Russia & CIS Energy Newswire, 6 May 2008

New tax claims against the oil company Russneft for 2006 could come to around 19 billion rubles, the Vedomosti newspaper reported, quoting a draft report on a tax audit for that year.

A source close to Russneft told Interfax that the audit had been completed but that the results had not yet been presented to the company. Russneft expects to receive the results by June.

Yustina, a law firm representing Russneft, told Interfax that it possessed no information about the new tax claims against Russneft.

Vedomosti said the claims for 2006 were based on the fact that Russneft continued to buy crude oil not directly from upstream subsidiaries but via traders and with a mark-up.

Russneft at the end of April challenged tax claims of approximately 20 billion rubles for 2003-2005 in the Supreme Arbitration Court. The company earlier said it had repaid around half the amount.

The additional tax debt meant that Russneft closed 2007 with net losses of around 12.3 billion rubles.

The Russian Oil and Gas Report, 5 May 2008

Gazprom does not have money for a buyout of 20% of Gazprom Neft shares and gas assets of Yukos from Eni and Enel. However, this is not an obstacle for the deal. Gazprom Neft and Novatek may fulfill the option for the gas monopoly.

Buyout of the stake in Gazprom Neft and controlling stakes in Arcticgas and Urengoil is implied by the two-year option of Italian Eni and Enel (it is in effect until April of 2009). A source in Gazprom points out that the agreement with the Italian companies says that the option can be fulfilled by Gazprom or a company nominated by it.

A source close to Gazprom reported that management of Gazprom Neft proposed buyout of 20% of the company's shares. The source explains that Gazprom Neft will be able to use the shares for financing of its projects. Another source close to Gazprom stated that Gazprom itself considered this. The budget of the gas monopoly for the period between 2008 and 2009 does not make provisions for such deals and Gazprom has already promised the government to increase capital expenditures on production.

Novatek is one of the options for the purchase of gas assets due to the same reason of money shortage. The source adds that this is a company allied with Gazprom.

The source remarks that the gas monopoly will retain the right for the former gas assets of YUKOS anyway, for example, signing an option with Novatek. A source close to one of the members of the Board of Directors of Gazprom confirms that the scheme with Novatek is really being discussed. At any rate, all three sources stress that so far these are only discussions and there are no resolutions yet. One of the sources explains that there is also a simpler way out in the form of achievement of agreement on prolongation of the period of the option with Eni and Enel.

Enineftegaz established by Eni (60%) and Enel (40%) bought the shares of Gazprom Neft and the gas assets of Yukos at an auction in April of 2007. For the entire lot the partners paid $5.83 billion. Eni alone paid for the stake in Gazprom Neft ($3.7 billion). Now the asset costs $5.8 billion. The gas assets including 100% of Arcticgas and Urengoil with gas reserves of almost 900 billion cubic meters remained in the hands of Enineftegaz. Gazprom announced that it signed an option with the Italian companies a couple of hours before Enineftegaz won the auction. The document makes provisions for buyout of all 20% of Gazprom Neft shares at a price on the day of the auction plus all expenditures in the framework of the deal. The value of the option including the gas assets is not disclosed. According to Enel, the acquisition cost it $852 million. Together with the stake of Enel in Enineftegaz this makes $2.13 billion or $1.1 billion for 51%.

Analyst of Unicredit Aton, Artem Konchin, presumes that the deal with Eni will be very beneficial for Gazprom Neft: Gazprom Neft will acquire the stake with a 36% discount and it will be possible to use it for placing at an exchange or for exchange for some other assets. Analyst Pavel Mamay of Lehman Brothers remarks that it will not be easy for Gazprom Neft to borrow $3.7 billion. The scheme with Novatek looks simpler to Mamay: Novatek has a very small debt (6.6 billion rubles at the end of 2007) and it will be easy for it to borrow $1.2 billion.
Source: Vedomosti, April 30, 2008


The International Herald Tribune, by Eckart von Klaeden, 3 May 2008

Eckart von Klaeden is the foreign-affairs spokesman of the CDU-CSU faction in the German Parliament

When Chancellor Angela Markel traveled to Moscow in March to meet President Vladimir Putin and his successor Dmitry Medvedev, who will be inaugurated next week, flowers for International Women's Day were not the only surprise she got. At their joint press conference, Putin suggested that Mikhail Khodorkovsky, the former oligarch imprisoned since 2003, could be released by his successor.

Merkel seized on this to underline how warmly the German government would welcome such a step.

In an interview with the German daily Die Welt published in October 2003, a few days before his arrest, Khodorkovsky had described the balance of forces in the Kremlin as a battle between two camps: Democrats were fighting against supporters of what they called a ''managed democracy'' - a liberal market economy within an authoritarian state.

Khodorkovsky, however, was mistaken in that same interview about the future of the economy - and his own future. He ruled out the possibility of a wave of expropriations in Russia. Such interference in the economy, he argued, would risk a freefall in GDP.

In the months following his sentencing, Yukos was broken up and absorbed by the state energy company Gazprom through a questionable auction for far less than its real value.

The supporters of a ''managed democracy'' achieved their aims. A wave of re-nationalization began in Russia; foreign companies had their licenses withdrawn for unconvincing reasons, as in the case of Shell and Sakhalin II. Elected governors were replaced by governors appointed by the president.

A law was passed restricting the work of nongovernmental organizations. Requirements for the registration of political parties were tightened, creating another obstacle for the already weak and divided democratic opposition.

Electronic media outlets were brought under state control, and violent crimes against independent journalists were not investigated thoroughly. Today, a newspaper that prints inconsequential rumors about the president's private life must expect not just the firing of its editor-in-chief - that can happen in France, too - but also to be shut down.

During the presidential elections last March and the Duma elections last December, not only were the rights of the opposition restricted, but also those of international election observers; the OSCE's independent monitoring organization called off its observation missions.

The German government's deputy spokesman, Thomas Steg, who had been a member of former Chancellor Gerhard Schršder's staff, subsequently said that ''Russia was no democracy and it is no democracy.''

Khodorkovsky was also mistaken about the economic consequences of the wave of re-nationalization. At first glance, they've been a success.

For several years now, the Russian economy has been growing at a rate of over 6 percent. Real disposable income more than doubled between 1999 and 2007. Russia has the third largest currency reserves in the world, and foreign direct investment has strongly increased since 2002.

At second glance, however, one realizes that this direct investment - though more than double in 2007 over the previous year - is, even at about 20 billion euros, extremely low given the size of the country. And the high rate of inflation, which was 13.3 percent in year-on-year terms in March, is causing concern.

Russia must use its revenue from the energy sector to reduce its economy's dependence on raw materials. If the global economy should suffer a sharp downturn or a further slowdown, the result will be falling prices for raw materials.

Medvedev has recognized this and is seeking to enact reforms focusing on ''Four I's'' - investment, infrastructure, innovation and institutions. But this will require significantly more foreign direct investment, as Khodorkovsky recognized five years ago.

Even if investors can be protected for a while by political connections or agreement on a foreign arbitral forum, in the medium and long term Russia cannot escape the need to develop an effective rule of law if it wants lasting economic success.

In a speech in Krasnoyarsk during the presidential campaign, Medvedev spoke of ''legal nihilism'' regarding the condition of the judiciary in his country, and the World Bank has noted a clear decline in the rule of law in Russia between 1996 and 2006.

The development of a rule of law is not primarily about an administration and a judiciary which can be relied on to abide by the law - although that would be a vast improvement for Russia. It is about independent judges and prosecutors working in the free atmosphere of a functioning civil society.

Medvedev's speech in Krasnoyarsk gives grounds for hope that he has recognized this. But then Putin had called in even stronger terms for a ''dictatorship of the law'' at the start of his term of office. What is needed is nothing less than a U-turn in policy toward law and society and a break with Putin's system.

In the interview with Die Welt, Khodorkovsky said one needs courage in Russia to advocate the development of a civil society. His fate will send a signal about the direction in which Medvedev intends to - or is able to - lead Russia.