Fortunes go to Kremlin Favorite

By Catherine Belton
Staff Writer
With Gazprom's securement of a record $12 billion loan now appearing to be a mere formality, the gas giant looks set to buy out Roman Abramovich's stake in Sibneft -- the biggest state buyout in post-Soviet history.

The deal would apparently let Abramovich walk out of Sibneft with nearly $9 billion in profit on an acquisition he made in the controversial loans-for-shares auctions of the mid-1990s.

Gazprom's buyout of his stake would also mark a stark delineation between Abramovich and his erstwhile partner Mikhail Khodorkovsky, whose conviction on fraud and tax evasion was upheld by an appeals court on Thursday.

Sources familiar with the negotiations between Gazprom and a syndicate of Western banks said that the loan was "imminent" and would be signed once remaining formalities were settled.

Earlier this week, Gazprom deputy CEO Dmitry Medvedev said that the gas giant could complete the acquisition of Sibneft by the end of the year.

The deal would put almost $9 billion in cash into the pocket of Abramovich, who along with his one-time partner Boris Berezovsky forked out a little more than $100 million for the oil firm in 1995-96.

It is difficult not to compare Abramovich's fortunes to those of Khodorkovsky, who now faces an eight-year prison sentence after a highly politicized trial and whose Yukos oil empire has been crushed under a $28 billion back tax claim. The legal onslaught was widely seen as retribution for the threat that Khodorkovsky posed to Kremlin power.


Even though the Audit Chamber has found that Sibneft underpaid its taxes by 10 billion rubles ($360 million) in 2001 and 2002, no legal action has been taken against the firm. Sibneft has denied any wrongdoing.

Meanwhile, Sibneft's effective tax rate in 2001 was just 9 percent, below Yukos' 13 percent in 2002 and much lower than the statutory rate of 24 percent.

Furthermore, lingering questions over Sibneft's murky ownership have raised speculation that Abramovich has the backing of the Kremlin.

In the summer, President Vladimir Putin publicly said that he was aware of talks between Sibneft and Gazprom -- and that the state should treat it as any other deal.

Berezovsky, who has fallen out of favor with the Kremlin and is living in exile in London, said in a telephone interview Thursday that he had evidence that Putin was seeking personal gain in allowing the Sibneft sale to go through unhindered.

In July, Berezovsky said he was preparing to sue Abramovich in a London court on charges of forcing him out of his stakes in Sibneft and other major assets at a knockdown price after relationship with Putin's Kremlin soured in 2000.

"I have been saying for a long time that Putin is a business partner of Abramovich," he said. "I have no doubt that the profits from the sale of Sibneft will be shared between Abramovich and Putin, as well as among several other individuals."

The difference in treatment between Khodorkovsky and Abramovich underlines Putin's interest, he said.

"It's now clear they just took away Yukos because it was not owned by any of their gang. Proof of this is exactly what's happening with Sibneft now. Putin has said he personally supports the deal."

Kremlin spokesman Dmitry Peskov declined to comment on Berezovsky's remarks. "A person who is under an international arrest warrant cannot accuse anyone of anything," he said. "It would not be correct to make any comment on his remarks."

Russian prosecutors have charged Berezovsky with widespread fraud.

Berezovsky claimed he had seen direct evidence of Putin's collusion with Abramovich in Sibneft when Abramovich forced him to sell the 50 percent stake in Sibneft he jointly owned with partner Badri Patarkatsishvili for $1.3 billion in 2000.

Abramovich said he was speaking in Putin's name when he told him he had better sell or watch the stake be taken from him anyway, Berezovsky said.

"This was done for the benefit of Putin. I can't rule out that during the investigation in England and during the court proceedings, Putin will be called to the court to give evidence."

Berezovsky also claimed he had documentary evidence of Putin's interest in Sibneft, but declined to elaborate on what his records might reveal, saying he did not want to give his enemies time to prepare for his legal attack.

Berezovsky said his suit would likely be filed in October, rather than the September date he had given earlier.

Sibneft spokesman John Mann denied that Abramovich had any special ties to Putin.

"It is clear to anyone that the relationship between Abramovich and Putin is the same the president has with any regional governor in the country," he said. Abramovich is governor of the Chukotka region in the Far East.

Mann declined to disclose the exact shareholder breakdown of Sibneft, saying only that 72 percent of Sibneft was managed by the Millhouse holding company on behalf of core shareholders, who "include Abramovich and a group of current and former Sibneft managers."

Mann declined to say whether the core shareholder group included any other individuals.

Sibneft's ownership structure has often posed a conundrum for financiers and even bankers extending loans to the firm.

"Documents on the ownership of Millhouse are pretty meaningless. If you look at them, you pretty soon run into a dead end," said one banker, speaking on condition of anonymity.

The banker added that a rigorous look at the company's ownership had not been a requirement in previous loan deals secured by oil exports.

Other market observers have suggested that Abramovich may at the least have to share some of his winnings with other state officials.

"One oligarch has said to me he doesn't think for a minute that Abramovich will keep all that cash. He owes a lot of people a lot of money, and a lot of it will make its way back to the Family," said a source close to a natural resources tycoon, referring to the clique of businessmen and powerbrokers who surrounded former President Boris Yeltsin.

Analysts said any lawsuit launched by Berezovsky was unlikely to affect Gazprom's title to the oil firm. Yet, another legal battle could give the gas giant and its big Western lenders some reason to pause.

Sibneft's former partner, Sibir Energy, is suing the oil company in Russia and the British Virgin Islands, alleging that it was pushed out of a joint venture to develop the Sibneft-Yugra field.

Hearings as to whether the British Virgin Islands court had jurisdiction over the case began Thursday, a spokesman for Sibir Energy said.

The spokesman said he could not comment further because the hearings were closed. If jurisdiction is granted, proceedings could take months, he said.

"The outcome of this could impact the value of Sibneft," said Chris Weafer, chief strategist at Alfa Bank.

Sibneft-Yugra produces some 8 percent of Sibneft's total oil output, according to Valery Nesterov, an oil and gas analyst at Troika Dialog, who said that the field could be excluded from the deal.

Gazprom has been so open and active in seeking to buy out Sibneft that the gas giant would suffer a serious blow should rivals Rosneft or Surgutneftegaz snap it up at the last moment.

"This has become a question of image after Gazprom's lack of success in merging with Rosneft," Nesterov said, referring to the failed merger between the two energy giants earlier this year.

"It would not be good for them to get into the same situation again. It's become a question of reputation and of how much you can trust the company's management."

"You still can't say it's a cinch," Weafer said. "As we saw in Rosneft, anything is possible right up to the point where the ink is still drying on the page."

(The Moscow Times, 9.23.2005)