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1 Corporate Management in the CIS Week 10 Russian enterprise in the 21st century.

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Presentation on theme: "1 Corporate Management in the CIS Week 10 Russian enterprise in the 21st century."— Presentation transcript:

1 1 Corporate Management in the CIS Week 10 Russian enterprise in the 21st century

2 2 Purging Yukos The Russian government has set a date and price for the sale of Russian oil giant Yukos' main unit Yugansk, seized to pay the firm's huge back tax bills. The sale opens on 19 December - a day before a shareholder meeting which could decide the firm's fate. The starting price is $8.65bn well short of the $20bn which Yukos has insisted that Yugansk is worth. The Russian government said there would be no limit on foreign bidders taking part in the auction. Yukos, however, has frequently said its unit could go to a state-owned firm, effectively renationalising it, or to a supporter of President Vladimir Putin. 19 November (Russia

3 3 Purging Yukos – the Empire Strikes Back Yukos' main shareholder has filed a legal complaint to prevent the Russian government selling off the oil giant's main production unit, reports say. Group Menatep, which owns 60% of Yukos' shares, used the Energy Charter treaty to bring the proceedings, Russia's Interfax news agency said. The Energy Charter is an international treaty that establishes a legal framework to protect investments in the energy sector in the countries of the former communist bloc. Under the terms of the treaty, shareholders may initiate international arbitration to reclaim damages if an amicable agreement is not reached within three months. 02 December (Russia

4 4 The attraction of private enterprise Foreign Affairs Journal March/April 2002 The authors saw increases in Russian oil production and new reserve finds in the Caspian Basin as evidence of substantial future export capacity. In addition, they depicted the Russian energy industry as an independent actor, emancipated from State control (unlike the State-held oil companies of OPEC members), which was eager to help the U.S. and the West break free from OPEC dependency by becoming a reliable, long- term energy partner. Quoted in Hill & Fee (2002)

5 5 Gas rises

6 6 Going West? Europe OAO «Gazprom» remains the major gas supplier to the European market, accounting for 25% of gas consumption and up to 40% of gas imports into Europe.. Western Europe According to experts estimates, gas consumption in Western European countries may keep growing during the period from 2001 through 2025 by an annual 2.4%, increasing from 420 bcm to 730 bcm. This is primarily due to the expected conversion of heat power stations to gas as their fuel. The consumption growth coupled with the decrease in its own gas production as a result of depleting reserves in the region is likely to increase the dependence of Western Europe on import (up to an estimated 60% by 2020). GAZprom annual report 2003

7 7 Yukos potential Reserves –Proven oil reserves (SPE basis) of billion barrels (DeGolyer and MacNaughton, 31 December 2003) –Proven gas reserves (SPE basis) of trillion cubic feet (DeGolyer and MacNaughton, 31 December 2003) –Most reserves located in Western Siberia, including the Northern Territory of the Priobskoye Oil Field, one of Russia's largest Yukos annual report 2002

8 8 Yukos distribution YUKOS exports approximately 61 percent of its crude oil, mostly to Eastern and Western Europe, primarily through ports on the Baltic and Black Seas and the Druzhba pipeline system. In 2003 YUKOS' exports of crude oil to the non-CIS countries reached 46.6 million metric tons, an increase of 34% on 2002, while exports to the CIS rose 17% to 2.6 million metric tons. Domestic sales of crude oil fell to 0.5 million metric tons, a drop of 72%. In 2003, YUKOS exported crude oil to refineries in virtually all European countries, with the largest volumes going to Lithuania, Italy, the Netherlands, Hungary, Poland, Slovakia, Greece and Sweden. Yukos marketing activities site

9 9 Portfolio Data from FinAm – 07/12/ wks 1 wk change Lukoil Surgutneftegaz Sibneft Yukos Gazprom Tatneft TNK

10 10 In the last year Lukoil divestment of state shareholdings 80% export via Ukraine Field tax audits this week of vertically integrated oil companies –Sibneft –Slavneft –Rosneft and –Tatneft. Sibneft is well known for practicing tax optimization schemes. Several times its effective corporate profit tax stood at a record low level of 5%. Yukos 34.5% stake in Sibneft frozen.

11 11 Grand Designs? Re-nationalisation of key industries Strategic alliance with Gazprom = unified energy sector with exceptional export capacity? Start of State Capitalism (Economist 5/8/04) Need to supply home market at subsidised prices allied to state revenue requirements via taxation Consolidation of energy market against western competition (Hill & Fee)

12 12 Internationalization of Lukoil & Gazprom Summary of reasons: Sales outside the domestic market offer a better price and more solvent customers Internationalization aids in securing the supply of natural resources in the future Operations abroad aim at guaranteeing reliable and economically feasible distribution of goods to foreign customers Liuhto (2001)

13 13 Potential summary In terms of energy sector Unification under state control because of its vital importance. Exclusion of foreign investors Putin may beget a regime with a dominant KGB gene in its genetic code. The danger lies in some of Putin's advisors. If his former KGB associates form a critical mass around him, their worldview, shaped by the shadowy universe of the intelligence and security apparatus, can fatefully colour Putin's take on the world LA Times Putin's Dilemma: Can Bureaucrats Be Trusted? (6/8/2000)

14 14 An effective policy? After expanding by 11% in 2003 and 9% in 2004, growth in Russian oil production slowed to just 3.6% in the first half of Some deceleration was expected, but the scale of the recent slowdown has been more severe than predicted There is still huge uncertainty about whether the state's renationalization drive will end with Yukos. On July 8, President Putin confirmed that Gazprom, the giant state-owned gas concern, is in talks to acquire No. 5 oil producer Sibneft. Not coincidentally, analysts say, Sibneft has curtailed capital investment Business Week – July 2005

15 15 Outside of energy Alliances in other industries exist with western companies International alliances are reflective of.. Critical attempt by firms to Expand globally and Enhance technical capabilities

16 16 Evidence of Opitz & Sauer (1999)

17 17 Evidence of Opitz & Sauer (1999)

18 18 Critical industries? Alliances found primarily in manufacturing and research intensive industries Manufacturing usually joint venture Research (R&D) usually contractual Where technology transfer is unilateral usually joint venture Where technology transfer is bilateral usually contractual (Hagedoorn & Sedaitis – 1999)

19 19 Challenges for Russian global leaders (De Vries et al 2004) Identify and develop successors Build trust Protect assets and manage government relations Build 21 st -Century organizations (3Is – innovation, information & involvement) Key objectives –Design for long term value-creation –Develop organization competencies of competitors –Practice empowerment and delegation –Create information systems that support sharing data and communication

20 20 Company practices Corporate Governance – uniquely Russian/convergent/US-UK based Role of hierarchical FIGs in more productive resource allocation) (Perotti & Gelfer – 2001) Business ethics What is it? Can it be universal? Beekun et al (2003) – national culture factors need to be considered in the study of global ethics & unlikely that ethical principles are invariable across cultures and different contexts.

21 21 Russia & WTO Does Russia need to join WTO? What are the potential benefits? Usual argument – need to enter the global community and will assist trade liberalization Afontsev (2004) argues Trade liberalization could be done without WTO and joining may have affect of slowing rate down

22 22 Russias long-term plans? Time parameters of WTO accession Short term – focus in on the chance of obtaining favourable accession conditions Medium term – prospects for defending the interests of national economic actors using WTOs existing political-legal mechanisms Long term – key issue is possibility of influencing the further evolution of these mechanisms

23 23 Yukos affair is not an impediment in WTO talks The Yukos problem does not hinder the Russia-US talks on the WTO Accoring to President of the US Chamber of Commerce Thomas Donohue "It would be a mistake to consider the case of one company as serious impediment for the talks. We have many other issues to discuss, such as intellectual property, customs issues, banking sector and joint contracts. Russia stands closer to the WTO accession now then ever before". S ource: Itar-Tass

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