Alignment of interests is crucial
By Toby Shelley
Published: October 1 2008 03:00 | Last updated: October 1 2008 03:00
Royal Dutch Shell’s interest in Sibir Energy is an acknowledgment of the smaller company’s success in securing its position in Russia.
That achievement was capped in July when London-listed Sibir and Gazpromneft agreed to transfer their shares in the Moscow refinery to an independently managed, Dutch-registered vehicle.
The deal resolved a dispute crucial to Sibir’s ambitions as an independent, integrated oil company – a row that pitted it against Gazpromneft’s owner, state-controlled Gazprom.
It also snapped into place all pieces in Sibir’s strategic jigsaw. For Henry Cameron, chief executive, the breakthrough came in December when the head of Gazprom, Alexei Miller, signed off on the deal along with Yuri Luzhkov, the mayor of the city of Moscow, which holds an 18 per cent stake in Sibir.
Their assent meant Sibir had achieved the strategic goal of aligning three sets of interests: those of the Russian state, those of Russian investors Chalva Tchigirinski and Igor Kesaev – who own 47 per cent of the company – and those of the western management and minority shareholders.
Mr Cameron’s says this alignment secures Sibir’s interests by reducing the risk faced by foreign companies operating in Russia. The perceived perils mean investors typically apply a reduction rate of 12-15 per cent to discounted cash flows for Russian assets, higher than the usual 10 per cent for non-OECD assets.
With a 50 per cent stake in the prolific Salym oil field and control of the principal refinery supplying Moscow, plus a 20 per cent share of the capital’s retail fuel market, Sibir’s assets looked strategic enough to be of in need of protection.
That need became more stark when Gazprom bought the assets of oil group Sibneft from Roman Abramovitch in 2005. That deal gave Gazprom a share in the Moscow refinery and an inherited dispute with Sibir over the South Priobskoye oil field, where Sibir alleges its 50 per cent stake was illegally diluted by Mr Abramovitch’s company.
Gazprom wanted control of the refinery and much of the past two years has been spent finding a way to satisfy all parties. The reconciled partners are now considering buying out minority shareholders and investing $1bn (£550m) to expand the plant. The South Priobskoye issue has been taken out of the equation for now by Sibir suing Mr Abramovitch in London. A ruling is expected this month.
Marrying Russian ownership with a western management and stock market listing is now a “necessary condition” for operating in Russia, says James Fenkner, founder of Red Star Asset Management in Moscow. “You need feet in both the Russian and the western camps,” he says.
The roots of Sibir’s strategy lie in Mr Cameron’s experience with fishing companies trading with or based in former Soviet bloc countries. Mr Cameron observes: “They felt patronised by the west . . . it was obvious there was going to be a backlash.”
That conviction persuaded him that Sibir needed to attract majority Russian ownership, eventually resulting in Bennfield, controlled by Mr Tchigirinski, fulfilling that role in 2000.
Russia’s recent economic history has been interwoven with the fortunes of entrepreneurs who became wealthy by acquiring former state assets. But the fates of Yukos founder Mikhail Khodorovsky – in jail – and Boris Berezovsky – in exile – illustrate the risks of being suspected of inappropriate political ambitions.
Mr Cameron argues that Mr Tchigirinski is not someone likely to be targeted by the government. But if Mr Tchigirinski is not a political player, Mr Luzhkov’s post is political and highly valuable as a conduit between the Kremlin and Sibir.
Mr Cameron says Sibir was scrupulous in ensuring that when Moscow took a stake in Sibir, the deal was thoroughly scrutinised.
Nonetheless, Sibir’ stock continues to be discounted alongside that of other companies working in Russia and suspicions still survive.
Copyright The Financial Times Limited 2008