Publication: Monitor Volume: 3 Issue: 171

First Deputy Prime Minister Boris Nemtsov attended a board meeting of the Tyumen Oil Company (TNK) on September 13 at which new directors were chosen. Nemtsov traveled to Tyumen in order to pledge the government’s support for the efforts of the Alfa group to establish control over the company. Alfa bought 40 percent of TNK shares for $800 million on July 18, 1997, but is facing fierce opposition from local managers and politicians, whose champion is Viktor Paly, the director of TNK’s major production subsidiary, Nizhnevartovsneftegaz (which has tax debts of 700 billion rubles, or $120 million). On September 14 the TNK board voted to fire Paly: the same day a meeting of the Nizhnevartovsk board reaffirmed his appointment. The dispute between the two boards will now be sent to an arbitration court. Also on September 13, Nemtsov told reporters that the planned sale of shares in Rosneft will not be delayed. That statement contradicted somewhat suggestions by privatization chief Maksim Boiko the same day that the Rosneft sale might have to wait until there is a clear court ruling on the legal status of Purneftagaz. By the end of this year 51 percent of Rosneft shares will be sold in a cash auction which is expected to raise $1 billion, and another 43 percent will be sold in a subsequent investment tender. Nemtsov stated that the sale will be open to direct bids from foreigners. (Russian agencies, September 8, 13)

Of the six oil companies whose shares are to be sold later this year, Rosneft is the biggest prize. Although it is only the sixth largest company in terms of current output, it has a 40 percent stake in Sakhalin 1, a 7.5 percent stake in the Caspian Pipeline Consortium, and 20 percent in the giant Timano-Pechora field. In April 1997 Rosneft director Vladimir Putilov was fired for trying to defend the company’s independence from the government, and was replaced by former fuel and energy minister Yury Bespalov. The dismissal drew protests from governors of Sakhalin, Khabarovsk, and Yamal-Nenets Autonomous Okrug in Tyumen oblast.

Nemtsov’s visit to Tyumen came in the wake of the announcement last month that Exxon was withdrawing from the project to develop the Tsentralnaya Khoreiverskaya oil field in the Yamal-Nenets region because the Nenets government refused to conclude a production-sharing agreement. (Moscow Times, August 21) It was only in June that the Russian parliament, after a two year political struggle, finally approved seven sites of oil, gas, and metals deposits open for production-sharing agreements with foreign companies. The battle for access to these sites now continues at the regional level. Last week Nemtsov was named to head a government commission to ensure that production-sharing agreements in the energy sector are implemented. (See Monitor, September 9)

Seven years into the transition towards a market-based economic system, the crown jewel of Russia’s economy — the oil sector — is still crippled by under-investment, while the needed inflow of foreign capital is stymied by ownership disputes. First Deputy Minister for Fuel and Energy Viktor Ott said on September 14 that Russia’s oil output increased by 0.8 percent in the first eight months of 1997. This was the first such increase for several years, since oil output has fallen by about half after peaking in 1988. (Itar-Tass, September 14). Of the 203 million tons produced between January and August, 117 tons went to domestic users and 84 million were exported (of which only 14 million went to the CIS states). Ott reported that one in every three refineries operate at a loss and that one quarter of oil wells are idle. Still, despite its anemic condition, the oil industry continues to provide 20 percent of federal revenue.

Participants in Budennovsk Raid Honored.