07MOSCOW4244, RUSSIA ENERGY: YUKOS REDUX FOR RUSSNEFT?

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Reference ID Created Released Classification Origin
07MOSCOW4244 2007-08-29 14:44 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO3259
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHMO #4244/01 2411444
ZNY CCCCC ZZH
P 291444Z AUG 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 3391
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 004244 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT 
DOE FOR HARBERT, HEGBORG, EKIMOFF 
DOC FOR 4231/IEP/EUR/JBROUGHER 
NSC FOR MCKIBBEN 
 
E.O. 12958: DECL: 08/29/2017 
TAGS: EPET ENRG ECON PREL RS
SUBJECT: RUSSIA ENERGY:  YUKOS REDUX FOR RUSSNEFT? 
 
Classified By: Econ MC Eric Schultz for Reasons 1.4 (b/d) 
 
------- 
SUMMARY 
------- 
 
1. (C) Russneft owner Mikhail Gutseriyev has apparently fled 
Russia as authorities seek his arrest on charges of illegal 
business activities and tax-evasion.  Gutseriyev may be 
guilty, he has a dubious track record, but this may also be 
yet another case of selective prosecution against an oligarch 
whose rapidly-built company has come to the attention of the 
Kremlin.  End summary. 
 
---------- 
BACKGROUND 
---------- 
 
2. (C) In a case reminiscent of the dismantling of Yukos, a 
Moscow court on August 28 issued an arrest warrant on 
tax-evasion and other charges for Mikhail Gutseriyev, owner 
of Russneft, Russia's seventh largest oil producer.  Although 
comparisons between the cases are inevitable, there are 
significant differences, in particular the two companies, 
principals.  Khodorkovsky went from low-level salesman to 
banker to Yukos head with no formal GOR position.  Gutseriyev 
on the other hand was a member of the governing elite.  He 
was head of Slavneft, a state-owned oil company, in the late 
1990s. 
 
3. (C) Gutseriyev temporarily fell out of favor with the 
Kremlin for resisting Slavneft's privatization and was 
removed from office.  Slavneft was subsequently privatized, 
going half to Sibneft (now Gazpromneft) and half to TNK (now 
TNK-BP).  Gutseriyev later emerged as deputy head of the 
Association of Independent Oil Producers (ASSONEFT), but was 
again dismissed, this time for misusing his position to 
gather sensitive information on small producing companies. 
 
4. (C) With financial backing from oil trader Glencore and 
his own bank, BinBank, Gutseriyev made a comeback in 2002, 
creating Russneft.  He expanded rapidly, purchasing small 
producer after small producer to build a 300,000 b/d oil 
company.  (Note:  One of the victims was U.S.-owned Goloil, 
which Teton Petroleum was forced to sell under some duress. 
End note.)  Not known for his transparent corporate 
governance, Gutseriyev is rumored to have made plenty of 
enemies while amassing a fortune estimated at $2.9 billion. 
Jerry Rohan (protect) a semi-retired long-time Russia energy 
sector expert for PWC, told us Gutseriyev deserves little 
sympathy given his shady past -- "let's put it this way, if 
he shows up on your doorstep seeking asylum, I hope the door 
is slammed in his face." 
 
----------------- 
GUTSERIYEV,S FALL 
----------------- 
 
5. (C) Gutseriyev,s mistake appears to have been growing 
Russneft too big, too quickly at a time when the Kremlin is 
bringing the oil sector under its control.  He is thought to 
have incurred the Kremlin's particular ire by bidding on 
Yukos assets (in one case successfully) in competition with 
state-owned Rosneft.  In January of this year a tax-evasion 
case was opened against Gutseriyev.  This led to 
court-ordered actions in July and August, freezing Russneft 
shares, amid further charges of "illegal entrepreneurship" 
and transactions "contrary to the bases of lawfulness and 
morals." 
 
6. (SBU) As legal pressure mounted on Gutseriyev, 
Kremlin-friendly billionaire Oleg Deripaska offered to buy 
Russneft.  The offer from Deripaska's holding company, Basic 
Element, was reportedly worth $6.5 billion, including 
assumption of Russneft debt as well as some $675 million in 
tax claims.  The Federal Anti-Monopoly Service, which would 
need to approve the deal, stated that it has not yet received 
an application from Basic Element.  A Basic Element 
spokesperson, however, confirmed to the press on August 28 
that the company's plans with regard to Russneft have not 
changed. 
 
 
MOSCOW 00004244  002 OF 002 
 
 
7. (C) Gutseriyev compounded his problems when he resigned 
from Russneft on July 30th and posted a letter on the company 
website claiming he was being pushed into selling the company 
to Deripaska.  Realizing that accusing the powers-that-be of 
coercion was not a great idea, he almost immediately 
retracted the letter and publicly stated that the pending 
sale was voluntary. 
 
8. (C) An arrest warrant was issued August 28 for Gutseriyev 
following indications he had fled the country in violation of 
an agreement to remain in Moscow pending resolution of the 
case.  Gutseriyev's present whereabouts are unknown, but he 
is rumored to be in London.  He was reported to have been in 
Baku for the funeral of his son, Chingiskhan, who had died in 
a car accident on August 22.  (N.B. There has been no 
speculation to date that his son
's death is linked to 
Gutseriyev's legal problems.) 
 
------- 
COMMENT 
------- 
 
9. (C) It would seem that Gutseriyev's long track record of 
alienating supervisors and authorities has caught up with 
him.  If Gutseriyev is indeed in Britain, an extradition 
request can be expected, which could further complicate 
Russia-UK relations.  Russneft will likely end up with 
Deripaska or Rosneft or some other state-controlled or 
state-affiliated entity.  This latest development has added 
to speculation (long-rumored and most recently suggested last 
week by the U.S.-based Energy Intelligence Group) that a new 
oil super-giant will be formed prior to the end of Putin's 
term that would include Rosneft, Russneft, Surgutneftegaz 
(the number 4 producer), and Bashneft (another top-ten 
producer). 
Burns

Wikileaks

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