Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

A String of Auctions Gets Canceled

A string of auctions for oil and gas development licenses have been canceled to prevent foreign companies from bidding, an official in the Natural Resources Ministry said.

The cancellations appear to constitute a de facto widening of the ban on bids by non-Russian-controlled companies, contradicting recent assurances from Natural Resources Minister Yury Trutnev and other ministers.

The latest cases also highlight uncertainties faced by foreign natural resource companies as the State Duma prepares to debate a long-anticipated bill on restricting foreigners' access to subsoil resources.

Among the auctions canceled are those for oil and gas fields in the Krasnoyarsk region and the Barents Sea involving the Russian-British joint venture TNK-BP.

In the latest setback for a foreign bid, a long-awaited auction for a coal field in the Kemerovo region involving Italian miner Coeclerici -- scheduled for 9:00 a.m. Thursday -- was postponed less than 24 hours before it was supposed to take place.

Anatoly Ledovskikh, head of the ministry's Federal Subsoil Resource Use Agency, said Wednesday that the auctions for the licenses for the Lodochnoye oil and gas field in the Krasnoyarsk region had been canceled on "state orders," Izvestia reported Thursday.

"It seems the country did not wish ... that foreigners take part," the paper quoted him as saying.

Auctions for the Trebs and Titov oil fields in the Barents Sea, originally scheduled for March 30, did not take place "because there were bids from TNK-BP," a 50-50 Russian-British venture, Ledovskikh said. The three fields could yield up to 200 million tons of oil, according to the Natural Resources Ministry's web site.

Previously, the government had indicated that non-Russian-controlled entities would be barred from bidding for only six specific oil, gas, copper and gold deposits -- including the Trebs and Titov fields but not the Lodochnoye block.

Izvestia also reported, citing unidentified sources, that the Lodochnoye auction was canceled at the request of state-owned Rosneft, which reportedly asked the ministry to postpone the tender until it could come up with enough cash to bid.

A Rosneft spokesperson would not comment on the report Thursday, while TNK-BP could not be immediately reached for comment.

In the case of the coal field, Coeclerici, which said it was the first foreign firm allowed to bid for its mining rights, said it was told of the cancellation by telephone Wednesday morning, just hours before the auction was due to go ahead.

The company said an ownership claim to the land on which the field is located had been filed, and that the authorities had halted the auction to conduct an investigation.

"We consider it a bit peculiar that the potential owner came out just one day before" the auction, said Andrea Clavarino, Coeclerici's general director, who traveled to Russia to oversee the bid.

Analysts said Ledovskikh's comments showed that the ban on non-Russian companies was being extended to include a wider range of natural resource deposits.

"Yesterday's news shows that it goes beyond that," said Kakha Kiknavelidze, an oil and gas analyst at Troika Dialog.

He said that the country's auction politics had never been transparent. "What has changed is that the government is now openly saying, 'We will not allow foreign-controlled companies to participate in certain auctions.'"

Natural Resources Minister Yury Trutnev has indicated that companies with less than 51 percent Russian ownership, such as TNK-BP, could get around the restrictions by registering new Russian-owned entities. Industry insiders, however, say that TNK-BP is unwilling to do so.

Trutnev, in an interview published Tuesday in Vedomosti, said there were "no restrictions" on foreign investors participating in the development of oil and gas fields in eastern Siberia.

"Trutnev said, 'We do want foreigners'; but judging by what he is doing, it's not immediately apparent that is the case," said Steven Dashevsky, head of research at Aton brokerage.

United Financial Group wrote in a note to clients Thursday that "if the list [of so-called strategic deposits] can instead be added to through state oil company lobbying, the opportunities for foreign investors will indeed become more limited."

"If foreign-controlled companies are not allowed to acquire new licenses, they will be less interested in taking control of Russian companies," Kiknavelidze said. "And if Russian equities cannot be sold to foreign strategic investors, the price that portfolio investors are prepared to pay will be lower."

Clavarino said Coeclerici received a telephone call shortly after 11 a.m. Wednesday from a representative of the regional office of the Federal Subsoil Use Agency in Kuzbass, informing the company that the auction for the 330 million-ton Maiskaya energy coal deposit would be postponed until Nov. 10, on the orders of the agency's Moscow headquarters.

The agency's head office would not immediately comment on the postponement Thursday.

But a spokeswoman for Rosa Holding, one of two Russian companies that were prepared to bid in the coal field auction, said they were just as surprised by the cancellation.

"We had no idea beforehand that there were problems with property rights there," she said.

The starting price for the field was set at $8.5 million, but "we were certainly prepared to increase it," Clavarino said. "Now we will see, because ... if someone's claiming ownership on this lot, that makes things a bit difficult."

Clavarino said the cancellation went against a recent assurance by Industry and Energy Minister Viktor Khristenko that auctions for natural resources licenses would be transparent.

"But de facto, foreign companies still never get a license," Clavarino said.

Staff Writer Catherine Belton contributed to this report.