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. Last Updated: 07/27/2016

Transneft Plans Stock Shift

In a first, tentative step toward privatization, the state pipeline monopoly Transneft is planning to transfer some of its stock to employees, as well as step up its participation in major international projects, its president said.


Transneft chief Valery Chernyayev said in an interview that the company will soon distribute 25 percent of its shares currently held by the state free to the company's present and former employees, while the remaining 75 percent stake would be retained by the state.


"It's the first step [in privatization] that we are undertaking," he said Friday.


Chernyayev did not indicate whether the stock-transfer scheme was initiated by the government or the company, but said that if the government approves further privatization plans in the future, "we are ready to go ahead with other options."


Chernyayev did not elaborate, but other options could include sale of a stake in the company to a strategic investor or a stock-market flotation.


While the 76,568 past and present Transneft employees will be able to sell the non-voting privileged shares on the secondary market, Chernyayev indicated the company would seek to retain full control over its stock.


"If they decide to sell them, Transneft will buy out these shares," he said.


Steve Allen, an oil analyst at CentreInvest Securities, said the move "sounds like the first stage of a company getting used to the idea of non-insiders owning their shares."


"It's going to be tough for them to swallow, so they're trying to control it," he said.


But he said with less government control and less state money available to the company, Transneft -- due to remain in state hands until at least the end of 1998 -- would eventually turn to the stock market to raise capital.


"Maybe five or 10 years down the road, they will see the stock market as much more of the tool that they can use to raise funds," he said.


Allen doubted that the government would relinquish control of the lucrative pipeline monopoly, but said the government might seek to sell a sizable portion of shares in order to bring in revenue.


Transneft is a company that traditionally shuns publicity, like its larger cousin in the gas sector, Gazprom. It owns all 50,000 kilometers of Russia's oil pipeline network and is the sole carrier of all oil produced in the country to internal and most foreign markets.


The company's financial books are opaque. Since the privatization of the rest of the oil industry, it has come under fire from oil companies for raising transit tariffs.


On other projects besides privatization, Chernyayev said he "absolutely" supported a proposal to build a Baltic pipeline that would carry crude from Russia's Timan-Pechora oil province and western Siberia to foreign consumers via an as-yet unbuilt oil terminal in Primorsk in the Gulf of Finland.


"The oil reserves in Timan-Pechora province are sufficient to make the port construction possible," he said.


Chernyayev named United States' Conoco, France's Total, and Russia's Rosneft among possible members of an international group of companies that have expressed interest in the project.


He also said the launch of the Caspian Pipeline Consortium could be delayed because the prospective owners were a month late making the first payments for the consortium shares.


"This will certainly affect the construction schedule," he said.


Under a deal signed last April, Transneft will be the operator of the $2 billion project to build a 1,500-kilometer link between Kazakhstan's Tenghiz oil field and Russia's Black Sea port of Novorossiisk.


The Caspian Pipeline Consortium groups Russia, Kazakhstan, Oman and eight international oil companies.


Chernyayev said he did not expect fighting in Chechnya to upset Transneft's plans to pump early oil exports from the $8 billion international offshore oil project on the Azeri Caspian shelf, and dismissed the possibility that a possible 200-kilometer bypass could be built around Chechnya to secure a more safe route for the Azeri oil transport.


"I have always been convinced that the northern route from Baku Novorossiisk is the most reliable and cost-efficient variant," he said.


Chernyayev also announced plans for a major upgrade of the Novorossiisk port, which currently accounts for over half of Russia's 1.1 million barrels per day of seaborne crude exports. He said the port has completed a feasibility study for two deepwater terminals that would allow loading of tankers of up to 1 million barrels under all weather conditions.


In the future Transneft may introduce a new oil transport scheme that would allow oil producers to receive downstream crude of the same quality that they load into the pipeline network upstream.