Sergey Bogdanchikov, the head of Rosneft, tries to prove to Vladimir Putin that Gazprom wants too much from him
Photo: Aleksey Kudenko
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Damage Control
// Rosneft's Management Looks to the Kremlin for Protection from Gazprom
Business and Government
Kommersant has learned that Sergey Bogdanchikov, the president of Rosneft, sent a letter to President Vladimir Putin outlining his plan for making the oil company part of AO Gazprom. Bogdanchikov has became embroiled in an open dispute with Gazprom chairman Aleksey Miller and Dmitry Medvedev, the head of the presidential administration, who are already implementing their plan to acquire Rosneft. Gazprom's management announced on Saturday that in the future Rosneft, which would lose even its name, there would be no seat on the company's board of directors for Igor Sechin, the deputy head of the presidential administration. The fight for Rosneft promises to become one of the biggest scandals in presidential circles since the current administration began its work.
Mailbox
Sergey Bogdanchikov sent his letter to the president's office on September 20, and Vladimir Putin annotated it five days later: “To V.L Nazarov (Valery Nazarov, head of the Federal Property Management Agency – Kommersant). Please examine and take into consideration (see the facsimile)”. This signature is worth a lot – in Kremlin bureaucratese, the president's request to “take into consideration” means that the proposals outlined in the letter cannot simply be brushed aside.
Rosneft's main proposal set out in the letter to Vladimir Putin is as follows: “A preliminary market assessment shows that the merger of Gazprom and Rosneft's oil and gas assets could be done in such a way that the state would consolidate its ownership of a controlling interest in Gazprom and retain ownership of at least 20-25% of Rosneft's shares. (Rosneft's other proposals are listed in the reference below.)
The reply to Sergey Bogdanchikov's letter was a statement on September 29 by Dmitry Medvedev, head of the presidential administration and chairman of Gazprom's board of directors: “Gazpromneft, which is to include Rosneft's oil assets, will become a Gazprom subsidiary and will operate in accordance with the company's accepted procedures of corporate governance. The main objective is to prevent the erosion of assets included in the transaction, as has previously happened at Gazprom.”
Thus, Medvedev assumed that Rosneft's managers might remove assets from the company. According to Kommersant's information, Gazprom's security service will soon publish documents confirming that Rosneft's management is already preparing to remove assets from subsidiaries.
Rosneft replied to Dmitry Medvedev with an official statement: “The work carried out (by the company's management – Kommersant) has provided the state with assets the value of which has recently allowed it to accomplish a major objective in the development of the country's fuel and energy complex, that is, to obtain a controlling interest in OAO Gazprom and carry out liberalization of the market for this company's shares. The erosion of Rosneft's structure is impossible under any circumstances at the present time (see Kommersant of October 1)
At Rosneft's press service they declined to comment on the content of Sergey Bogdanchikov's letter, alleging that they had learned of its existence from the Kommersant correspondent.
Thus, for the past two weeks a major conflict has been developing that is damaging the interests of the most influential bureaucrats in the presidential administration. We remind our readers that Igor Sechin, Mr. Medvedev's deputy, is the chairman of Rosneft's board of directors. It is generally believed that in Vladimir Putin's opinion, Mr. Sechin's administrative influence is at least as great as that of his official boss.
Merger and Acquisition
That the merger would not be conflict-free was already clear after a meeting of Gazprom's board of directors on September 28, when Mr. Medvedev spoke of the possible removal of assets from Rosneft. This announcement was obviously connected with Rosneft proposing its own plan for merging the companies.
We recall that Miller's plan proposes an exchange of 10.7% of Gazprom's shares listed in the balance sheets of its subsidiaries for shares of Rosneft subsidiaries. The shares would be transferred to Gazpromneft's balance sheet. Gazprom's oil-production assets (about 10 million tons of oil production per year) would also go there.
Sergey Bogdanchikov was proposed as head of Gazpromneft. However, according to Kommersant's information, Gazprom's management has suggested creating the new board position of first deputy chairman for oil production responsible for Gazpromneft. According to unofficial information, the person being touted for this position is Alisher Usmanov, the head of OOO Gazprominvest Holding, which is supposed to secure the transfer of Rosneft's property to Gazpromneft.
We note that the first announcements of the merger between Rosneft and Gazprom stated that Rosneft's shares, not its assets, would be involved in the exchange. Sergey Bogdanchikov also mentioned only Rosneft shares in his letter, but the disposal of its property was declared to be an internal company affair.
The 10.7% of Gazprom shares are simply securities on the balance sheets of its subsidiaries. As of mid-February, Aleksandr Ryazanov, deputy chairman of Gazprom's managerial board, estimated the block controlled by the subsidiaries at 16.2%. Apparently, the remaining 5.5% of Gazprom's shares, which in Miller's plan remain under the control of Gazprom's management team, are important for carrying out his plans to keep his job at Gazprom.
Mr. Bogdanchikov implied the presence of this share block in the hands of Gazprom in his letter when he said that the state could reserve 20-25% of Rosneft's shares for itself: analysts estimate that the 10.7% block of Gazprom shares the company intends to exchange for shares of Rosneft's subsidiaries are worth less than 100% of the shares of Rosneft itself. For example, Dmitry Tsaregorodtsev, an analyst at Interfin Trade Finance Corporation, calculates Rosneft's maximum estimated value at $8 billion, with consideration of the company's participation in a project for developing the Shtokmanovskoe gas condensate field and the Vankorskaya group of oil fields, as well as in projects on the Sakhalin Shelf. At Gazprom's current capitalization of $61.6 billion, 10.7% of its shares could be exchanged for 82.4% of Rosneft's shares, with the other 17.6% remaining state-owned. However, according to Valery Nesterov, an analyst at Troika Dialog Investment Company, “an evaluation is not a simple matter; everything depends on who does the evaluation and how”. He believes that Rosneft's value corresponds to the value of 10.7% of Gazprom's shares.
Gazprom is now forcig the acquisition of Rosneft on its terms. Sergey Kupriyanov, Aleksey Miller's press secretary, told Kommersant yesterday that in the next few days the company would conclude an agreement on evaluating Rosneft's assets and the block of Gazprom shares required for the exchange with a “respected international company”. According to Kommersant's information, the most likely valuer is Dresdner Kleinwort Wasserstein, which is completing a value assessment of Yurganskneftegaz.
Live to New Year's
Judging from an Interfax report, in a speech in Yamburg on Saturday, Aleksey Miller rejected Mr. Bogdanchikov's proposals literally point by point. According to Mr. Miller, after Rosneft is joined to Gazprom, Rosneft's oil assets will be merged with Gazprom's oil assets; and its gas assets, with Gazprom's gas production assets. After the transaction is complete, Gazprom's board of directors will remain unchanged but Rosneft will no longer have one at all.
At present, it is difficult to predict the outcome of the “battle for Rosneft”. Igor Sechin and Sergey Bogdanchikov probably have some trump cards against Dmitry Medvedev and Aleksey Miller in reserve. One of them has already been played: at a meeting of Gazprom's board of directors on September 28, Mikhail Sereda, who is considered Mr. Sechin's minion, was appointed deputy chairman of the company's managerial board.
Aleksey Miller's opponents may also be able to protect Rosneft by means of simple bureaucratic procrastination. For example, Rosneft's press service informed Kommersant yesterday that the company's management had not received any instructions regarding a merger with Gazprom from Rosneft's board of directors (10 of its 11 members are bureaucrats). And no discussion of this issue is mentioned at all on the agenda of the next meeting of Rosneft's board of directors scheduled for October 8.
It is important for Rosneft that discussion of the merger with Gazprom drags on as long as possible: Igor Sechin is considered a master of backroom machination, but it takes time to organize it. Gazprom needs a quick resolution of the problem in order to win – Aleksey Miller has already stated that the Rosneft deal has to be closed before New Year's. According to Kommersant's information, Minister of Economic Development and Trade German Gref and Minister of Finance Aleksey Kudrin support Mr. Medvedev's positions in the dispute, while Prime Minister Mikhail Fradkov supports Igor Sechin.
Analysts are betting on a victory for Mr. Sechin's team. In Valery Nesterov's opinion, “investment companies anticipate that the merger will be complete in the first quarter of next year, after which the president will sign a decree on liberalizing the market for Gazprom shares”. They do not presume to judge which positions Dmitry Medvedev, Igor Sechin, Aleksey Miller, and Sergey Bogdanchikov will hold by that time.
Kommersant will be following the development of events.
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Partial Text of Sergey Bogdanchikov's Letter:
ROSNEFT Oil Company
To: President of the Russian Federation V.V. Putin
Date: 20.09.2004
Dear Vladimir Vladimirovich!
OAO Rosneft Oil Company supports the owner's decision to establish a major national oil and gas company.
Oil and gas are national property, and consolidating oil and gas assets under state control meets both the…
…the state as the principal owner of the two companies, will result in an increase in the market value of their assets, and will create real prerequisites for future sustainable development of the oil and gas sector of the economy.
Yours truly,
S.M. Bogdanchikov
What Sergey Bogdanchikov Proposed to Vladimir Putin
1. There must be an objective evaluation of the assets of OAO Rosneft Oil Company and the block of OAO Gazprom shares proposed for the buyout.
2. The existing organizational structure for managing business processes must be preserved at Rosneft. This structure has proved its effectiveness and will ensure a further increase in the value of the assets owned by Rosneft.
3. Considering Rosneft's participation in projects that are strategic for the state, changes need to be made to the company's statutory documents, which stipulate a majority of government officials on the board of directors.
4. We consider it advisable to keep Rosneft on the list of strategic companies (the company cannot be privatized unless it is removed from the list – Kommersant).
5. Include preservation of Rosneft's corporate name as the basis of continuity of the obligations the company has undertaken and as a platform for expanding existing assets.
Petr Sapozhnikov, Dmitry Butrin
All the Article in Russian as of Oct. 04, 2004
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