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Wednesday, October 08, 2008

Oil Producers Pump Their Rights

// Using the state’s financial aid
Oct. 08, 2008 - Kommersant - Russian oil and gas companies have finally admitted having problems due to the financial crisis. Gazprom, LUKoil, Rosneft and TNK-BP heads turned to Vladimir Putin for help. They need to pay for the credits they borrowed from western banks and finance their businesses to avoid a fall in oil and gas production. The prime minister has already promised market participants $50 billion. But there are other contenders for those funds – Rusal and other companies of Oleg Deripaska will soon turn to Vnesheconombank. According to unofficial information, they need $10 billion. Four Russian biggest oil and gas companies turned to the government for financial support, LUKoil head Vagit Alekperov told Reuters. Apart from his company, Gazprom, Rosneft, and TNK-BP want to get extra funds. They expect to receive state credits “to pay for foreign debts”. LUKoil proper reckons with $2-5 billion. On September 24 the companies sent a letter to Vladimir Putin, where they stated their request, a source of Kommersant said. The letter was signed by Vagit Alekperov, Gazprom Deputy Managing Committee Chairman Alexander Ananenkov, Rosneft president Sergey Bogdanchikov and TNK-BP CEO Herman Khan. The businessmen explained that the overall debt volume of the Russian fuel and energy complex totals some $80 billion. But they need money not only to pay creditors. They asked Vladimir Putin “to order that the Finance Ministry and the Central Bank should work out a mechanism of financing strategic projects”. It can be done at the expense of “state targeted credits”, the letter says. The companies do not mention concrete sums they expect to receive. They only add they are ready to work out the mechanisms of crediting together with the government. The four companies that appealed to Vladimir Putin account for 70% and 91% of Russia’s oil and gas production, respectively. The LUKoil press service refused to expand on the statement of their President. Rosneft and TNK-BP didn’t comment on the situation either. But yesterday the market speculated about the problems that accompany Rosneft’s margin call. According to unofficial information, Mitsubishi UFG organized a $2.3 billion credit for it, where $1 billion was given against the pledge of Rosneft stocks. According to sources of Kommersant, one of the terms was that in case Rosneft’s ADR reaches $3.8 per share, the margin call is activated and the loan should be paid immediately. Yesterday Rosneft’s ADR dropped to $3.6 at London’s stock exchange. But then, according to traders, Rosneft stocks were given massive support, and as a result they exceeded $4. At the same time the list of those who signed the document is surprising. Ahead of sending the letter, on September 23, Gazprom CEO Alexei Miller argued that the crisis didn’t affect Gazprom. “We see no risks to the company. Financial credit organizations have the same interest in Gazprom as they used to have before the crisis,” he said. Yesterday the monopoly’s press service stated they asked for money just to be on the safe side. “Given the imminent crisis in the world financial markets, it important to Gazprom, its shareholders and investors to have this mechanism of crediting in force maj√©ur situations,” Gazprom’s press service stated. In fact the government has already responded to the oil producers. A week ago Vladimir Putin ordered that funds should be allocated for this, but he didn’t specify to whom exactly. “Any Russian bank or company will be able to apply to Vnesheconombank for a credit to pay their debts to foreign creditors for the credits received before September 25,” he said stressing that the funds the Central bank will give Vnesheconombank won’t exceed $50 billion. The mechanism of giving credits is yet unclear. But there is already a queue of companies willing to get them. The oil producers didn’t specify whether they appealed to Vnesheconombank. However, Rusal representative Vera Kurochkina told Kommersant that the company plans to turn to Vnesheconombank for funds to refinance its debts. Another source of Kommersant says that “up to $5 billion” can be at stake. The money is needed to refinance Rusal’s buying out the blocking interest of Norilsk Nickel (Rusal borrowed $4.5 billion for that deal). According to unofficial data, Norilsk nickel’s stocks secured the credit. In April, when the agreement was concluded, they cost $13 billion, whereas yesterday – only $3.1 billion. So, Rusal might have encountered problems of paying the debt. At the same time, according to the information of Kommersant, on October 24 Rusal is to pay another portion of money to the seller of Norilsk nickel stocks – ONEXIM Group President Mikhail Prokhorov. Rusal confirmed that the necessary calculations haven’t been completed yet, and assured there will be no default concerning the payment. However, according to the information of Kommersant, other companies of Oleg Deripaska demand money, with the total sum amounting to $10 billion. At the same time oil producers need money to maintain their currently running businesses. Yesterday Vagit Alekperov stated that if oil prices are lower than $105 per barrel, the company won’t secure a growth in oil production in 2009, which would allow it to save extra 130 billion rubles. Now the Finance Ministry and the Energy Ministry discuss the possibility of altering legislation so that companies could get another 400 billion rubles starting from 2010. But so far no concrete measures have been taken. Denis Borisov from investment company Solid points out that monetary flows in the oil market “are leveled by the capital volumes they need to invest to maintain oil production”. The expert presumes that it is possible to secure the necessary volume of funds only if oil price doesn’t drop below $10 per barrel. There is no money to refinance debts – companies planned to settle this matter at the expense of new credits. But it is now too difficult to borrow money in the market, experts believe. “The majority of external markets investors have closed their limits for Russia,” Advisor to Chairman of Expobank’s managing committee Yevgeny Retyunsky explains. There is not much money with Russian banks either. The home market of public debts is closed at least till the end of the year, according to Oleg Gordiyenko from Raiffaizenbank.

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