By John Helmer, Moscow
Deputy Prime Minister Igor Sechin (image centre), the overseer of Russia’s ports and shipping, as well as of the trade which passes through them, has recommended that the state shareholdings in Novorossiysk Commercial Seaport Company (NMTP is the Russian ticker, NCSP the English) be sold to Rosneft, the state oil company. This is according to a January 31 letter from Sechin to Prime Minister Vladimir Putin, which leaked to Moscow media yesterday. Government sources are neither confirming nor denying the letter; the government decision has yet to be made.
Sechin has proposed the asset transfer by a government decree, eliminating the plan of competitive auction which is usually required for privatization of state assets. If implemented, this would be a blow for the port company chairman, Ziyavudin Magomedov, whose holding company called Summa is the control shareholder of NMTP in a partnership with the state pipeline company, Transneft. Together, they hold 50.1% through a common company called Novoport.
By transferring the shares from passive to active state control through Rosneft, and telegraphing the punch, Sechin has launched an unusually personal attack on Magomedov, which threatens to break up Magomedov’s partnership with Transneft chief executive, Nikolai Tokarev, and put a stop to several of Magomedov’s plans for Summa’s expansion into grain and coal terminals, oil trading, and other lines of business. According to Magomedov, Summa has annual revenues of $10 billion.
Together, Magomedov and Tokarev took over Novorossiysk port, plus the Primorsk oil port and the Baltiysk container terminal at Kaliningrad, in a government-ordered deal at the start of 2011. Doubting Magomedov’s business credentials and his source of capital, Renaissance Capital called the transaction a “gentle nationalization” . Prime Minister Putin went to the trouble of denying that, claiming instead the deal “is not aggression on the part of the state. Noone is squeezing…Investors should be happy that Transneft is coming .”
In the event, the share price fell steadily through last year. It is now $7 per share; it was $11 per share in February of 2011. The evaporation in market capitalization amounts to $1 billion.
NCSP 1-year share price:
The federal government still holds a 20% stake in Novorossiysk, while the pension fund of state-owned Russian Railways owns another 5%. Russian Railways boss, Vladimir Yakunin, is saying the rail conglomerate would also be willing to take over the state stake, if Rosneft is reluctant. Yakunin may be signaling that he is as hostile to Magomedov’s continued control of the port company as Sechin.
It is unclear whether Transneft has been taken by surprise by the change of plan. Transneft spokesman Igor Dyomin was asked if his company is backing the Sechin proposal. He replied: “This is not my business.”
According to Moscow maritime industry analyst Alexei Bezborodov, the move is an attack by Sechin against former allies in the maritime sector. A well-informed source who asked for anonymity told Fairplay that Magomedov has over-played his hand with government officials, made promises he isn’t delivering on, and is being penalized because those who backed him a year ago can no longer do so. “We see the potential acquisition as politically driven and hardly benefitting the company [Rosneft],” Uralsib Bank analyst PavelSorokin reported to Moscow clients.
Magomedov’s spokesman told Fairplay he is not commenting “because this relates to state matters.”
Magomedov did not refer to the Sechin move in the lengthy interview he placed in a Moscow newspaper on Monday, the first he has given the Russian press. The internal evidence suggests he was unaware of the Sechin letter to Putin at the time he told Vedomosti that he would compete in a privatization sale of the state shareholding. “It depends on the conditions of the sale, primarily on price,” Magomedov is recorded as saying. “Plus there are different models of privatization – for example, a secondary public offering (SPO) is in discussion. But we are interested in the asset.”
Magomedov also denied he has influential silent partners and backers. “I’ve never built a business based on friendship with politicians or bureaucrats. Such an approach may not be sustainable. I cannot boast of histories of relationships with the powers that be, because I have none.” He acknowledged, however, that Arkady Dvorkovich, a close aide to President Dmitry Medvedev, had been a classmate and remains a friend.
Rosneft is not responding to questions about the proposed port takeover. Oil industry sources say the volume of oil Rosneft ships through Novorossiysk and other oil ports changes frequently, and depends on Transneft.
Sechin’s attack on Magomedov is a case of score-settling with the Medvedev-for-President campaign and with Medvedev himself, sources familiar with the matter suspect. That Dvorkovich and Medvedev lack the power to deter Sechin at this stage is further indication, they believe, that Medvedev is unlikely to be appointed to the prime ministry following next month’s election.