Opinion: Gazprom and the departure of the oligarchs

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MOSCOW, September 28 (RIA Novosti commentator Peter Lavelle).

Gazprom's Wednesday announcement that it was purchasing oil giant Sibneft for $13.01 billion dramatically expands the state's control over Russia's vast energy sectors. Roman Abramovich's sale of Sibneft also marks the end of an era - the state is willing to buy out oligarchs.

Gazprom's 72.7% purchase of Sibneft shares from Abramovich's Millhouse Capital for $13 billion is a surprise for market watchers. During weeks of speculation, the investment community expected that Gazprom would negotiate the price down to around $7 billion - the $13 billion price tag represents the current market value of Sibneft shares. In July, Sibneft shareholders paid themselves an extraordinary 2004 dividend of $2.3 billion.

Gazprom's willingness to pay market value for Sibneft shares is seen by some as a potential political liability for the Kremlin - enriching "oligarchs" at the state's expense may be used by ultranationalists for political purposes during the 2007-08 political season. Gazprom is expected to respond to any popular outcry about the purchase that it is only respecting property rights in Russia. In the wake of the Yukos affair, this line of explanation is expected to go down well with foreign investors and bolster Russia's overall investment case.

The state privatized 51% of Sibneft for $100 million at the end of 1996; later the entire company changed hands and eventually fell under the control of Millhouse Capital and a group of small shareholders. The ownership structure of Millhouse is not publicly known. It is rumored that Abramovich may have transferred shares in Millhouse to high-ranking government officials to ensure the sell-off of Sibneft to the state after he paid himself the 2004 dividend.

Gazprom, already Russia's largest company and energy super giant, is now set to become a major player in the country's oil patch. The purchase of Sibneft adds 6 billion barrels in oil reserves to Gazprom's portfolio, which positions it to produce 30% of Russia's current oil output. Gazprom's plunge into the oil business also significantly extends state control of Russia's energy sectors to a hegemonic 57.4%.

Gazprom's purchase of Sibneft is also a defeat to its arch-rival state-owned Rosneft. Gazprom was slated to acquire Yuganskneftegaz from embattled Yukos at the end of 2004, but Rosneft - acting as an intermediary - kept the asset for itself. Since then, Gazprom and Rosneft have been competing to acquire other Russian oil assets. Both companies are now believed to be eyeing the remaining production units of Yukos.

Abramovich's sale of Sibneft also ends one era and starts another. Russia's market economy started with a small group of "oligarchs" amassing huge fortunes from the purchase - or by other means - of state assets at knock-down prices. This trend was reversed when the Kremlin demanded, using any and all administrative means, the return of oil assets from Yukos and the re-introduction of state control over Russia's energy sectors. Now, the Kremlin is willing to buy-out the oligarchs. Gazprom's purchase of Sibneft, at market value, signals that the era of "stealing" that so much marred state-business relations in the past has now come to and end.

The opinions expressed in this article are those of the author and do not necessarily represent the opinions of the editorial board.

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