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Russia's Energy Sector

Hotel Booking By Sam Vaknin
Author of "Malignant Self Love - Narcissism Revisited"

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Travel Agency The pension fund of the Russian oil giant, Lukoil, a minority
shareholder in TV-6 (owned by a discredited and self-exiled Yeltsin-
era oligarch, Boris Berezovsky), forced, in February 2002, the
closure of this television station on legal grounds. Thus was fired
the opening shot in the re-politicization of the lucrative (and
economically pivotal) energy sector in Russia.

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Cheap Hotel Gazprom (Russia's natural gas monopoly) has done the same to another
television station, NTV, in 2001 (and then proceeded to expropriate
it from its owner, Vladimir Gusinsky).

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Flight Booking Gazprom is forced to sell natural gas to Russian consumers at 10%
the world price and to turn a blind eye to debts owed it by Kremlin
favorites.

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Travel Agent But the sector is still in flux, reflecting the shifting fortunes of
oligarchs and bureaucrats in Putin's Byzantine court.

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Hotel Chicago On May 15, 2005 Gazprom surprisingly announced that it is calling
off a Kremiln-supported proposed merger between itself and another
Russian oil giant, Rosneft.

Online Booking The fate of Yuganskneftegaz, the prime subsidiary of the now
bankrupted Yukos, is also still undecided - though technically, it
was purchased by Rosneft in a pretend "auction".

Travel Health Insurance Mikhail Khodorkovsky, erstwhile oil magnate and largest shareholder-
cum-CEO of Yukos, is largely out of the picture, his punishment for
having dared to challenge President Putin, however obliquely. But
members of President Putin's St. Petersburgh "clan" (clique and
camerilla), Gazprom CEO Alexei Miller and Rosneft CEO Sergei
Bogdanchikov, are at each others' throats.

Hotel Reservation It is, therefore, clear that Lukoil and Gazprom are used by the
Kremlin as instruments of domestic policy - and by political
factions, both pro and anti-Putin as pawns on an ever-shifting
chessboard.

London Hotel Booking But Russian energy companies are also used as instruments of foreign
policy.

Discount Travel A few examples:

Orlando Hotel Russia has resumed oil drilling and exploration in war-ravaged
Chechnya. About 230 million rubles have been transferred to the
federal Ministry of Energy. A new refinery is in the works.

Booking Agency Three years ago, Russia signed a production agreement to develop
oilfields in central Sudan in return for Sudanese arms purchases.

International Travel Medical Armenia owes Itera, a Florida based, Gazprom related, oil concern,
$35 million. Originally, Itera has agreed to postpone its planned
reduction in gas supplies to the struggling republic to February 11,
2002. Then it became a rather permanent arrangement, at the
Kremlin's behest.

New York Hotel In January 2002, President Putin called for the establishment of
a "Eurasian alliance of gas producers" - probably to counter growing
American presence, both economic and military, in Central Asia and
the much disputed oil rich Caspian basin. The countries of Central
Asia have done their best to construct alternative oil pipelines
(through China, Turkey, or Iran) in order to reduce their dependence
on Russian oil transportation infrastructure. These efforts largely
failed (though a new $4 billion pipeline from Kazakhstan to the
Black Sea through Russian territory is in the works, having been
inaugurated in early 2002). Russia is now on a charm offensive.

Online Travel Booking Its PR efforts are characteristically coupled with extortion.
Gazprom owns the pipelines. Russia exports 7 trillion cubic feet of
gas a year - six times the combined output of all other regional
producers put together. Gazprom actually competes with its own
clients, the pipelines' users, in export markets. It is owed money
by all these countries and is not above leveraging it to political
or economic gain.

Travel Medical Insurance Lukoil is heavily invested in exploration for new oil fields in
Iraq, Algeria, Sudan, and Libya.

Miami Hotel Russian debts to the Czech Republic, worth $2.5 billion in face
value, have been bought in 2002 by UES, the Russian electricity
monopoly, for a fraction of their value and through an offshore
intermediary. UES then transferred the notes to the Russian
government against the writing off of $1.35 billion in UES debts to
the federal budget. The Russians claim that Paris Club strictures
have ruled out a direct transaction between Russia (a member of the
Club) and the Czech Republic (not a member).

Air Deccan Booking In the last decade, Russia has been transformed from an industrial
and military power into a developing country with an overwhelming
dependence on a single category of commodities: energy products.
Russia's energy monopolies - whether state owned or private - serve
as potent long arms of the Kremlin and the security services and
implement their policies faithfully.

Las Vegas Nevada Travel The Kremlin (and, indirectly, the security services, the siloviki)
maintain a tight grip over the energy sector by selectively applying
Russia's tangle of hopelessly arcane laws. This strategy first saw
light in January-February 2002, when the Prosecutor General's office
charged the president and vice president of Sibur (a Gazprom
subsidiary) with embezzlement. They have been detained for "abuse of
office".

Las Vegas Nv Hotel Another oil giant, Yukos, long before its systematic looting
commenced, was forced to disclose documents regarding its (real)
ownership structure and activities to the State Property Fund in
connection with an investigation regarding asset stripping through a
series of offshore entities and a Siberian subsidiary.

Hotel Florence Booking Online Intermittently, questions are raised about the curious relationship
between Gazprom's directors and Itera, upon which they shower
contracts with Gazprom and what amounts to multi-million dollar
gifts (in the from of ridiculously priced Gazprom assets)
incessantly.

Orlando Travel Gazprom is now run by a Putin political appointee, its former
chairman, the oligarch Vyakhirev, ousted in a Kremlin-instigated
boardroom coup. But Miller's relationship with Putin is under
strain. Miller's natural (and rapacious) competitors are all
Russian - his potential investors and clients all Western. This
alignment runs counter to Putin's emphasis on autarky and the
unprofitable leveraging of economic assets for political and global
purposes.

Hilton Hotel Gazprom defied Putin, for instance, by brawling over natural gas
contracts with Turkmenistan, one of the only remaining Central Asian
allies of a geopolitically-dilapidated Russia. With 1.45 million bpd
(barrels-per-day) in combined output, Rosneft is emerging as a more
reliable - and equally weighty - policy tool.

Booking Delta Com Media stories to the contrary notwithstanding, foreign (including
portfolio) investors seem to be happy. Putin's pervasive
micromanagement of the energy titans assures them of (relative)
stability and predictability and of a reformist, businesslike,
mindset. Following a phase of shameless robbery by their new owners,
Russian oil firms now seem to be leading Russia - albeit haltingly -
into a new age of good governance, respect for property rights,
efficacious management, and access to Western capital markets.
Khodorkovskyu, the robber-baron, many whisper, had it coming.

Travel Insurance Online The patently dubious UES foray into sovereign debt speculation, for
instance, drew surprisingly little criticism from foreign
shareholders and board members. "Capital Group", an international
portfolio manager, is rumored to have invested close to $700 million
in accumulating 10% of Lukoil, probably for some of its clients.
Sibneft has successfully floated a $250 million Eurobond (redeemable
in 2007 with a lenient coupon of 11.5%). The issue was
oversubscribed.

London Hotel The (probably temporary) cooling of Russia's relationship with the
USA is counter-balanced by Russia's acceptance (however belated and
reluctant) of its technological and financial dependence on the
West. All said and done, the Russian market is an attractive target.

Online Hotel Booking Commercial activity is more focused and often channeled through
American diplomatic missions. The watershed year was, again, 2002.

Travel Insurance The U.S. Consul General in Vladivostok and the Senior Commercial
Officer in Moscow have announced in 2002 that they will "lead an oil
and gas equipment and services and related construction sectors
trade mission to Sakhalin, Russia from March 11-13, 2002." The oil
and gas fields in Sakhalin attract 25% of all FDI in Russia and more
than $35 billion in additional investments is expected.

Paris Hotel Other regions of interest are the Arctic and Eastern Siberia.
Americans compete here with Japanese, Korean, Royal Dutch/Shell,
French, and Canadian firms, among others. Even oil multinationals
scorched in Russia's pre-Putin incarnation - like British Petroleum
which lost $200 million in Sidanco in 11 months in 1997-8 - are back.

Airline Booking Despite Putin's newly-discovered nationalist "Great Peter" streak,
takeovers of major Russian players (with their proven reserves) by
foreign oil firms have not abated. Russian firms are seriously
undervalued - their shares being priced at one third to one tenth
their Western counterparts'.

Travel Trailer Some Russian oil firms (like Yukos and Sibneft) have growth rates
among the highest and production costs among the lowest in the
industry. The boards of the likes of Lukoil are packed with American
fund managers and British investment bankers. The forthcoming
liberalization of the natural gas market (the outcome of an oft-
heralded and much needed Gazprom divestiture) is a major opportunity
for new - possibly foreign - players.

San Francisco Hotel This gold rush is the result of Russia's prominence as an oil
producer, second only to Saudi Arabia. Russia dumps on the world
markets c. 4.5 million barrels daily (about 10% of the global trade
in oil). It is the world's largest exporter of natural gas (and has
the largest known natural gas reserves). It is also the world's
second largest energy consumer. In 1992, it produced 8 million bpd
and consumed half as much. In 2001, it produced 7 million bpd and
consumed 2 million bpd.

Air Ticket Booking Russia has c. 50 billion oil barrels in proven reserves but decrepit
exploration and extraction equipment. Its crumbling oil transport
infrastructure is in need of total replacement. More than 5% of the
oil produced in Russia is stolen by tapping the leaking pipelines.
An unknown quantity is lost in oil spills and leakage.

Cheap Travel Transneft, the state's oil pipelines monopoly, is committed to an
ambitious plan to construct new export pipelines to the Baltic and
to China. The market potential for Western equipment manufacturers,
building contractors, and oil firms is evidently there.

Bangkok Hotel But this serendipity may be a curse in disguise. Russia is
chronically suffering from an oil glut induced by over-production,
excess refining capacity, and subsidized domestic prices (oil sold
inside Russia costs one third to one half the world price). Russian
oil companies are planning to increase production even further.
Rosneft plans to double its crude output. Yukos (Russia's second
largest oil firm) was planning to increase output by 20% a year when
it was decimated and devoured by Rosneft. Surgut will raise its
production by 14%.

Music Booking In early 2002, Russia halved export duties on fuel oil. Export
duties on lighter energy products, including gas, were cut in
January 2002. As opposed to previous years, no new export quotas
were set since then. Clearly, Russia is worried about its surplus
and wishes to amortize it through enhanced exports.

Travel And Tourism Russia also squandered its oil windfall and used it to postpone the
much needed restructuring of other sectors in the economy - notably
the wasteful industrial sector and the corrupt and archaic financial
system. Even the much vaunted plans to break apart the venal and
inefficient natural gas and electricity monopolies and to come up
with a new production sharing regime have gone nowhere (though some
pipeline capacity has been made available to Gazprom's competitors).

New York City Hotel Both Russia's tax revenues and its export proceeds (and hence its
foreign exchange reserves and its ability to service its monstrous
and oft-rescheduled $158 billion in foreign debt) are heavily
dependent on income from the sale of energy products in global
markets.

Air Asia Ticket Booking More than 40% of all its tax intake is energy-related (compared to
double this figure in Saudi Arabia). Gazprom alone accounts for 25%
of all federal tax revenues. Almost 40% of Russia's exports are
energy products as are 13% of its GDP. Domestically refined oil is
also smuggled and otherwise sold unofficially, "off the books".

Los Angeles Travel But, as opposed to Saudi Arabia's or Venezuela's, Russia's budget is
always based on a far more realistic price range ($14-18 per barrel
in fiscal year 2002/3, for instance). Hence Russia's frequent
clashes with OPEC (of which it is not a member) and its decision to
cut oil production by only 150,000 bpd in the first quarter of 2002
(having increased it by more than 400,000 bpd in 2001). It cannot
afford a larger cut and it can increase its production to compensate
for almost any price drop.

Cancun Hotel Russia's energy minister told the Federation Council, Russia's upper
house of parliament, that Russia "should switch from cutting oil
output to boosting it considerably to dominate world markets and
push out Arab competitors". The Prime Minister told the US-Russia
Business Council that Russia should "increase oil production and its
presence in the international marketplace".

Hotel Booking Florence It may even be that Russia is spoiling for a bloodbath which it
hopes to survive as a near monopoly in the energy markets. Russia
already supplies more than 25% of all natural gas consumed by Europe
and is building or considering to construct pipelines to Turkey,
China, and Ukraine. Russia also has sizable coal and electricity
exports, mainly to CIS and NIS countries. Should it succeed in its
quest to dramatically increase its market share, it will be in the
position to tackle the USA and the EU as an equal, a major foreign
policy priority of both Putin and all his predecessors alike.

Business Travel ==============================================================
AUTHOR BIO (must be included with the article)

Atlantic City Hotel Sam Vaknin ( http://samvak.tripod.com ) is the author of Malignant
Self Love - Narcissism Revisited and After the Rain - How the West
Lost the East. He served as a columnist for Central Europe Review,
PopMatters, Bellaonline, and eBookWeb, a United Press International
(UPI) Senior Business Correspondent, and the editor of mental health
and Central East Europe categories in The Open Directory and
Suite101.

Indian Railway Online Ticket Until recently, he served as the Economic Advisor to the Government
of Macedonia.

Adventure Travel Visit Sam's Web site at http://samvak.tripod.com

Seattle Hotel

Booking Buddy Com Sam Vaknin ( http://samvak.tripod.com ) is the author of Malignant
Self Love - Narcissism Revisited and After the Rain - How the West
Lost the East. He served as a columnist for Central Europe Review,
PopMatters, Bellaonline, and eBookWeb, a United Press International
(UPI) Senior Business Correspondent, and the editor of mental health
and Central East Europe categories in The Open Directory and
Suite101.

Yahoo Travel Until recently, he served as the Economic Advisor to the Government
of Macedonia.

Discount Hotel Deal Visit Sam's Web site at http://samvak.tripod.com

Room Booking Software


Contact him at http://samvak.tripod.com

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