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Chinese pull out of Russian oil bid

By Alex Frew McMillan
CNN Hong Kong

russian oil
Analysts say the oil sale shows vested interests still have the upper hand in Russian privatization

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BEIJING, China (CNN) -- Chinese oil giant China National Petroleum Corp. (CNPC) has scrapped a bid to buy Russian oil company Slavneft.

The move means that another Russian oil producer, Sibneft, is almost assured of winning the bidding for the government's 74 percent stake in Slavneft when the auction concludes Wednesday.

The Russian government has set a $1.7 billion starting price for the country's ninth-largest oil company.

Alexei Volin, a spokesman for the Russian government, said Tuesday that CNPC had pulled out.

Decision 'appropriate and logical'

He did not elaborate on the reason. But he welcomed the Chinese state-owned company's move as "an appropriate and logical decision," according to the Russian news agency TASS.

"Slavneft's new owner should be a private company," he said. The purpose of the sale is not "to just sell the shares but, first and foremost, to denationalize or restructure the company."

"The CNPC is government-owned, so it would be very illogical to transfer the company from one state to another," he said.

The Slavneft sale is likely to be the largest privatization in Russian history, with the cash-strapped government keen to raise funds.

Beijing-based CNPC is the parent of publicly traded PetroChina, which it spun off to manage its assets within China. CNPC still owns international exploration and production operations in Iraq, Kazakhstan, Sudan and Venezuela.

Opposition from lawmakers

CNPC said it would make its final decision clear shortly before the auction. CNPC President Ma Fucai is now in Moscow.

sibneft founder
Sibneft founder Roman Abramovich is likely to be smiling again after the completion of the Slavneft sale

The Kremlin had earlier this month endorsed CNPC's bid. But the Kommersant newspaper said Chinese officials decided to withdraw after discussions with Russian officials.

Deputies from Russia's lower house of parliament, the duma, on Sunday approved a resolution urging the government not to sell Slavneft to an overseas company, and to ban overseas state-owned companies from buying Russian state assets.

China and Russia were rivals during the Cold War era, both claiming they were the true face of communism. But diplomatic relations between the two nations have warmed recently.

Western Siberian operations

Slavneft produces 320,000 barrels of oil per day, mainly in western Siberia, and has refining capacity of 600,000 barrels per day at plants in Russia and Belarus.

Sibneft already owns a minority stake of Slavneft and operates in the same western Siberia region. Most of Russia's oil companies originally expressed interest in Slavneft but gave up because it would have cost as much as $1 billion to buy Sibneft out.

Some 14 bidders are approved to enter bids. But so far, only offers from Sibneft and Tyumen Oil Co., or TNK, are confirmed.

But TNK's heavy debt load of more than $2.5 billion will likely prevent it from mounting an effective bid on its own.

Regret over decision

Analysts suggest the way the Slavneft sale has progressed shows Russia is not ready for truly open bidding in its privatization process, with vested interests getting the upper hand.

Sergey Tsyplakov, Russia's trade representative to China, said he regretted CNPC's decision to pull out and blamed Russian media for fueling speculation.

"Some of the materials smelled of the Stone Age, and the authors demonstrated a total lack of knowledge of the essence of current Russian-Chinese relations, including trade and the economy," he said.

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