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. Last Updated: 07/27/2016

Watchdog Puts Slavneft's Lone Wolf Under Fire

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Mikhail Gutseriyev has been at the helm of Russian-Belarussian oil major Slavneft for a year. According to the Audit Chamber, the State Duma's budget watchdog, he has wielded excessive power to the detriment of the interests of Slavneft's main shareholder Ч the state.
Gutseriyev, however, says he has used his authority exclusively for the benefit of the company and its owners.


Q:
One of the Audit Chamber's main criticisms was that the majority of Slavneft's profits have been sunk into the company's subsidiaries, including those registered in closed administrative and territorial formations. As a result, the company's shareholders didn't receive the dividends that they were entitled to, while the government missed out on taxes.
A:
Like any commercial company, Slavneft uses all legitimate means to minimize costs. Nonetheless, last year we didn't apply the scheme with the closed administrative and territorial formations, and as of Jan. 1 this year, they ceased to exist altogether. As far as the profits that stayed with the subsidiaries are concerned, I didn't spend this money myself. It went toward topping up the assets of the mother company. Thus, Slavneft shareholders capitalized their dividends. They have a comprehensive report on the use of the company's funds, which they approved.
I set myself the task of balancing the extraction and processing at Slavneft. I will do this even if the entire world is against me. Even if all the employees of the firm come out against my plans, I'll sit here on my own like a wolf in the forest, but I'll get it done. By the end of the year, we'll increase our reserves to 1 billion [metric] tons of oil, and after several years, our extraction rate will hit 16 million tons per year. Then, Slavneft will be worth $3 billion to $4 billion, and the state will be able to sell it at a profit. It will be an ideal bride.

Q:
Everyone remembers last year's conflict with Tyumen Oil Co. [or TNK], which bought up major stakes in Slavneft and its subsidiaries through an affiliated company but was unable to get its candidates onto the board of directors. Will TNK have a chance to participate in the management of Slavneft assets?
A:
Yes, we have managed to eradicate the main disputes. In a letter to the board of directors, TNK withdrew its complaints against Slavneft's management in full. Thereupon, we agreed that at the next shareholder meetings in spring this year, TNK representatives will join the board of directors of Slavneft subsidiaries. At the same time, they have promised not to take the role of auditors and to support the present managers' decisions on steering the company. As far as Slavneft is concerned, the situation is hard to predict. The fact is that last year 6 percent of the 12 percent stake in Slavneft belonging to TNK was seized as part of an ongoing criminal investigation. No less than 8 percent is needed to get onto the board.

Q:
How do you view the suggestion that [oil and aluminum tycoon] Roman Abramovich, after buying shares in the state television company, ORT, will exchange them for the government's stake in Slavneft?
A:
This is complete rubbish. There is no need to demonize Abramovich. Most of what is said about him is myth. Now that he has become the governor of Chukotka [in the Far East], these myths will be dispersed. I have seen him at work, and I know that he is gifted. After conversations with him, I understand that he has no interests other than to help the poor people of Chukotka. I believe that Abramovich will show himself not only as a businessman, but also as a politician and statesman. Of course, he has political ambitions. This is normal when you consider what he has already achieved at the age of 33. When you think what a difficult region he has selected, this too is worthy of respect. You can't steal anything in Chukotka. Sure there's oil and gold, but its hard to get to it Ч its simpler to buy it in Moscow.
As far as Slavneft is concerned, anyone could buy its shares if the state decided to privatize the company. Abramovich could and TNK could. Let them come and buy it Ч just as was done with [the oil company] Onako for a fair price. Personally, I have nothing against this. But I have no particular relationship with Abramovich. This was all thought up by TNK during the period when we had our differences in order to try to spoil my reputation and the reputation of Slavneft. Meanwhile, Abramovich was hardly thrilled at my appointment to Slavneft a year ago.

Q:
What were Slavneft's financial results last year?
A:
Sales proceeds for the whole group comprise $2.4 billion not allowing for internal turnover, and our profits were about $800 million. Last year, the company paid $470 million in taxes, and we fulfilled our obligations to the budget at all levels as well as nonbudgetary funds. We are also due a further $66 million in export value-added tax repayments from the government. Last year, Slavneft cut its debt liabilities by 70 percent Ч from 2 billion rubles ($70 million) to 400 million rubles ($14 million). We have put our subsidiaries' debts into the main company and settled them. We have paid debts of $58 million to the Finance Ministry for a reconstruction and development loan taken in 1994. Е In the near future, Slavneft is counting on signing an agreement with the Japan Bank of International Cooperation on guarantees under a $225 million linked credit for the reconstruction of the Yaroslavnefteorgsintez plant. All that remains is to resolve certain technical issues with the Japanese. Slavneft signed the initial agreement with the Japanese back in 1997 and under the agreement is due to start paying off the credit in 2001. Currently, we're asking the Japanese to transfer the repayment date to 2005.

Q:
But why does Slavneft need the credit if its financial results were so rosy? Perhaps it should carry out the restructuring using its own funds?
A:
In reality, we began last year. But if Slavneft is offered a 10-year loan at 4.9 percent annual interest, I don't see why we shouldn't use it. If I were offered this money at 15 percent to 20 percent, I wouldn't take it. As it is, I'd do better putting my money into new assets. Next year, we plan to invest $600 million in various Slavneft projects, more than $400 million of which will be the company's own funds. We also have permission from the board to attract a further $100 million in credits from Russian banks. Also, we are interested in releasing our own corporate bonds.

Q:
Could you provide specific examples of Slavneft's planned acquisitions?
A:
There is the Sobol joint venture, for example. This is an enterprise engaged in the extraction of oil in Megion, which is near our company's deposits. It has Western shareholders with whom we are currently negotiating. Sobol has good reserves and an annual extraction of around 300,000 tons per year.

Q:
As far as I understand, there may be other, more significant deals. For example, there are rumors you're negotiating with [oil trader] Nafta-Moskva regarding the purchase of a controlling stake in Varyeganneft.
A:
No one is discussing a purchase yet. As of today, Nafta-Moskva transferred Varyeganneft into our operational management Ч we are helping them organize extraction and other issues. Now Slavneft collects all of Varyeganneft's oil and delivers it to its factories. This is beneficial for us despite the fact that we buy Varyeganneft's raw materials at the market price. Slavneft has a resource deficit. The difference between extraction and refining is 4.5 million tons of oil per year, and we purchase this volume on the market.

Q:
The Alliance Group is also trying to get hold of Varyeganneft's assets. How do you plan to reach an agreement with them?
A:
The former head of Alliance, Zia Bazhayev, was my friend. He was one of the most respectable people I knew. Tragically, he died, and now the company is run by his brother. He is young, promising and could, in my opinion, agree with the owners of Varyeganneft Ч the Nafta-Moskva company Ч if he chooses. The main question is the price.

Q:
But how do you feel in general about the question of transferring property in Russia?
A:
Business is about cunning, native wit and aggression up until the agreement is signed and honor, respectability and responsibility thereafter. This is like a maxim for me. Up until the agreement is signed, I am cunning and try to economize. After signing, I'm all honor and trust. For example, TNK got Chernogorneft though its external manager. This was the wrong path. But I'm not just talking about them. Many do it this way now. They buy debts for 20 million rubles, go to court, bring in the external management, pick up the outflow Ч and the deal is done. They pay a pittance for a company worth millions of dollars, then they sit back and think themselves splendid businessmen. A good businessman is one who comes to a place and builds a company from nothing, creates jobs Ч a new taxable base. All the rest isn't business, it's grabbing the property of others.

Q:
Tell us about your Iraq project.
A:
Slavneft received a 6-million-barrel share in the ninth phase of the United Nations oil-for-food program. In the spring, we plan to sign an agreement with the Iraqis to develop the Subba deposit, which has reserves of more than 105 million tons of oil. The deposit is already equipped. Е We are, incidentally, the only company the Iraqis are planning to grant a functioning extraction capability.

Q:
But what about the sanctions?
A:
Sooner or later, they'll be lifted. As Confucius said: "If you sit patiently on the bank for long enough, the body of your enemy will come floating by." Now the main thing for us in Iraq is to sort out the deposit and start work as planned.

Q:
LUKoil is already involved the West Qurna [oil field in southern Iraq]. But they're having problems with the Iraqis.
A:
LUKoil simply concluded that it's too difficult to perform due to sanctions. But I don't think the Iraqi government will go as far as to exclude LUKoil from this project, if you bear in mind their relationship with Russia. No matter what is said, LUKoil's one of the biggest companies in the world, and its president, Vagit Alekperov, is too strong a character. Whoever thinks otherwise is quite wrong.

Q:
How long would you like to work at Slavneft?
A:
For as long as I do. I'd like to live forever, but I'll live as long as God and my fate have measured out for me. I'd like to work here for a long time. But one person makes suggestions and another orders. Whatever the president and the government decide will be. In any event, I won't be unemployed. I have a great deal of experience both in business and in politics.

Q:
And what do you prefer Ч business or politics?
A:
Business, I am a creator by my nature. I like to bring new ideas to life; I enjoy the process itself. I didn't do too badly in the Duma either, but it wasn't quite my thing. Of course, I learned a lot there, made plenty of contacts, visited 50 or so countries around the world. There are many unusual and extraordinary people in the Duma. It is a reflection of the society in which we live Ч starting with the psychos and ending with the geniuses. Everyone is in that building Ч madmen, antagonists, lawyers and philosophers. Epoch-making laws are adopted alongside base corruption Ч just as in Russia itself. But at the same time, the deputies are the cream of society Ч they were chosen by the people. It's not important who you support or don't Ч be it [Communist leader Gennady] Zyuganov, [Liberal Democratic Party of Russia leader Vladimir] Zhirinovsky, [Yabloko leader Grigory] Yavlinsky Ч it doesn't matter. Tens of millions of people have been voting for them for the past 10 years, almost half of our population. I would've been happy if half the country had voted for me, but in my region only 120,000 did Ч even though this was an outright majority. Therefore, I respect these people, I heed them.