RUSSIA - NK SurgutNefteGaz

Founded on March 19, 1993, SNG has an enormous oil producing company of the same name which is the largest in Siberia, and the well-located 390,000 b/d Kirishi oil refinery near St. Petersburg run by Kirishinefteorgsintez. The oil producing unit, AO Surgutneftegaz, has one of the most promising set of fields which is the second largest producer of associated gas next to Rosneft. Its gas production capacity is 8.5 BCM/year, compared to Rosneft's 12.6 BCM/year. Its oil/condensate production is averaging 685,000 b/d, compared with 675,000 b/d in mid-1996. Badly affected by the fall in oil prices, SNG's profits during the first quarter of 1998 were $80.7m, down from $154m in the first quarter of 1997.

SNG is one of the most secretive companies in the oil sector. Its policies are rarely discussed with shareholders. It is one of the few groups in which banks have no equity. At the end of 1994, AO Surgutneftegaz unexpectedly increased its charter capital by 250 times, to Rbs5.39 trillion, as a result of which the share price fell 60 times. By mid-1996, this daughter firm had a charter capital 550 times larger than that of the holding company (according to the rules, the holding company must own 38% of the shares of the daughter; i.e. the charter capital of the daughter cannot exceed that of the holding company by more than 2.5 times). Shares of the holding company are not traded on the stock market. The group says it is "geared towards the small investor". It was the first in Russia to introduce a system of remote re-registration of owner's rights, which is not widely used. In November 1995, the employees' pension fund of Surgutneftegaz acquired

40.12% of NK SurgutNefteGaz at a specialised auction, paying Rbs400 bn and promising to pay the company's back taxes of Rbs1 trillion within 10 days. The auction brought about many questions, including how the other competitors were pushed aside. In April 1996, then Premier Chernomyrdin ordered the state property committee GKI to buy back shares in this company as well as those in Sibneft and Yukos, in view of sharp criticism of the auctions made by many political leaders.

SNG is far from having the status of a vertically integrated company. In the press, one occasionally sees stories about differences of opinion within the company, particularly between the producing firm and the sales offices in St. Petersburg. In 1996 the company began conducting a more open policy in the search for foreign investors. It has received a license for the development of eight oilfields in the Khanty-Mansiisky autonomous region, whose total reserves are estimated at about 520m tons.

A project to overhaul and modernise Kirishi refinery has been discussed with ABB Lummus Crest. A new technology and some equipment for this project were

bought from Chevron . The company hopes to receive a $1 bn credit from the US ExIm Bank for the construction of a hydrocracking plant.

Apart from its producing Surgutneftegaz and the Kirishi refinery, the group has the following marketing units: Oneganeft, Kaliningradnefteprodukt, Karelnefte-produkt, Kirishi Petroleum Products Co., Lennefteprodukt, POL site "Krasny neftyanik", POL site "Ruchi", Nefto-Kombi, Pskovnefteprodukt, Novgorod-nefteprodukt, Tvernefteprodukt, and a St. Petersburg plant for car servicing. In April 1997, SNG bought 14.99% of leading crude oil exporter Nafta Moskva (NM) at an investment tender for Rbs71 bn ($12m), and pledged to invest $6m in the company over three years. NM was to get 50 cents/ton commission on SNG's crude exports.