"“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” "

Chinese premier Wen Jiabao 12th March 2009

""We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system."

Timothy Geithner US Secretary of the Treasury, previously President of the Federal Reserve Bank of New York.1/3/2009

Monday, August 13, 2007

Mikhail Gutseriyev - Russian Oligarch / Billionaire flees leaves Russia

When Khodorkovsky's Yukos couldn't pay tax and he was thrown in the slammer, there were odd bits of his empire that the Russian State couldn't reach. This included Netherlands based Yukos Finance who owned 49% of the Slovak state - controlled Transpetrol. This company controls the critical Slovak section of the Druzhba (Friendship) oil pipeline to the Wstern customers for Russian oil.

In early 2006 Russneft, an oil company owned by Mikhail Gutseriyev (and his nearest and dearest) attempted buy this stake - a move that has been widely interpreted as being disloyal to Putin and the siloviki.

Since then things haven't gone too well for Mikhail and Russneft and on July 30th he announced he was leaving Russia - presumably before he was buried in it.

Saying goodbye to his 25,000 staff , Gutseriyev claimed that by standing down he was saving the company and interpreted the state attacks as being directed at him personally.Later it beame public knowledge that he had done a deal selling his and his famil's shares in Russneft to Oleg Deripaska's Basic Element, a holding whose major component is the world's largest aluminum producer, United Company Rusal. Unverifiable reports say the sale price was US$6-10 Bn. including approximately US$3 Bn.for Gutseriyev.

Business Daily Vedomosti reported Rusal will absorb debts of US$2.8 Bn. and tax arrears of close to US800 Mn. They also report that opposition member of parliament Gennady Seleznyov saying :"If Gutseriyev had continued to resist, he would have met the same fate as Khodorkovsky ...... I would not rule out the shares that are with Deripaska today could be with Rosneft tomorrow," referring to the state-controlled company that is Russia's largest oil producer.

"They told me I could take the easy way out. I refused," .. now he has decided to take the easy way - ie he gets out alive. Senior vice-president Oleg Gordeyev has now assumed the role of acting head of the group as Oleg Deripaska, gets approval from the the federal anti-monopoly committee for Russneft to be absorbed into its energy subsidiary, which will rule in a month.

It all went sour in May when Mikhail Gutseriyev, the company’s vice-president Sergei Bakhir, and heads of its subsidiaries Viktor Kurochkin (Nafta-Ulyanovsk oil company) and Igor Elansky (UlyanovskNeft oil company) received summons to interrogation to the Investigative Committee at the Interior Ministry.

Gutseriyev and his subordinates with “illegal business activity with deriving revenue in especially large amount” (Part 2, Point B, Article 171 of the Criminal Code of Russia). The investigator’s resolution says that Nafta-Ulyanovsk and UlyanovskNeft extracted oil in 2003-2005 violating license agreements etc., etc., . Nafta-Ulyanovsk caused damage of 700 million rubles, and UlyanovskNeft – of nearly 2 billion rubles etc., etc., . Another Russneft subsidiary, Aganneftegazgeologia, etc., etc.,

Article 171 of the Criminal Code provides for 5 years in jail to Gutseriyev and his subordinates etc., etc.,

On July 30th He took the hint and left - alive. His wherabaouts are not known at present but Switzerland having a chart with his pals at Glencore is a reasonable bet.

Analysts in the West ponder what this move means as the Putin backed authorities remove a strategic asset from an owner perceived as being uncooperative / iunhelful / disloyal. The Kremlin's classification of acceptable / unacceptable owners is an open question, as is the extent to which the authorities will want to control assets beyond the oil industry.

Russneft a brief History

Russneft, registered in 2002, is owned entirely by Mikhail Gutseriyev and his relatives. It's wensite claims it produces 4% of Russian oil production with an annual production of 17 Mn. tons of crude oil and have "Recoverable reserves" of more than 630 Mn.. tons . They have 3 refineries, 1 transportation company serving 300 Petrol Stations and is active in 23 regions of Russia and the CISand employs some 20,000 people worldwide.

Growing by over 500% in 5 years , such dynamic development would not have been possible without the Kremlin's knowledge and approval. The siloviki are particularly interested in the energy sector, bringing the most important gas and oil establishments under state control / Putin's cronies; and expecting private companies to be loyal, and restricting foreign investors' access to the sector.

This rise has, however been tarnished and Rusneft / Gutseriyev, have been connected to numerous economic scandals in Russia and has escaped any penalties ... so far. But his services have not been unrewarded and Gutseriyev has been awarded many medals and state distinctions (including for his participation in special operations).

Embarassingly Russneft benefited a great deal from the UN's Oil for Food programme for Iraq. Charles Dolfer's CIA report claimed that Saddam Hussein had personally granted Gutseriyev quotas for the export of nearly 12 million tons of Iraqi oil.

Russneft was initially built on assets (oil fields, chemical plants) taken over from the Russian-Belarusian company Slavneft, of which Gutseriyev was head until 2003.

Within just over 3 years, the company managed to acquire over thirty small production companies, three refineries and a chain of petrol stations. In 2005 its production increased from 10 million tons of oil (2004) to 17 million tons. As Gutseriyev was starting up the present business, he co-operated closely with the Swiss-registered Glencore, an intermediary company trading oil and oil products (it controls about 3% of world oil trade) and metallurgic products.

Their website still says in addition, subsidiaries of Glencore have entered into the upstream Russian market with its strategic partner OAO Russneft with ownership in a diversified portfolio of oil producing assets.

Russneft has also benefited from the collapse of Yukos, as it took over that company's smaller assets, including its contract with Hungary's MOL for oil production in the Zapadno-Malobalykskoye field.

Building private fortunes using political power is an established business practice in today's Russia . The present team came to power claiming that state interests were superior to private interests, that it was necessary to develop "state capitalism," that the state needed to take control of the most profitable sectors of the economy, and that it had to eliminate those intermediaries who had been stealing the state's profits.

As most assets in Russia have already been divided, the future will not be smooth as various interest groups will compete for the assets available, and new fortunes will develop at the expense of existing empires.

Mikhail Gutseriyev is a tough looking character, used to some of the vagaries of business - no doubt this will not be the last we hear of him.

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