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. Last Updated: 07/27/2016

Tyumen Says Subsidiary May Hurt It in Sell-Off

Officials with Tyumen Oil Co., or TNK, said Tuesday that a raging battle with subsidiary and main production unit Nizhnevartovskneftegaz could harm an upcoming cash auction for a 49 percent stake in their company.


"All this conflict and confusion will definitely push down bids for TNK shares," Iosif Bakaleynik, Tyumen vice president of finance, said at a news conference. "The ultimate loser will be the federal budget, which will receive less money for the stake."


The current drama is taking place against the backdrop of TNK's second phase of privatization, in which bids are currently being taken for 49 percent of the company through a cash auction.


But despite Bakaleynik's concerns, Mikhail Surtsukov, an energy analyst with the United Financial Group, said the conflict would only marginally affect what is expected to be only lukewarm interest in the auction.


Nizhnevartovsk, from which Tyumen derives 90 percent of its crude oil, "has a high water-cut level, a large number of idle wells and a mountain of debts," Surtsukov said. "I doubt it will be profitable even if gets a favorable tax regime."


The dominant position of financial-industrial conglomerate Alfa Group at TNK, with 40 percent of shares garnered during the first phase of privatization, is another factor dampening investor interest, said Creditanstalt oil analyst Matt Thomas.


TNK and its subsidiary appear to be heading for a decisive battle in a conflict triggered when Nizhnevartovsk chief executive Viktor Paly alleged that TNK's earlier investment tender was rigged in favor of Alfa Group.


Efforts by TNK to consolidate its hold over Nizhnevartovskneftegaz have been foiled by the boss's popularity. In shareholder's meetings, Paly's supporters have voted down two efforts by the holding company to eject him.


But recently, Nizhnevartovsk accused TNK and Alfa of using political connections to block its oil exports under the pretext that they were priced lower than the government permits. Customs officials have blocked two tankers with 350,000 metric tons of Nizhnevartovsk oil in Novorossisk harbor, TNK representatives said. Nizhnevartovsk officials declined to comment.


TNK appeared to have garnered the support of First Deputy Prime Minister Boris Nemtsov in September, when he called for a halt of Nizhnevartovsk exports. But last week, Nemtsov seemed to back down when he asked the customs committee and state pipeline monopoly Transneft to "reconsider the situation."


A meeting was scheduled for late Tuesday to discuss the matter.


To add to Nizhnevartovskneftegaz's troubles, media sources have reported that local authorities are seizing 40 percent of its monthly oil output in lieu of taxes. The company is estimated to owe local budgets more than 700 billion rubles ($119 million) in taxes.


Likewise, the producer has delayed paying wages for several months, Bakaleynik said.