A shareholders meeting of the Caspian Pipeline Consortium yesterday rejected all proposals made by Transneft, which represents the Russian package of shares in the CPC.
Not even Kazakhstan was satisfied by Transneft Finance head Murod Mukhamedzhanov's proposal to restructure CPC debt by raising fees higher than the previously stipulated $38 per ton pumped and issuing Eurobonds for $5 billion. Transneft may making firmed statements today.
Mukhamedzhanov has already said that rejecting his proposal threatens the CPC with bankruptcy.
Transneft Left Out of the Consortium
The two-day CPC shareholders meeting began today at the Marriott Grand Hotel in Moscow. The CPC is the only private trunk pipeline in Russia.
It connects oil deposits in Kazakhstan with ports in Novorossiisk. The shareholders meeting reached a dead end on its first day. Transneft, which took over management of the 24 percent of CPC stock in the possession of the Federal Property Management Fund (Rosimushchestvo) only last month, managed to attract only LUKArco to its side.
The private shareholders in CPC voted together against all Transneft and Rosimushchestvo initiatives to improve the financial position of the consortium and reform its management. Kazakhstan, which holds 19 percent of the shares in it abstained from voting. Two sources in CPC member organizations confirmed this information about the outcome of the first day of the meeting. Official information will be made available only on July 4 by agreement of all shareholders. Transneft confirmed yesterday only that the basic proposals on the agenda were not approved and discussion will continue today.
There were three key questions on the agenda: raising the fee on the CPC from $24.6 to $38, lowering the interest rate on credits to the CPC from private shareholders from the current 11-12 percent to 4-5 percent (oriented to the LIBOR rate) and altering the charter of ZAO CPC-R, the Russian legal entity of the consortium, to bring it into line with Russian law by eliminating the rule about deciding key issues in the consortium unanimously and creating a board of directors for CPC-R. General director of OOO Transneft Finance Murod Mukhamedzhanov laid out the Transneft proposals at greatest length. He explained that Transneft sees the rise of the fee to $38 as only the first raise and stated that the consortium's debt of about $5.5 billion must be restructured. He proposed issuing CPC Eurobonds for about $5 billion to do so.
Only then, Mukhamedzhanov explained, could the project to increase the capacity of the CPC from 30 million tons to 56 million tons of oil pumped per year. Rosimushchestvo and Transneft prepared a new memorandum on Russian proposals for expanding the CPC before the shareholders meeting. With the exception of one concession, resolving CPC issues on the basis of English law, the memorandum, which Kommersant has obtained a copy of, was identical to Transneft's positions. In particular, the memorandum proposes to consider the fee of $38, which was set as the upper limit in the CPC shareholders' founder's agreement, be considered as without account for inflation. That would make it possible to raise the fee to $50-55.
The private shareholders in the CPC voted together against Transneft's harsh moves with the exception of LUKArco, an independent enterprise of LUKOIL and BP. A LUKArco spokesman suggested raising the fee to $38 for 12 months a compromise measure. That suggestion was supported by Chevron (15% of shares), but voted down by ExxonMobil (7.5%), BG Group (2%) and ENI (2%). Chevron's initiative to form a working group to conciliate the thorny issue was also rejected. That was predictable. CPC general director Vladimir Razdukhov stated at the beginning of the meeting that consultations on the Rosimushchestvo memorandum “did not produce results.”
Transneft may make good on its threat to initiate the bankruptcy of the CPC after the meeting ends. Today is its last day, but there are no more substantial matters planned than hearing Razdukhov's report and confirming the consortium's results for 2006. CPC sources say that Transneft may begin lobbying to have CPC-R included on the register of natural monopolies of the Russian Federation. They say that, with government support, that could take place in August.
That would settle only the question of the fee, since then the Federal Tariffs Service would set it. The issue of CPC debt can be solved only by lowering the interest rate on its credits or by its bankruptcy. The Russian government would not have the majority on the creditors committee. The CPC's debt to private creditors is significantly larger, even taking into account tax claims of up to $500 million that the Russian Federal Tax Service is expected to make after a new audit of 2005 and 2006.
Not even Kazakhstan was satisfied by Transneft Finance head Murod Mukhamedzhanov's proposal to restructure CPC debt by raising fees higher than the previously stipulated $38 per ton pumped and issuing Eurobonds for $5 billion. Transneft may making firmed statements today.
Mukhamedzhanov has already said that rejecting his proposal threatens the CPC with bankruptcy.
Transneft Left Out of the Consortium
The two-day CPC shareholders meeting began today at the Marriott Grand Hotel in Moscow. The CPC is the only private trunk pipeline in Russia.It connects oil deposits in Kazakhstan with ports in Novorossiisk. The shareholders meeting reached a dead end on its first day. Transneft, which took over management of the 24 percent of CPC stock in the possession of the Federal Property Management Fund (Rosimushchestvo) only last month, managed to attract only LUKArco to its side.
The private shareholders in CPC voted together against all Transneft and Rosimushchestvo initiatives to improve the financial position of the consortium and reform its management. Kazakhstan, which holds 19 percent of the shares in it abstained from voting. Two sources in CPC member organizations confirmed this information about the outcome of the first day of the meeting. Official information will be made available only on July 4 by agreement of all shareholders. Transneft confirmed yesterday only that the basic proposals on the agenda were not approved and discussion will continue today.
There were three key questions on the agenda: raising the fee on the CPC from $24.6 to $38, lowering the interest rate on credits to the CPC from private shareholders from the current 11-12 percent to 4-5 percent (oriented to the LIBOR rate) and altering the charter of ZAO CPC-R, the Russian legal entity of the consortium, to bring it into line with Russian law by eliminating the rule about deciding key issues in the consortium unanimously and creating a board of directors for CPC-R. General director of OOO Transneft Finance Murod Mukhamedzhanov laid out the Transneft proposals at greatest length. He explained that Transneft sees the rise of the fee to $38 as only the first raise and stated that the consortium's debt of about $5.5 billion must be restructured. He proposed issuing CPC Eurobonds for about $5 billion to do so.
Only then, Mukhamedzhanov explained, could the project to increase the capacity of the CPC from 30 million tons to 56 million tons of oil pumped per year. Rosimushchestvo and Transneft prepared a new memorandum on Russian proposals for expanding the CPC before the shareholders meeting. With the exception of one concession, resolving CPC issues on the basis of English law, the memorandum, which Kommersant has obtained a copy of, was identical to Transneft's positions. In particular, the memorandum proposes to consider the fee of $38, which was set as the upper limit in the CPC shareholders' founder's agreement, be considered as without account for inflation. That would make it possible to raise the fee to $50-55.The private shareholders in the CPC voted together against Transneft's harsh moves with the exception of LUKArco, an independent enterprise of LUKOIL and BP. A LUKArco spokesman suggested raising the fee to $38 for 12 months a compromise measure. That suggestion was supported by Chevron (15% of shares), but voted down by ExxonMobil (7.5%), BG Group (2%) and ENI (2%). Chevron's initiative to form a working group to conciliate the thorny issue was also rejected. That was predictable. CPC general director Vladimir Razdukhov stated at the beginning of the meeting that consultations on the Rosimushchestvo memorandum “did not produce results.”
Transneft may make good on its threat to initiate the bankruptcy of the CPC after the meeting ends. Today is its last day, but there are no more substantial matters planned than hearing Razdukhov's report and confirming the consortium's results for 2006. CPC sources say that Transneft may begin lobbying to have CPC-R included on the register of natural monopolies of the Russian Federation. They say that, with government support, that could take place in August.
That would settle only the question of the fee, since then the Federal Tariffs Service would set it. The issue of CPC debt can be solved only by lowering the interest rate on its credits or by its bankruptcy. The Russian government would not have the majority on the creditors committee. The CPC's debt to private creditors is significantly larger, even taking into account tax claims of up to $500 million that the Russian Federal Tax Service is expected to make after a new audit of 2005 and 2006.
