Officials Predict an End to Soviet-Era Rosneft

Privatization officials say the end of Rosneft, the Soviet-era oil monopoly, is not far away, but Russia's oil generals contend there is still months of lobbying and miles of red tape to go.Russia has already sold to the public at least some shares in 75 percent of its oil-producing and processing enterprises, outpacing the speed of oil industry denationalization in other countries.However, the majority of oil supply enterprises are still state-owned and a recalcitrant state bureaucracy, unwilling to give up its authority, has meant that it can takes months even for senior company officials to obtain approval to sell shares in their enterprises.Oil industry privatization has always been seen as one of the key elements for Russia's economic reform.Under the Soviet system, a single state bureaucracy controlled the entire production cycle, from the wells to the spigot at the end of the export pipeline.But the breakup of the Soviet Union, which stranded oil machinery producers in other republics, in combination with poor production techniques and a lack of funds for investment in new field development, has resulted in a steep decline in output.Russia's oil output was 354 million tons in 1993 and is expected to fall to 330 million tons in 1994.With the sell-off of oil enterprises, the Russian government hopes to create a string of powerful, competitive companies that would reverse the country's decline and, through competition, keep prices down.The genesis of oil industry privatization began with a November 1992 presidential decree that ordered the majority of Russia's oil enterprises be converted into joint-stock companies, the first stage in the privatization process."The presidential decree is 94 percent fulfilled," Dmitry Romanov, deputy head of oil privatization department at the State Property Committee, said in a recent interview. "The end of Rosneft is not far away."By mid-April, 168 out of Russia's 259 oil enterprises, were converted into joint-stock companies, the first stage of privatization, according to Romanov.Transformation of about 50 other enterprises, however, is being held up over ownership disputes between Russia and its most independently minded republics -- Chechnya, Tatarstan, Bashkortostan, Komi and Sakha."Some of these enterprises simply are not Russian property any more," Romanov said.Mergers with other companies and bureaucracy have delayed the conversion of the remaining 40 enterprises, but the process will be completed "very soon," Romanov said.Under the privatization scheme, the government is setting up vertically integrated oil companies on the model of Western European and American oil giants. This calls for production, refining and supply companies to be split off from Rosneft and grouped together into single enterprises.Privatization is also taking place within Rosneft, which now accounts for about two-thirds of Russia's oil production and refining. About 45 percent of Rosneft divisions have so far sold shares to the general public, Romanov said.In these companies, the state now holds a 38 percent interest, workers control another 40 percent and the remaining 22 percent of shares have been auctioned off, Romanov said.Three independent companies have been set up from former Rosneft divisions. These companies account for a third of Russia's oil output, with Lukoil producing 50 million tons of crude a year, and Yukos and Surgutneftegaz each pumping about 35 million tons.On May 5, the government signed a resolution to set up a fourth company, Sedanko, expected to produce about 48 million tons of crude. There are also plans to set up two other companies soon with combined annual capacity of about 16 million tons, Romanov said.However, while the government holds only 45 percent stake in the company's shares, it retains 60 percent of the voting stock.Lukoil, Russia's first and largest independent oil company, is already acting more like a competitive private company than a state-owned conglomerate. The company introduced a price freeze earlier this year in response to falling domestic demand. It is drilling in Egypt, and competing with big Western oil giants for projects in Azerbaijan, Kazakhstan and elsewhere in the former Soviet republics.Lukoil has so far sold about 15 percent of its shares to the public through voucher auctions. Pushing for further privatization, managers have asked the government to be allowed to sell for vouchers another 10 percent.Leonid Fedun, the vice president of Lukoil, said in an interview that the proposal is being reviewed in the government but the sell-off would probably need a special presidential decree.Fedun said he hoped approval would come before voucher privatization ends July 1. "We've done what we could," he said.Fedun said that he had spent a year trying to obtain all the necessary documents to hold its first voucher auction earlier this year."The bureaucracy is always there," he said. "Ministries feel that they are losing ground and find that they have nobody to give orders to and so they resist."Transneft, Russia's crude oil transport monopoly, and Transnefteprodukt, which is responsible for transportation of oil products, have been transformed into state holding companies.Under a draft plan, expected to be finalized within three months, the state will hold a 51 percent interest in the transport companies, while 49 percent will be sold to outside investors.An official with Transneft, who asked not to be named, said only six of Transneft's 18 branches have been converted into joint-stock companies and contended pipelines must be state controlled."Some things must not be denationalized," she said.