what position the government has taken toward the oligarchs. The first privatization tenders [in 1996] -- the so-called loans-for-shares auctions that were held under [former President Boris] Yeltsin -- showed to what extent the Yeltsin government had a behind-the-scenes deal with a group of oligarchs who bought up the state assets for a very low price."

The official State Property Fund did not announce who were the final Onako bidders when it closed the tender last Thursday (Sept 14). But some of Russia's most powerful oil companies had lined up for the tender. And over the weekend, Russians news agencies and newspapers said there were at least four final bids.

According to these reports, two major oil companies -- Russia's second biggest, Yukos, and sixth biggest, Sibneft -- have joined forces with the giant Gazprom's subsidiary Stroitransgaz. Together, they are represented by Profit House, which submitted the official bid. Sibneft is controlled by Roman Abramovich, who is considered an influential Kremlin insider by investment analysts.

Among others who are said to have expressed the intention of participating in the bidding is Lukoil, Russia's top oil company. Tyumen Oil Company, or TNK, and a Russian subsidiary of British Sibir Energy were also thought to be in the competition. Dmitry Avdeyev, an analyst with the Russian investment company United Financial group, says that the major bidders -- Profit House, Lukoil, TNK, and Sibir Energy -- all have good chances.

Avdeyev and other oil-investment analysts point out that, in contrast to previous large investment tenders, the main criterion this time will simply be the price offered. The starting bid for Onako was put at $425 million, but the financial daily "Vedomosti" said today that the price could go as high as $700 million. In the past, the winner was determined not by how much he offered but largely by the nature of his investment plan. Avdeyev says:

"The conditions of this auction are quite straightforward. Whoever offers the highest price should win. So in principle, being close or not close to the Kremlin, should not mean all that much. All the participants have a real chance."

Despite the bidders' theoretically equal chances, Abramovich's Sibneft is seen by some experts as the most likely winner -- for both good and bad reasons.

First of all, Avdeyev points out, number 2 oil giant Yukos and number 6 Sibneft represent a very solid alliance. But there are also worries that the Kremlin may have intervened to increase Sibneft's chances. Analyst Mazalov says that "investors will worry about favoritism if [Sibneft] wins because there are already suspicions that Abramovich [continues to have] influence over the president and his entourage."

Mazalov also says investors are unsettled by reports that Lukoil might have been bullied out of the bidding by Abramovich through his contacts in the Kremlin. "Vedomosti" said today that Lukoil had pulled out at the last minute, a report on which Lukoil has not commented. Actually, Mazalov adds, such suspicions have been around for two months, ever since Lukoil became the object of an official investigation into alleged tax evasion.

Whatever the result of the Onako privatization, the analysts agree, it will take more than one tender to determine whether bidding has truly become fairer and more transparent under Putin -- or whether Kremlin cronyism has simply gown more sophisticated.