Friday, November 28, 2014
 
Follow sptimesonline on Facebook Follow sptimesonline on Twitter Follow sptimesonline on RSS Download APP
MOST READ



PARTNER NEWS



BLOGS



OPINION



WHERE TO GO?

19th Century Portraits

History of St. Petersburg Museum: Rumyantsev Mansion

 

  Print this article Print this article

Rosneft Should Extract Russias Oil, Not Its Cash

Published: August 27, 2014 (Issue # 1826)


By Konstantin Sonin

One of the biggest economic sensations earlier this month was the news that Rosneft, one of the largest oil companies in the world, had appealed to the Russian government for help. One of their requests, for example, was a soft loan of 1.5 trillion rubles ($40 billion).

Both the scale and the nature of this request are a bit surprising. First of all, the amount is greater than the federal budget for public health and education combined. And secondly, to an outside observer, the very idea of a nationalized oil company looking for help from the government seems odd.

After all, what was the point of nationalizing Yukos and handing its immense resources to Rosneft (if we dont get into a discussion about personal financial or political gain)?

History shows that the governments of developing countries get more money from nationalized companies than through taxation of private corporations. Governments of developed countries face this problem to a lesser degree; they are more successful at collecting taxes.

But what is the point of nationalization a difficult and costly process if as a result the government doesnt have the opportunity to access additional funds from the company in times of need (by lowering the salaries of managers and reducing investment programs, for example) and instead finds itself in the role of a lending institution?

Aside from this specific problem, there is a more general problem with a government lending money to state companies.

Imagine that BP or Exxon borrowed money from the Russian government and then was to repay the loan. The lender would be able to get something in return for its money: collateral (if there was any) or part of the companys assets (shares, perhaps).The fact that the lender will get part of the borrowers assets if the latter doesnt repay the loan is good motivation to do so.

But what will happen if Rosneft doesnt repay its loan to the government? What can the state take if this happens? Nothing, because it already owns the company almost completely. So there is no motivating factor in this case to repay the loan.

But even this general difficulty isnt the last or even biggest problem with Rosnefts call for help from the state. The request itself is a sign of the companys effectiveness and stability, and a bad one.

The sanctions causing Rosneft difficulties in managing its own debts are simply part of the world that a large oil company must operate in. For Exxon and BP, dealing with political risks, both within the countries where they work and geopolitically as well, has long been a main, if not the primary, management task.

If Rosneft cant handle its debt in the changing political situation, it means that the company is not optimally structured or appropriately prepared for operating in the market. Its not inconceivable that its size (the biggest oil company in the world) is excessive.

If so, we should expect proposals from Rosneft as to which assets will be sold off and which expenses will be reduced so that the company can continue to be what it should: an effective and stable cash cow for our country.

Konstantin Sonin is a professor and vice rector at the Higher School of Economics. The views expressed in this article are his own.





 


ALL ABOUT TOWN

Friday, Nov. 28


Join table-top game aficionados at the British Book Centers Board Game Evening. Held every Friday at 5 p.m., aficionados and amateurs alike can come take part in a variety of different games that test ones intellect and cunning.



Saturday, Nov. 29


Cats, dogs, birds, rodents and reptiles are just some of the things that will walk and crawl at Lenexpo convention center this weekend as part of Zooshow, a two-day exhibition featuring not only mans best friends but a four-legged fashion show, as well as a food fair that will help pet owners find out more about which kibbles are best for their hungry pets.



Sunday, Nov. 30


Remember the 75th anniversary of the beginning of the Russo-Finnish war in 1939 during todays reenactment titled Winter War: How it Was. More than 200 people will take part in recreating the opening salvoes of the battle for the north in Kamenka, a small village situated between Vyborg and St. Petersburg, using authentic equipment and vintage vehicles from the era. The faux battle begins at 2 p.m.



Monday, Dec. 1


Serbia filmmaker Emir Kusturica is the featured guest this evening at the Lensovet Palace of Culture the Petrograd Side. Fans of the director will get the chance to watch his movie Black Cat, White Cat, as well as ask questions about his award-winning filmography. Tickets for the event, which starts at 7 p.m., start at 2,000 rubles ($42.50).



Tuesday, Dec. 2


Today is the final day of Takoy Festival, a three-week program of plays based on the works of Dostoevsky, Remarque and other famed European writers, whose work is transcribed for theatrical performances. Tonights festival finale is Fathers and Sons, a two-act drama staged by the Novosibirsk Academic Drama Theater based on Turgenevs classic about familial relations.



Times Talk