Fuel Minister Slights Oil, Touts Gas

An end-of-year summation is traditionally a time for Russia's fuel and energy minister to stand up for the interests of the country's oil companies. But Pyotr Rodionov used the occasion Friday to signal his other loyalties in the energy sector while directing a few veiled barbs at the petroleum bloc.


Rodionov, a former top manager at Gazprom who took over as minister in July, chose his words carefully, but in tone and emphasis left the clear impression that the oil sector was a weaker sister compared with a reviving gas industry.


"Our oil output has dropped by more than half over the past five years, and this year, incidentally, we are more than five million tons below last year's output," he said. A press release distributed at the news conference noted that "the tendency toward stabilization of production is noted in all sectors of the [energy] complex except for the oil and refining sector."


Rodionov indicated that he favors tighter government control over the industry -- including possible federally mandated price cuts -- and sided with state-controlled Rosneft holding and Transneft pipeline operator over their respective business interests. He also lashed out at some of Russia's top privatized oil companies, claiming their production had dropped and financial situation worsened since they were sold off in the government's loans-for-shares auctions last year.


"There is no coincidence that they have become major debtors," he said, referring to oil majors Yukos, Sidanko and Sibneft, whose controlling stakes were acquired by influential financial groups Menatep, Uneximbank and Logovaz, respectively.


Gazprom, Russia's largest company, is the largest debtor to the budget, owing more than 15 trillion rubles ($2.7 billion). But Rodionov said it was "no fault" of the natural gas monopoly because nonpayments by consumers, including the government, were far higher.


The performance of the 45-year-old former head of Gazprom's St. Petersburg subsidiary contrasted sharply with his predecessor, Yury Shafranik, who joined the board of the Tyumen Oil Company after leaving government this summer.


Whereas Shafranik was a strong champion of reforming Russia's production-sharing legislation, Rodionov appeared to have little concern over the protracted debate in parliament over the law.


"This is how democracy works, and this is normal," he said, promising no early action on a bill that foreign companies say is critical for unlocking tens of billions of dollars in investment for the cash-strapped sector.


Whatever his preferences, Rodionov will hardly be able to ignore the oil industry, analysts say. Nor, said United City Bank vice president Vitaly Chernyak, is it likely Rodionov will increase the leverage of his ministry over the gas industry, which in Gazprom head Rem Vyakhirev and former boss Viktor Chernomyrdin already has powerful pull in government.


Nevertheless, Chernyak said, it was a logical step for Rodionov to "capitalize on the success of Gazprom, which is doing better than the oil sector, where things are not at their best."


At his press conference, Rodionov dismissed calls to break up Russia's natural monopolists such as Gazprom and Unified Energy Systems. "I do not understand how Gazprom [monopoly] should be broken up, longitudinally or across. I do not understand that at all," he said.


He suggested that a greater role by the state in regulating the fuel and energy complex could help lift the country out of its economic crisis, including cuts of 15-30 percent in tariffs for gas, electricity and rail transport.


"We tried to do something in the hope that the free market will regulate everything," he said. "But such things simply do not happen."


Rodionov said the share of the energy enterprises in the tax revenue of the federal budget continued to grow this year and reached 70 percent, an alarming level that showed that "something is wrong with the economy."


"I should probably feel proud that my industry generates 70 percent of the total tax revenue, but God forbid that I live to see the energy sector account for 100 percent of tax collection. This would mean economic collapse," he said.


He said that oil executives had met Tuesday with Prime Minister Viktor Chernomyrdin and won a number of new tax benefits, including lower excise taxes on oil and a lower transportation tax. The measures are incorporated in the draft federal budget, due to come before the State Duma for a vote in third reading Saturday.


"I can tell you, Viktor Stepanovich is a professional and understands the role and importance of the energy sector to the national economy," Rodionov said, adding that a number of government documents were in the works following the meeting.


Rodionov indicated the Fuel and Energy Ministry would support state oil company Rosneft, which is locked in a court case with another oil major Sidanko over oil producer Purneftegaz.


"Given the production results of Rosneft and Sidanco this year, I don't think Purneftegaz should be part of it. I think the case will be decided in a proper way," he said.


He also said it was "most likely" that pipeline monopoly Transneft would win the right to hold Russia's 24 percent stake in the Caspian Pipeline Consortium, a multinational project to transport oil from Kazakhstan's Tengiz fields to the Black Sea, whose partners finally signed a shareholders' agreement earlier this month.


Western companies have opposed any equity stake for Transneft, fearing its involvement would give it excessive leverage over transportation tariffs.