08/11/1998 08:42:48 ANALYSIS-New oil price slump hammer-blow for Russia
By Sebastian Alison
MOSCOW, Aug 11 (Reuters) - The latest slump in international
oil prices is a new blow for Russia, heavily dependent on global
commodity prices and struggling to meet debt repayment
obligations, analysts said on Tuesday.
In late trade on Monday, benchmark front month Brent crude
oil futures on the International Petroleum Exchange in London
slid to trade for the last time at $11.90 per barrel, equalling
10-year lows set in March.
This not only affects Russia's revenues from oil exports but
jeopardises other areas of the economy by making Russia less
attractive to foreign investors, analysts said.
Russia is trying to sell state-owned stakes in several
energy companies to raise urgently needed cash for the budget.
"The oil price is a broader issue than just for the oil
sector, it affects the attractiveness of investing in Russia as
a whole," said Stephen O'Sullivan, co-head of research at United
Financial Group in Moscow.
"The government has always hoped for an improvement in
investor confidence in the fourth quarter, and that must be tied
to oil price recovery. This is just not good for them," he said.
Russia is currently working on plans to sell a stake of
slightly over five percent in Gazprom, <GAZPq.L>, the vast gas
monopoly whose taxes provide a quarter of Russia's tax revenues.
A tender for a controlling stake of 75 percent plus one
share in Rosneft<PFGS.RTS>, the last big oil firm in state
hands, is open till October 27. The price has been set at $1.6
billion, with an obligation to invest a further $62.5 million.
Rosneft has been hard to sell against a background of low
prices. An earlier attempt in May failed when no bids were made
and another attempt was extended on fears it would happen again.
But Russia will take some comfort from the view of British
Petroleum <BP.L>, seen as one of the most likely potential
Rosneft buyers, that a new price slide was unimportant.
"In terms of Rosneft I would say now at the price levels
we've been seeing for the last few months, a further price slide
is really not relevant to the basic thinking," Howard Chase, BP
representative in Moscow, said on Tuesday.
He added that the company's position regarding a possible
bid was unchanged, and that BP was keeping its options open.
The government is also offering stakes in a number of
smaller firms. On Saturday President Boris Yeltsin signed a
decree approving proposals to sell stakes in six smaller
companies. These are Vostsibneftegaz, Eastern Oil Co <TOMG.RTS>,
Sibur, Tyumen Oil Co <NZGZ.RTS>, KomiTEK and Norsi Oil.
O'Sullivan said that while large firms such as LUKOIL
<LKOH.RTS> and Gazprom were always likely to find potential
investors as they were world class companies, the smaller firms
would find it hard to attract investment at current oil prices.
Russian producers, which face a number of fixed costs such
as excise duties which do not fall as the oil price falls, are
hurting from the current international market position.
Analysts say that they must either cut production, closing
wells which are producing at a loss, or undertake serious
cost-cutting exercises to weather the current price crisis.
Andrei Krasnov, spokesman for YUKOS <YUKO.RTS>, Russia's
second largest oil company by production, said on Tuesday YUKOS
was facing the crisis with just such a plan.
"The company will continue its cost cutting programme and we
expect the company may undergo a serious reorganisation within
this programme," he said, without giving any further details.
"We expect that in this situation the government should take
some steps to protect national oil producers," he added. "For
example it could lower taxes, as different taxes account for up
to 70 percent of the oil price," he said.
The plea for lower taxes is a familiar one from producers,
but is unlikely to find much favour from a government so
dependent on exports of raw materials, especially oil, gas and
metals for revenue. The prices of all are low.
As part of global efforts to boost prices, Russia agreed to
cut oil exports by 100,000 barrels per day (bpd) from July 1.
But the International Energy Agency reported that exports
from Russia and former Soviet republics in May, just ahead of
the cuts, reached a record for post-Soviet times of 3.1 million
bpd, undermining the value of the cuts.
((Aleksandras Budrys, Moscow Newsroom, +7095 941-8520