Who Will Buy Belarusian Refineries?

Since Belarus became independent in 1991, Alexander Lukashenko has had the country under his control. He managed to stay in power through tricks, as well as force. However, he also has found support among people who are afraid of any political or economic reforms. They look at the changes in Russia which symbolizes for them only robbery of national assets. This people, mainly pensioners and farmers where promised by Lukashenka that Belarus would never go through a similar shock therapy as Russia did in the 90?s.

The persistence of the country to retain a form of market socialism and the refusal to implement political and economic reforms has isolated Belarus from the West. It suffers from an inflation rate of 60 percent and nobody believes in the official unemployment rate of 2.3 percent. On the whole, the domestic economy is crumbling to pieces.

To prevent the country from the ultimate collapse, Belarus needs urgently an inflow of capital. This fact cannot longer be denied anymore. Therefore, the hardly started privatization process should be accelerated. One of the most interesting sectors of the economy is the small oil industry of the country. It produced 37?000 bbl of oil per day in 2001. The proven reserves amount to 198 million barrels of oil. An increase of production however is hampered by a lack of foreign investments.

A first step was made in December 2002, when the Belarusian government sold its 10.83 percent stake in the Russian oil company Slavneft, to Sibneft for $207 million. Last April, the authorities intended to sell blocking minority stakes in four state-owned oil refining and petrochemical companies. The assets included a 43.2 percent stake in Naftan refinery and 43.6 percent stakes in the Polimir, Azot and Khimvolokno petrochemical plants. The floor price for the Naftan refinery was $426 million, a valuation, which implied a price of $15.9 per barrel of refining capacity. This was twice the price, which Sibneft paid for a stake in the Moscow refinery. There is also a need for further investment that is estimated only for Naftan to amount to $246 million. Due to the overvaluation of the assets and the fact that no controlling stakes could be purchased, there was no interested party that submitted a bid.

This week, Alexander Lukashenko made a new attempt to sell the Belarusian refineries. He proposed to Surgutneftegas, the fourth largest Russian oil producer, to exchange stakes in Naftan and Mozyr refineries for unspecified oil fields in Siberia. When he was asked if he would be ready to sell a majority stake in the refineries, he meant only that it would be question of money.

It depends on the ultimate conditions, but for Surgutneftegas, which does not have any downstream assets abroad, the offer might be of interest. Like other major Russian oil companies, Surgutneftegas is over flooded with cash and crude but it is widely acknowledged that it has to expand their operations into the downstream business outside the country, in order to diversify their activities and build up a company structure more similar to global oil giants.


Author: Tatyana Zaharova