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. Last Updated: 07/27/2016

State to Begin Oil Company Auctions

The sale of government stakes in six regional oil companies is set to begin Tuesday with cash auctions involving two of the firms.


But while some analysts say the auctions, which are open to foreigners, likely will be above board, a second phase involving tenders to strategic investors probably will be dominated by insiders -- who will, albeit, pay a fair price for the shares.


The cash auctions are scheduled to begin with the sale of 21.7 percent of KomiTEK and 38 percent of East-Siberian Oil Co., with per-share prices starting at 3,000 rubles and 12,000 rubles, respectively, according to the State Property Fund.


Fund officials said at a press conference Monday that the cash auctions are designed to raise 4.5 trillion rubles ($778.2 million) to shore up the government's woefully deficient budget.


Subsequent cash auctions are slated to include 48.7 percent of Tyumen Oil Co. on Aug. 5; 51 percent of Eastern Oil Co. on Aug. 26; 45.5 percent of Norsi-Oil on Oct. 7; and 36.3 percent of Siberian-Urals Oil Co. on Oct. 21.


Prior to the cash auctions, 30 to 40 percent stakes in the latter four companies also will be offered in the form of investment tenders. But analysts said such large blocks almost certainly will go to Russian investors, much the way Russia auctioned off its industrial crown jewels during an oft-criticized loans-for-shares scheme in 1995.


An investment tender for 40 percent of Tyumen Oil opened last week, with one analyst pointing to the Moscow city government as the most likely suitor. Moscow Mayor Yury Luzhkov has expressed interest in Tyumen as a crude oil supplier for the city's Central Fuel Co., which owns the Moscow Oil Refinery, the analyst added.


Guidelines for the Tyumen investment tender preclude foreign participation, said a property fund spokeswoman. Rules for the remaining three investment tenders have yet to be published.


Although analysts agree that the tenders probably will go to insiders, most believe the winning investors will have to pay a fair price for the stock.


In the case of Tyumen, the winner will be required to invest $160 million in the company over two years -- plus the cost of the 40 percent stake -- payable to the federal government.


"If you add the starting price per share to the [$160 million] investment requirement, you get a more or less fair price per share," said Alexei Kokin, an analyst with Renaissance Capital.


Another analyst said LUKOIL is widely believed to be interested in Norsi-Oil because of its large refinery in Nizhny Novgorod. LUKOIL may snatch up the 42 percent offered in the investment tender, the analyst said, and compete for additional shares in the subsequent cash auction.


Natural gas monopoly Gazprom has expressed interest in KomiTEK as a means to increase the company's crude oil production, one analyst said.