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Bogdanchikov on Yuganskneftegaz: Case Closed
// The president of Rosneft in an exclusive for Kommersant
The management of Rosneft thinks that its scandal-ridden acquisition of Yuganskneftegaz, the former main asset of YUKOS, will interfere with investor interest in the company's initial public stock offering. Rosneft president Sergey Bogdanchikov spoke with Kommersant deputy editor-in-chief Alexander Shadrin about the details of the IPO placement, Rosneft's involvement in the bankruptcy of YUKOS, rumors of his resignation and much more.
For the last month, the Western press has been urging investors not to buy Rosneft stock at its IPO because of possible legal risks connected with the non-transparency of its acquisition of Yuganskneftegaz. How do you see such claims?
First of all, we see a very high level of interest in the upcoming sale of Rosneft stock. That is both within the country and abroad. But if we are going to speak of negative information to scare investors off, as well as positive, I do not see any inclination to the negative. We held a preliminary road show abroad at the beginning of the year. Since I participated in those meetings personally, I can say that I did not sense any serious concern in the investing community over any problems. Of course there were questions about the acquisition of Yuganskneftegaz, but we have to look at the actual state of affairs. As you know, a court case in the United States, in Houston, Texas, that was initiated by the former owners of Yuganskneftegaz ended not in their favor. Then, at the end of 2005, there was a court case in London brought by 14 Western banks that were unhappy that the former owners of Yuganskneftegaz did not settle credits granted to them. That case was also lost by the former owners of Yuganskneftegaz. I will not mention several cases in Russia that had the same outcome. The question arises of what claims can be made against us. We say that the Yuganskneftegaz case is closed.
Can you say yet what the general parameters of the July Rosneft IPO will be?
Today, we can speak of the proposals made by the management of the company, in the person of the management board, to the company's owner. Here it has to be understood that the owner may approve the proposals or not. We proposed making the placement on the London stock market and on two Russian stock markets – RTS and MICEX. We have to follow Russian legislation, under which no less than 30 percent of the stock placed has to be placed in Russia. The management proposed increasing the portion sold on Russian exchanges. We think that the company has very good potential for capitalization growth and suggest that the larger the volume placed in Russia, the greater the package that will henceforth be traded on the Russian market, which will have a positive influence on the growth of the value of Rosneft.
How much greater to you propose making the Russian placement?
There are various options. The final decision has not been made yet, it is still under discussion. It is will definitely be more than 30 percent of the total volume.
What will the total volume be?
The volume will be determined by the demands of the company. We need funds to pay off credits to Rosneftegaz that were received to increase the state share in Gazprom. Plus we need to attract a comparatively small sum to bring the equity-to-debt ratio to normal after it was upset by the transaction with Yuganskneftegaz. Finally, we need to pay for the banks' services for carrying out the IPO. The sum has been calculated, but I won't try to cite it now. Everything will be conclusively determined by the board of directors of Rosneftegaz, which is scheduled to meet on June 23 and July 13.
What is the estimated value of the company before the placement?
Here we have to wait a short while. Those numbers will be made public this week. Unfortunately, I cannot reveal them now because of legal restrictions.
You announced that Sberbank would be the lead coordinating manager of the placement in Russia. When the conditions for the acquisition of stock by individuals be made known?
Sale of stock to the public, as is already known, will begin on June 26 and continue until July 10. The cost per stock to the public and for legal entities in Russia will be the same. After June 16, all informational material for individuals will be in all branches of Sberbank, Gazprombank, Aton, Uralsib and our subsidiary, the All-Russia Bank for the Development of the Regions.
What is the minimum sum that an individual can take to the bank for the acquisition stock?
That will be determined in the near future.
In the Rosneft GAAP account for last year, it says that the company was able to reduce the tax claims against Yuganskneftegaz significantly, by $4 billion, in April. How were you able to do that?
You apparently mean that the tax authorities are making claims against YUKOS that are analogical at first glance. But the claims against Yuganskneftegaz and YUKOS are really principally different. The tax authorities accused Yuganskneftegaz of selling oil at transfer, that is, reduced, prices. The claims against YUKOS are completely different. As far as I know from public sources and from our lawyers' analysis of the situation, the claims against YUKOS consist of it selling oil through Russian offshore companies. In my view, those are principally different things. Therefore, when we disputed the claims against Yuganskneftegaz, we began to work with the tax authorities, asking them questions about why there are no analogical claims against other companies. Yuganskneftegaz is not special, they all work in Western Siberia. And there were no claims of that scale against anyone else. Therefore, the main question was about the real market price of oil at that moment. An independent investigation was carried out and it found that the tax demands were significantly higher than they should have been. The court upheld that finding.
Does that mean that the $922 million that Yuganskneftegaz remained in debt to the tax authorities for on claims from 1999 to 2004 will be paid?
Yes, we do not dispute that and will pay. Of course, we will try to reach an agreement on restructuring and will negotiation for a ten-year payment deferral. We'll see what happens. By the way, I cited only some of the facts from that court case and its outcome. Let's look at who Yuganskneftegaz sold all of that oil to. To YUKOS, its owner. All 100 percent of it. Therefore, how could Yuganskneftegaz, in complete dependence, set the price itself? The price they set in the parent company was the price it sold it at.
Are your relations with Yuganskneftegaz based differently now?
Yes. They have a normal basis. And there are no claims being made by the tax authorities.
But Rosneft also bought all of Yuganskneftegaz's oil for several years in advance at a fixed price.
That is incorrect.
Since we began to speak of YUKOS, let's talk about its bankruptcy, in which Rosneft plays the key role as a creditor, after the tax authorities. How, in your opinion, will the bankruptcy develop?
We always said, and I will say it again, that we are interested in receiving our money as a result of that case. That is YUKOS' debt to Yuganskneftegaz and the debt that we bought from Western banks. That is first. Second. We are, of course, following the case and know that a hearing will be held, and that there is a temporary manager who is forming the bankruptcy assets, assembling the creditors and so on. We are interested in seeing all the questions settled within the deadline set by law and receiving our money. Or some sort of assets instead of money, factories, filling stations, fields, if it turns out that way. But I emphasize that that is not the best option for us because there are better quality assets and production and refineries than YUKOS has.
That is, you don't see any assets at YUKOS that would interest you?
We see them, if there is no other choice than to take them or lose the money completely. But I repeat that we would like to receive money.
There were rumors on the market that Rosneft was behind the purchaser of the Lithuanian Mazeikiu Nafta in the guise of PKN Orlen.
No. Frankly, there were no negotiations or even contacts on that topic.
Now rumors have arisen that you in a consortium with Sinopec are supposedly are acquiring Udmurtneft from TNK-BP.
We have a rule. Until we make a decision, we don't comment on rumors.
Since Rosneft has acquired Yuganskneftegaz, have you seen the need to correct the balance between production and refining?
We feel that the development of refining requires greater efforts and we are engaged in that. All decisions have been made about the reconstruction of the Tuapse refinery, one of the highest-efficiency refineries in Russia, thanks to its convenient geographical placement. A complex program for the development of the plant and terminal has been approved and we will triple the capacity of the enterprise by 2010 and simultaneously raise its indicators to world standards. We are continuing to increase the capacity of the Komsomolsk refinery where, most likely, a petrochemical facility will be added. Investment in Tuapse will be about $2 billion, and at Komsomolsk about $700 million, including setting up the petrochemical complex. In addition, we are making a preliminary study for the construction of a plant with a capacity of up to 20 million tons in Maritime Territory, at the endpoint of the Eastern Siberia-Pacific Ocean pipeline.
It is now clear that the Eastern Siberia-Pacific Ocean pipeline project will be implemented, since the political decision has been made. How significant a part will Rosneft play in filling the pipeline?
Most of all, we are absolutely certain of the expediency of the construction of the pipeline. In our estimate, the reserves in Eastern Siberia are sufficient to fill the pipeline not only at the first stage, but also when the project reaches its full capacity. Now, of course, geological investigation needs to be carried out promptly, which, we hope, will be encouraged by the upcoming passage of amendments to the Tax Code on tax breaks. We propose that Rosneft's part will be to guarantee up to 70 percent of the oil for the pipeline at the first stage. Of course, no one will contravene the principle of equal access.
Have you already given Transneft a guarantee?
We did not give a guarantee, we filed an application. This has to be interpreted correctly. We cannot produce 70 percent of the pipeline's capacity monopolistically. There is a project, there is in principle equal access, and everyone will have the right to supply it with oil. We are talking about our ability to supply crude oil from the Vankorskoe and Verkhnechonskoe fields in that volume.
But we are talking about 2008, when those fields will not likely have that capacity.
Yes, we plan to produce about 2.5 million tons at Vankorskoe in 2008.
Then why aren't you worried that Rosneft won't have the resources for the Eastern Siberia-Pacific Ocean pipeline by 2008?
We aren't worried. There is always the possibility of redistributing resources from Western Siberia, where we are also planning for the growth of production.
But that is a different level of profitability.
In reality, it is all relative. The state sets the tariff policy and it should set it so that it is expedient for the market – for the production companies, the transport companies and for the state as the recipient of taxes. Therefore, we hope for a balanced policy, and a balanced decision.
Three independent directors have joined the Rosneft board of directors for the first time. Can independent directors be expected to become the majority sometime?
That will be determined by the stockholders. But I suggest that Rosneft will follow the norms of corporate management accepted by all the world's public companies. Therefore, based on the expedience of that process, the number of independent directors will definitely grow. And I think the owners will feel the same way.
Deputy chief of the presidential staff Igor Sechin has again become chairman of the Rosneft board of directors. Both the Russian and the Western press call him the “leader of the security wing” in the Kremlin. What is Mr. Sechin's role in the management of the company?
The role of the chairman of the board is clearly defined in the Russian law “On Joint Stock Companies.” In accordance with it, the chairman of the board heads board meetings, signs protocols and the board considers all documents that he is obliged to present to the management.
There are rumors that you may change jobs.
I have always had great respect for my place of employment. I have the same feelings for the owner, who appointed me and signed a five-year contract with me. It ends in 2010, and if the owner will have another position, I will respect it as well. I know nothing about that now.
by
Alexander Shadrin
All the Article in Russian as of June 14, 2006
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