Moscow securing market with a pact

Jun 09, 1998 02:00 AM

Apr. 9, 1998 Five of Russia's most important political and industrial figures signed a broad oil co-operation agreement in Moscow recently, marking the formation of a major new energy grouping.
The agreement was signed between Yuri Luzhkov, mayor of Moscow and often cited as a potential presidential candidate and Vagit Alekperov, head of LUKoil, until recently Russia's largest oil company and still a major political force.
Also present were Mintimer Shaimiyev, President of Tatarstan, a major Russian oil producing region, Rinat Galeyev, head of Tatarstan's oil company Tatneft and Yuri Shafranik, former energy minister and now head of the Central Fuel Company (CFC).
CFC, which owns both the Moscow oil refinery and local distribution company Mosnefteprodukt, is 38 % owned, and effectively controlled, by the city of Moscow.
Although the five separate groups have not formally formed a consortium, Tatarstan and LUKoil have each bought a 13 % stake in CFC, with Luzhkov noting that "nothing can binda conglomerate together better than ownership of common property."
It is the opportunity to gain access to the Moscow market which had brought together so many different personalities and companies, analysts said.
"The tie up with CFC gives immediate access to one of the few markets in Russia where demand for oil products is solvent and growing," said an analyst in London.
He added that LUKoil's refining interests were in the Volga region with supply far exceeding local demand. As a result, many products have to be shipped elsewhere. He also said that as soon as CFC signalled its willingness to court foreign investment, it would meet an enthusiastic response.
"The fact that CFC, when all is said and done, is Luzhkov, and he calls the shots in this region, makes it potentially one of the few oil and gas plays in Russia where you don't have to look way out on the horizon to see cash returns," he said.

An analyst in Moscow said an alliance between Tatneft and Lukoil was already under way before this agreement. "When CFC came into the picture, it creates the impression that there's a much more serious alignment of interests occurring in the Moscow region," he said. He added that CFC wanted access to upstream projects.
The formation of this large and powerful co-operation group may have been precipitated by the recent establishment of YUKSI, a merger between YUKOS and Sibneft, announced in January.
YUKSI has not only knocked LUKoil off its top spot as Russia's largest oil producer, but also wants to expand its already large refining base. This agreement may be just an attempt to secure markets in the face of YUKSI, he said.
CFC has been busy in recent weeks signing bilateral deals with regions and companies including the far eastern island of Sakhalin, the Komi republic, LUKoil itself, Atyrau region in Kazakhstan, and others.
It appears hungry to acquire upstream assets to match its downstream capacity, although one analyst questioned the need for this, pointing out that Russiancompanies are already racing to supply crude to the lucrative Moscow region.
Luzhkov told that the only purpose of the agreement was to guarantee supplies of products to the Moscow region.
Under the deal, all signatories have agreed on the possibility of joint participation in privatisation programmes in Russia. They said the agreement was open for participation of other companies and regions in the future.

Source: not available
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