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Mergers force pace of consolidation

THE ANTI-monopoly ministry approved the merger of Yukos and Sibneft, the country's two fastest-growing oil companies, in August.

It says it will rule by the end of the month on Tyumen Oil's (TNK) plan to combine its Russian assets with those of BP to form a new major, TNK BP.

The two giant entities emerging from these deals will change the landscape of the Russian oil industry, which, after fragmenting into a dozen or so corporations in the mid-1990s, is rapidly consolidating.

The Yukos-Sibneft merger should be completed by the end of the year and will create the world's fourth-biggest producer, with oil output of 2.3m barrels a day (b/d). TNK BP will go live as soon as the anti-monopoly ministry gives the green light for the merger, which was first announced in February.

Once up and running, Yukos-Sibneft will sit firmly at the top of the Russian oil tree, followed by Lukoil, with annual output of just over 1.6m b/d. TNK BP will extract more than 1.2m b/d and will oust Surgutneftegaz to take third place in the Russian production league.

Sidanco has already been absorbed into the TNK BP empire.

Slavneft, bagged by TNK and Sibneft at a privatisation auction late in 2002, is still more or less intact, but will eventually be carved up between its buyers.

Fewer oil companies means less competition. In a move to protect smaller industry players, the anti-monopoly ministry attached three conditions to its approval for the Yukos-Sibneft merger:

The new entity is forbidden from discriminating against independent oil-products traders. The penalty for doing so could be the forced sale of the company's Angarsk, Achinsk and Omsk refineries, each of which dominates products markets in large swathes of remote Siberia;

Yukos-Sibneft will be obliged to process crude from other producers at its refineries, assuming technological capacity is available; and

Pipelines built by Yukos-Sibneft must be open to other shippers that have invested in their construction.

The latter demand might be a mild negative for Yukos, which was hoping to retain exclusive access to the 28m tonnes a year export pipeline it plans to build from Angarsk, eastern Siberia, to Daqing in northeast China, says Stephen Dashevsky, an oil analyst at the Moscow-based brokerage, Aton. The government has not yet given final approval for the Chinese project.

Both Yukos and Sibneft are part of a larger group of domestic majors proposing to lay a large export pipeline system from western Siberia to Murmansk, on the coast of the Barents Sea.

The anti-monopoly ministry's approval of the Yukos-Sibneft merger was greeted by some industry watchers as a signal that Yukos' troubles might be on the wane, or, at the very least, would not spill over into a mass probe of the country's controversial privatisations under president Boris Yeltsin.

Yukos' president, Mikhail Khodorkovsky, claimed opposition to the merger from some in government and the Kremlin had prompted the wave of investigations into his firm's dealings in recent weeks.

The ministry's approval ratings suggest he is wrong. All the same, Yukos, with or without Sibneft, is not yet off the hook. Platon Lebedev, head of the company's majority shareholder, Menetap, is still in custody undergoing questioning about the alleged theft of state shares in a fertiliser plant in the 1990s.

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