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Slavneft sold for $1.86bn

TYUMEN OIL (TNK) and Sibneft teamed up to place a joint, winning bid for Slavneft at a privatisation auction in December. Like many earlier oil privatisations, the conduct of the sale aroused controversy. State-owned Rosneft called the event a farce.

Through a company called Invest Oil, the country's fourth- and fifth-largest oil companies, offered to pay $1.86bn to bag the state's entire 74.95% stake in Slavneft. Their bid was only slightly above the starting price of $1.7bn and well below the $2.5bn Rosneft claims it would have offered if it had not been barred from the auction.

After two years of buoyant oil prices, most Russian majors are rich enough to splash out on new assets and $1.7bn is not much to spend on a 14m tonnes a year oil company. Slavneft was also tempting because it was one of the last big domestic oil corporations to go on the privatisation block. For a time, interest in the sale was near frenzy. But on the day few turned up to bid. Even China National Oil Corporation stayed away, possibly alarmed by a Duma (parliament) call for a ban on foreign participation.

Both the run up to the privatisation and its handling recalled the loans-for-shares auctions of the first half of the 1990s, when the country's main industrial assets passed into private hands for a pittance, without regard for public opinion, Rosneft fumed in a statement issued just after Sibneft and TNK announced their victory.

Hours before the Slavneft auction opened, Rosneft's bidding vehicle, Financeprofit Expert, was disqualified on the grounds of a legal technicality, the company complained. Rosneft plans to file a law suit against the Russian Federal Property Fund for handling the auction in a way that deprived the state budget of large funds.

So far, Sibneft and TNK have not said what they plan to do with Slavneft, which owns reserves in western Siberia and the prospective, but very remote Krasnoyarsk region of eastern Siberia.

Slavneft also controls refineries near Yaroslavl, in northwest Russia, and at Mozyr, in Belarus. It is possible the company's assets will be carved up between the two companies, who have until 15 February to pay for the shares. Sibneft has already spent over $200m on a 10.86% packet of Slavneft shares, purchased from Belarus, in December, at an auction where it was the sole bidder.

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