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Corporate Management in the CIS

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The Russian government has set a date and price for the sale of Russian oil ... 8.65bn well short of the $20bn which Yukos has insisted that Yugansk is worth. ... – PowerPoint PPT presentation

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Title: Corporate Management in the CIS


1
Corporate Management in the CIS
  • Week 10
  • Russian enterprise in the 21st century

2
Purging Yukos
  • The Russian government has set a date and price
    for the sale of Russian oil giant Yukos' main
    unit Yugansk, seized to pay the firm's huge back
    tax bills.
  • The sale opens on 19 December - a day before a
    shareholder meeting which could decide the firm's
    fate.
  • The starting price is 8.65bn well short of the
    20bn which Yukos has insisted that Yugansk is
    worth.
  • The Russian government said there would be no
    limit on foreign bidders taking part in the
    auction.
  • Yukos, however, has frequently said its unit
    could go to a state-owned firm, effectively
    renationalising it, or to a supporter of
    President Vladimir Putin.
  • 19 November (Russia London.com)

3
Purging Yukos the Empire Strikes Back
  • Yukos' main shareholder has filed a legal
    complaint to prevent the Russian government
    selling off the oil giant's main production unit,
    reports say.
  • Group Menatep, which owns 60 of Yukos' shares,
    used the Energy Charter treaty to bring the
    proceedings, Russia's Interfax news agency said.
  • The Energy Charter is an international treaty
    that establishes a legal framework to protect
    investments in the energy sector in the countries
    of the former communist bloc.
  • Under the terms of the treaty, shareholders may
    initiate international arbitration to reclaim
    damages if an amicable agreement is not reached
    within three months.
  • 02 December (Russia London.com)

4
The attraction of private enterprise
  • Foreign Affairs Journal March/April 2002
  • The authors saw increases in Russian oil
    production and new reserve finds in the Caspian
    Basin as evidence of substantial future export
    capacity.
  • In addition, they depicted the Russian energy
    industry as an independent actor, emancipated
    from State control (unlike the State-held oil
    companies of OPEC members), which was eager to
    help the U.S. and the West break free from OPEC
    dependency by becoming a reliable, long-term
    energy partner.
  • Quoted in Hill Fee (2002)

5
Gas rises
6
Going West?
  • Europe
  • OAO Gazprom remains the major gas supplier to
    the European market, accounting for 25 of gas
    consumption and up to 40 of gas imports into
    Europe. .
  • Western Europe
  • According to experts estimates, gas consumption
    in Western European countries may keep growing
    during the period from 2001 through 2025 by an
    annual 2.4, increasing from 420 bcm to 730 bcm.
  • This is primarily due to the expected conversion
    of heat power stations to gas as their fuel.
  • The consumption growth coupled with the decrease
    in its own gas production as a result of
    depleting reserves in the region is likely to
    increase the dependence of Western Europe on
    import (up to an estimated 60 by 2020).
  • GAZprom annual report 2003

7
Yukos potential
  • Reserves
  • Proven oil reserves (SPE basis) of 14.709 billion
    barrels (DeGolyer and MacNaughton, 31 December
    2003)
  • Proven gas reserves (SPE basis) of 7.936 trillion
    cubic feet (DeGolyer and MacNaughton, 31 December
    2003)
  • Most reserves located in Western Siberia,
    including the Northern Territory of the
    Priobskoye Oil Field, one of Russia's largest
  • Yukos annual report 2002

8
Yukos distribution
  • YUKOS exports approximately 61 percent of its
    crude oil, mostly to Eastern and Western Europe,
    primarily through ports on the Baltic and Black
    Seas and the Druzhba pipeline system.
  • In 2003 YUKOS' exports of crude oil to the
    non-CIS countries reached 46.6 million metric
    tons, an increase of 34 on 2002, while exports
    to the CIS rose 17 to 2.6 million metric tons.
    Domestic sales of crude oil fell to 0.5 million
    metric tons, a drop of 72.
  • In 2003, YUKOS exported crude oil to refineries
    in virtually all European countries, with the
    largest volumes going to Lithuania, Italy, the
    Netherlands, Hungary, Poland, Slovakia, Greece
    and Sweden.
  • Yukos marketing activities site

9
Portfolio Data from FinAm 07/12/2004
  • 2 wks 1 wk
    change
  • Lukoil 32.350 32.390 0.12
  • Surgutneftegaz 0.8240 0.7800 -5.34
  • Sibneft 3.650 3.350 -8.22
  • Yukos 3.000 3.120 4.00
  • Gazprom 2.834 2.752 -2.91
  • Tatneft 1.720 1.705 -0.87
  • TNK 3.080 3.070 -0.32

10
In the last year
  • Lukoil divestment of state shareholdings
  • 80 export via Ukraine
  • Field tax audits this week of vertically
    integrated oil companies
  • Sibneft
  • Slavneft
  • Rosneft and
  • Tatneft.
  • Sibneft is well known for practicing tax
    optimization schemes.
  • Several times its effective corporate profit tax
    stood at a record low level of 5.
  • Yukos 34.5 stake in Sibneft frozen.

11
Grand Designs?
  • Re-nationalisation of key industries
  • Strategic alliance with Gazprom unified energy
    sector with exceptional export capacity?
  • Start of State Capitalism (Economist 5/8/04)
  • Need to supply home market at subsidised prices
    allied to state revenue requirements via taxation
  • Consolidation of energy market against western
    competition (Hill Fee)

12
Internationalization of Lukoil Gazprom
  • Summary of reasons
  • Sales outside the domestic market offer a better
    price and more solvent customers
  • Internationalization aids in securing the supply
    of natural resources in the future
  • Operations abroad aim at guaranteeing reliable
    and economically feasible distribution of goods
    to foreign customers
  • Liuhto (2001)

13
Potential summary
  • In terms of energy sector
  • Unification under state control because of its
    vital importance.
  • Exclusion of foreign investors
  • Putin may beget a regime with a dominant KGB gene
    in its genetic code. The danger lies in some of
    Putin's advisors. If his former KGB associates
    form a critical mass around him, their worldview,
    shaped by the shadowy universe of the
    intelligence and security apparatus, can
    fatefully colour Putin's take on the world
  • LA Times Putin's Dilemma Can Bureaucrats Be
    Trusted? (6/8/2000)

14
An effective policy?
  • After expanding by 11 in 2003 and 9 in 2004,
    growth in Russian oil production slowed to just
    3.6 in the first half of 2005.
  • Some deceleration was expected, but the scale of
    the recent slowdown has been more severe than
    predicted
  • There is still huge uncertainty about whether the
    state's renationalization drive will end with
    Yukos.
  • On July 8, President Putin confirmed that
    Gazprom, the giant state-owned gas concern, is in
    talks to acquire No. 5 oil producer Sibneft.
  • Not coincidentally, analysts say, Sibneft has
    curtailed capital investment
  • Business Week July 2005

15
Outside of energy
  • Alliances in other industries exist with western
    companies
  • International alliances are reflective of ..
  • Critical attempt by firms to
  • Expand globally and
  • Enhance technical capabilities

16
Evidence of Opitz Sauer (1999)
17
Evidence of Opitz Sauer (1999)
18
Critical industries?
  • Alliances found primarily in manufacturing and
    research intensive industries
  • Manufacturing usually joint venture
  • Research (RD) usually contractual
  • Where technology transfer is unilateral usually
    joint venture
  • Where technology transfer is bilateral usually
    contractual
  • (Hagedoorn Sedaitis 1999)

19
Challenges for Russian global leaders (De Vries
et al 2004)
  • Identify and develop successors
  • Build trust
  • Protect assets and manage government relations
  • Build 21st-Century organizations (3Is
    innovation, information involvement)
  • Key objectives
  • Design for long term value-creation
  • Develop organization competencies of competitors
  • Practice empowerment and delegation
  • Create information systems that support sharing
    data and communication

20
Company practices
  • Corporate Governance uniquely
    Russian/convergent/US-UK based
  • Role of hierarchical FIGs in more productive
    resource allocation)
  • (Perotti Gelfer 2001)
  • Business ethics
  • What is it?
  • Can it be universal?
  • Beekun et al (2003) national culture factors
    need to be considered in the study of global
    ethics unlikely that ethical principles are
    invariable across cultures and different
    contexts.

21
Russia WTO
  • Does Russia need to join WTO?
  • What are the potential benefits?
  • Usual argument need to enter the global
    community and will assist trade liberalization
  • Afontsev (2004) argues
  • Trade liberalization could be done without WTO
    and joining may have affect of slowing rate down

22
Russias long-term plans?
  • Time parameters of WTO accession
  • Short term focus in on the chance of obtaining
    favourable accession conditions
  • Medium term prospects for defending the
    interests of national economic actors using WTOs
    existing political-legal mechanisms
  • Long term key issue is possibility of
    influencing the further evolution of these
    mechanisms

23
Yukos affair is not an impediment in WTO talks
  • 29-10-04
  • The Yukos problem does not hinder the Russia-US
    talks on the WTO
  • Accoring to President of the US Chamber of
    Commerce Thomas Donohue "It would be a mistake
    to consider the case of one company as serious
    impediment for the talks. We have many other
    issues to discuss, such as intellectual property,
    customs issues, banking sector and joint
    contracts. Russia stands closer to the WTO
    accession now then ever before".
  • Source Itar-Tass
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