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Hungary: New government to address Mol-Surgutneftegaz dispute

THE NEW centre-right, nationalist-tinged, government plans to step up efforts to end the stand-off between Mol Group and Russia's Surgutneftegaz, which owns a 21.2% stake in the Hungarian energy company

Emboldened by the two-thirds majority his Fidesz party gained in April's general election, the new prime minister, Viktor Orban, said the situation in which Mol finds itself battling over the stake Surgutneftegaz acquired from Austria's OMV in March 2009 does not serve the interests of "Mol, the Russian company with an unpronounceable name, or the two nations".

Asked whether the new government would buy Surgutneftegaz's stake, Orban obliquely responded by saying it would strive to protect the country's strategically important companies, of which Mol is considered the main one. So much so that the previous government, in 2007, formulated a strategic-companies law, dubbed Lex Mol, that investors and the EU at the time complained was designed purely to protect the company from a hostile take-over by OMV. As part of that attempt, OMV built up the 21.2% stake it sold to Surgutneftegaz when it became clear the merger would not go ahead.

However, Orban takes over an economy whose finances are in a mess and is short of the €1.4bn ($1.8bn) Surgutneftegaz paid OMV for those shares. The government is already battling to keep the country's budget deficit down to a level that satisfies the IMF and other institutions, which lent Hungary €20bn during the depths of the global economic crisis to keep the country afloat.

An outline of the deal, say analysts, could involve Surgutneftegaz remaining a financial investor, but not a strategic investor, through its 21.2% stake. "This would imply Surgutneftegaz earning profit and voting in shareholders' meetings – in accordance with the 10% voting cap – but not participating in strategic decisions, or in management," says Vladimir Socor, an analyst at The Jamestown Foundation, a think-tank.

In a conciliatory gesture, Mol invited an observer from Surgutneftegaz to sit in on the end-April annual general meeting (AGM), to which the Russian oil firm was barred for the second year in a row. Hungary's financial and energy regulators are preventing Surgutneftegaz from joining Mol's shareholders' register, and consequently taking up its voting rights and representation on the board, until the company lays out its ownership structure and the circumstances of its acquisition of the stake in Mol.

The Russian company appears unwilling to do that. Surgutneftegaz's ownership structure is opaque: the only known shareholder is Bank of New York, which holds more than 5% and so Russian law must declare its holding; while chief executive Vladimir Bogdanov is understood to enjoy a close relationship with prime minister Vladimir Putin. Bogdanov agreed to a rare interview with the Financial Times a day before the AGM in which he denied his company wanted to take over Mol and suggested a partnership, under which Surgutneftegaz would use some of Mol's EU-based refining capacity to improve its position in the region.

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