By John Helmer, Moscow
Long after the great siege generals – Alexander, Napoleon – enunciated the principle of concentrating fire against the weakest points of an enemy’s walls – the Red Army devised the application combining the most explosives for the cheapest outlay in a saturation pattern which didn’t need to be accurate. It was the BM-13 until the secret was out. Then it was called the Katyusha. Nikolai Tokarev (upper right), chief executive of Transneft, launched an unprecedented fusillade of that this morning against Ziyavudin Magomedov (lower right). Transneft against Summa Group. President Putin’s man against Prime Minister Medvedev’s.
Transneft, Russia’s state-controlled oil pipeline company, has disclosed it wants to replace the current board chairman and chief executive of Novorossiysk Commercial Seaport Company (NCSP; other acronyms in use are NCSC and NMTP), the largest of Russia’s publicly listed port companies. In an announcement this morning, Tokarev accused Magomedov’s Summa Group of working against Transneft’s interests at the port, even though the two groups share a 50% shareholding on parity basis since they made a combined takeover of the former shareholders of the port company in 2010.
“We are very different companies. Fundamentally different”, Tokarev said. “Our priorities do not always coincide. What is a priority for the Transneft as a state-owned company is often in direct contradiction to the objectives of the private company [Summa]. And then there are some moments that have darkened our cooperation.” According to Tokarev, Magomedov, who occupies one of the director’s seats on the NCSP board, has built up direct management of the port’s subsidiary companies, giving him de facto control of the NCSP group with only 25% of the shares.
Following what he called “a series of disputes”, Tokarev revealed that Transneft has “initiated a change in the collective bodies of NCSP.” Transneft is proposing Maxim Grishanin, Transneft’s chief financial officer, to become the board chairman at NCSP, while it wants Sergei Kireev, chief executive of a subsidiary, Transneft-Servis, to become acting CEO of the port company until shareholders can be summoned for a vote at an emergency shareholders’ meeting (EGM).
NCSP reported on February 5 that its board had agreed the day before on an agenda and list of board candidates for its scheduled annual general meeting (AGM) of shareholders, but there was no reference to the challenge slate.
Tokarev also announced that he is rejecting Magomedov’s plan to build a new oil terminal at Rotterdam to tie NCSP’s oil outlet, Primorsk on the Gulf of Finland, to the Dutch oil trading hub. Tokarev accused Magomedov of conceding no profit for Transneft’s provision of crude oil for tanker loading through Primorsk. He also rejected the proposal from Magomedov to establish the Urals crude oil benchmark at Rotterdam. “But we have to do this on our sites [in Russia],” Tokarev said.
The Rotterdam project is called Tank Terminal Europoort West (TEW). Magomedov has been developing it in a joint venture with oil trader Vitol, but it is facing a potentially hostile environmental impact review by the Dutch authorities, and is yet to break ground. Magomedov’s group had been hoping for a public endorsement from Putin when the president makes an official visit to the Netherlands next month. The Rotterdam terminal has been justified by Summa group executive, Alexander Vinokurov, in a presentation last October as a platform for Urals crude pricing without the customary discount to the Brent (North Sea) benchmark.
Denis Vorchik, maritime analyst for Uralsib Bank, reported to clients today that a Transneft takeover would change NCSP’s priorities back towards oil and away from grain and other cargoes. “As a result of Transneft consolidating its position in [Novorossiysk], NCSP’s non-oil projects could lose their strategic status, with the development of oil and oil product capacity becoming more important for the company.”
Magomedov and Summa appear unable to cope with the new pressure. Magomedov has released no response to Tokarev. Vinokurov declines to reply to questions, while the Summa spokesman, Dmitry Minenko, has cancelled the telephone number listed on the company website and refuses to reply to emails.
Igor Dyomin, Transneft’s dyspeptic spokesman who is rarely permitted by Tokarev to add background to his boss’s public statements or clarify ambiguities, confirmed that “everything is written there in the interview.” The full text from Kommersant can be read here.
Last week there was an additional sign that the state banks may have been told by Putin’s men to close their loan window for Magomedov. This was the story, appearing in Vedomosti on February 7, that the Summa group is planning to raise cash itself by selling the Yakutsk Fuel and Energy Company (YATEC) in whole or in part. The company holds undeveloped gas reserves in the Sakha republic, and the press leak claimed that the company might be worth $2 billion. The principal gas producers, Gazprom and Novatek, told the newspaper they were not negotiating with YATEC. Until the for-sale notice appeared last week, Summa has been promising an initial public offering for YATEC.
Magomedov has also been disposing of his hard-rock mining assets; a lead and zinc mining prospect was sold last year for about $37 million.
A strategy of disposing of non-core assets makes sense if the core port, transportation and oil logistics assets are secure. But in today’s blitz against Magomedov, Tokarev also appeared to be targeting the oil trading network which has been the basis of Magomedov’s rise to fortune, supported initially by Tokarev’s predecessor at Transneft, Semyon Vainshtok.
“A team of traders,” Tokarev said, “has taken shape over the years who are middlemen between sellers and buyers. Usually they are dug in at the border, and that was how it was until recently. LUKoil battled them for nearly a year by not giving them any volumes. None of these little structures will remain. The final victory over that gang is near.” Tokarev didn’t name the oil traders, but he left no doubt he was talking of Magomedov’s network when he referred to a “new victory” by Rosneft in contracting directly last week for supplying crude oil to Poland’s refiner, PKN Orlen. This deal has succeeded an earlier crude supply contract between PKN Orlen and Souz Petrolium, a Swiss registered trader of Magomedov’s, which ought to have run until December 2014.
Moscow oil traders concede they aren’t sure what exactly is happening to Magomedov’s sources of crude and his trading revenues. On February 4, after the Polish deal with Rosneft was announced, PKN Orlen said it had signed with Souz to sell refined petroleum products for a year.
One last rocket: following acerbic remarks by Putin during a tour on February 6 of the Sochi Olympic Games sites, Akhmed Bilalov was dismissed from his posts on the Russian Olympic Committee and the state resorts construction group responsible for the ski jump complex. He was blamed for faulty construction calculations and a budget blowout from the equivalent of $40 million to $267 million. “Well done! You are doing a good job,” Putin said. Bilalov is Magomedov’s cousin.
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