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. Last Updated: 07/27/2016

Sibneft Deal Signals Business as Usual

If Monday's controversial auction of Russian oil giant Sibneft was any indication, experts say the government's next round of privatization may be slightly more open than in 1995, but not nearly as lucrative or as transparent as it should be.


The government has characterized this round of privatizations as a carefully considered, case-by-case affair. But analysts were skeptical that this round would be much less scandalous than the messy and much-criticized loans-for-shares program of 1995, when powerful Russian banks won temporary control of the country's most valuable enterprises in exchange for loans to the government.


Most of those deals were considered highly suspect, won at low prices by close allies to the auctions' organizer.


"Prices [in the loans-for-shares scheme] were exceptionally low, and there was very little attempt to dress them up as fair or competitive auctions," said Rory MacFarquhar, expert with the Russian European Center for Economic Policy.


Now the government has less need to curry favor with the banks, and price tags are likely to go up.


However, Monday's auction of a 51 percent stake in Sibneft, won by an unknown company suspected by many analysts to be allied with Sibneft's current trustee -- financier and presidential advisor Boris Berezovsky -- was an unsettling precedent.


"The Sibneft auction shows there isn't any guarantee of openness or transparency," said one Western economist. "The government is going to have to do it better this time."


Government officials contend this year's privatizations will involve two rounds -- first, a competition between so-called advisers to determine who will run the tenders and, second, investor bidding on the actual assets.


But so far, the government has excluded foreign advisers, according to the head of one international lending agency in Moscow. He added that the omission could frighten off foreign money that would otherwise lift bidding prices.


"The government certainly is not going to raise as much money as they hoped, and it won't be as transparent as it could be," said the source, who asked not to be identified.


"Unless the government radically alters that course, and sells more to foreigners, that's unlikely to change," said MacFarquhar.


Among state jewels up for auction this year are oil giant Rosneft, telecommunications holding company Svyazinvest, and insurance behemoth Rosgosstrakh. Alfred Kokh, State Property Committee chairman, has said the sale of those and a dozen properties should fill 1997 government coffers with up to 10 trillion rubles ($1.7 billion).


Foreigners will get a crack at 25 percent plus one share of Svyazinvest. The terms of that tender are due out May 15, but the deal has been called off so many times that "the crystal ball is broken on Svyazinvest," the economist said.


One thing is certain: Kokh insists the starting price for Svyazinvest, the holding company of 85 regional telecoms and 38 percent of Rostelekom, is set at $1.1 billion.


Up to 49 percent of former state insurance agency Rosgosstrakh should be up for auction, although a Rosgosstrakh sell-off will "be a political battle, since parliament thinks the government may have an advantage running the business," MacFarquhar said.


Among other privatizations expected this year: a pulp and paper mill in both Perm and in Vologda; a defense plant in Samara; Mosfilm; Troitsky Iodin in Orenburg; a mica processing plant in Karelia; Russky Diesel in St. Petersburg; and a machine building plant in Moscow oblast.


As for Rosneft, foreign investors are unlikely to get a shot at the lucrative second-tier oil firm. Instead, the auction could lead to a deal grouping smaller Russian oil firms such as Rosneft, Eastern, Slavneft and Onaco under the Sibneft roof.