Man of Repute

Within only three years no-big-scale private company RussNeft became a strong player at the oil market at which the government influence is becoming more and more profound.  The owner of the company Mikhail Gutseriev has laid his own political weight and ambition into the foundation of the company. 
Some time ago it became known that RussNeft was going to build a refinery in the Bryansk region. In the company they say however that, though Bryanschina is strategically important for RussNeft, no decision has yet been taken as to whether to build or purchase a refinery. But it is certain that by the end of 2007 the company will definitely have its own refinery.
By that time RussNeft may require several refining enterprises at a time. It is considered to be one of the most rapidly developing oil companies whose oil production growth has exceeded 86%. Moreover this private company may be the only one among the first-rate ten not supported by the government.
As for the founder of RussNeft Mikhail Gutseriev whose fortune is estimated as $1.38 billion, he is not in the least against the idea of cooperating with the government. He’s always wanted to get to the top, but earlier any contact with the power brought more negative emotions. This time Gutseriev has chosen another road. Being no longer a public man he is trying to show his loyalty in everything he is doing. For instance, RussNeft is avoiding any contacts with the out of favor Yukos. They say in the company that they are not going to buy the two refineries which previously belonged to the major and may soon be offered for sale. And this is when they badly need such refineries because in the company there is huge misbalance between oil production and refining which causes great losses.
Hence while trying to organize the refining at RussNeft Gutseriev bases not only on economic aspects. Presently he is seeking to bypass the state hierarchy and attain a new level of influence building up his authority in business. In fact there are few refineries in this country belonging to major oil producers and if a person comes into possession of a refinery he immediately acquires a high status in the oil establishment.
However RussNeft is moving up the rating scale notwithstanding the fact that there is no refinery. It is no wonder because Gutseriev runs his company by himself using all available political resources along with his rich entrepreneurial experience. As a result of these efforts RussNeft has made such a powerful leap upwards that Gutseriev has never witnessed before; neither in the end of the 1980s as head of a big production entity, nor in the 1990s when being in charge of the BIN Group and a vice-speaker of the State Duma, still nor in 2000 after taking the presidential seat of state-run Slavneft.
Mikhail Gutseriev was born in 1958 in the town of Tselinograd of Kazakh SSR. He graduated from Dzhambul Technological Institute and later went to several other higher educational institutions. In the middle of the 1980s he was in charge of a production association in Grozny, and also did some business undertakings. In 1991 Gutseriev established a Moscow-registered company called BIN, and later in 1993 he opened BIN Bank. In 1995-1999 he was a deputy of the State Duma. From January 2000 to July 2002 Gutseriev worked as president of state-run company Slavneft and in September 2002 he registered an oil company named RussNeft. He has state awards, academic degrees of a candidate of law sciences and a doctor of economics. Gutseriev does a lot of welfare allocations. During the Beslan school seizure he was one of those talking to the terrorists whereupon became Basayev’s personal enemy. Gutseriev resides in Moscow, is married, has two sons and a daughter, the children are being educated abroad.
Advanced Millionaire
Gutseriev went into business for the first time in the beginning of the 1970s. As a teen-ager he made and sold post-cards with his friends. Definitely with these primitive articles the present multi-millionaire was not able to gather wealth but at least he got an idea of how the market functioned. Later Gutseriev worked as a loader, worker simultaneously studying at Dzhambul Technological Institute in Kazakhstan. Having moved to Grozny in 1981 he got fixed up as a technologist in a decorative craft association. And already in 1986 a twenty seven year old Gutseriev was placed in charge of the association and became the youngest general director in the entire USSR.
Later when cooperative business was legalized in the country Gutseriev established a joint venture with Italians, the first one in the Northern Caucasus. It was a furniture factory named Chiital. He also opened one of the first cooperative banks in the country. Pretty soon the advanced manager became a legal millionaire.
However in 1991 everything crashed down. The power in Grozny was taken by Jokhar Dudaev who initiated a large-scale expropriation campaign in the republic. The Gutserievs managed to sell their house and take out a truck of personal things. As for the savings, knowing people assure, at that time Gutseriev lost everything.
However some means were apparently left. Upon moving to Moscow, Gutseriev immediately went into business again and this time in company with his nephew Mikhail Shishkhanov, a then-student and currently president of BIN Bank.
“For a song they bought a small company called BIN. In fact they merely bought documents of the company, which had no assets”, says a person close to Gutseriev. “In the beginning the company did not specialize in any particular business. They did many things – took gold and silver to the jeweler’s, sold crude and oil products. By 1993 they saved up $5 million and opened BIN Bank.
Gutseriev was in charge of his second bank for about a year. Then he delegated the control to Shishkhanov who had by that time graduated from Russia’s Peoples Friendship University. And to his brother, Sait Gutseriev, holding a post of general director at a Grozny trade and industry association named ‘Local Industry’, he proposed that he move to Moscow and come in the head of industry and finance company BIN. That was how BIN Group made its appearance and until now it remains possibly the most reliable asset of Mikhail Gutseriev.  
RECORD
Private Oil Producing Company RussNeft was founded in 2002 with 80 million tons of crude oil reserves. By the end of 2005 the company has enhanced the reserves to 600 million tons and its oil output boosted from 1.5 to 15 million tons. According to the results of 2004, the company was among the ten leading oil producers of Russia. RussNeft has always been distinguished for its aggressive policy and within only two years it has bought 35 oil producing and production assets, and formed a retail network of gas-filling stations, covering 13% of the metropolitan fuel market. Its political and financial partner is international trading corporation ‘Glencore International AG’, which earlier this year bought stakes in three affiliates of RussNeft. Roughly the 2004 annual turnover of RussNeft was some $3 billion; at BIN Group (without BIN Bank count) this figure exceeded $1.3 billion. BIN Bank’s assets as of the 1st of November 2005 amounted to 50 billion rubles.
Valuable Ties
BIN Group is a composite and no transparent entity. The three main fields of its activity, including oil (RussNeft), finances (BIN Bank) and real estate (Industrial Finance Company BIN, or IFC BIN) have not been consolidated; the companies own minority stakes of each other. It is obvious that such cross shareholding adds stock to all the members of the Group. Sait Gutseriev and Mikhail Shishkhanov belong to the richest citizens of Russia, each having a fortune of about $70 million. BIN Group possesses a great number of various assets virtually in all business spheres.   
In practice the business of all the members of the Group is bound by more intimate kindred ties which keep them closer together than any common business interests. For instance, during the ‘bank crises’ in the summer of 2004 when BIN Bank was going through a difficult time, within several days a significant amount of money entered its accounts transferred by various structures belonging to the Gutserievs. During the recent purchase of Smolensk Shopping Mall BIN Group again came forward as a united front. IFC BIN concluded a long-term agreement with seller Naphtha-Moscow on sale of the shopping mall. And BIN Bank sent its employees to occupy key positions at Mosstroyeconombank that the Mall belonged to in order to support the deal and the bank itself. While attending to private business projects Mikhail Gutseriev also resorts to the resources of BIN Bank.
On the whole, Sait Gutseriev and Shishkhanov are considered to be independent, but behind all the operations of the Group there stands its founder Mikhail Gutseriev. Allegedly no decision is taken without him though formally Gutseriev stepped aside from the businesses of BIN Bank and IFC BIN in 1994.
BIN Zone
At that time by a resolution of the government Gutseriev was appointed head of the administration of Economic Favor Zone ‘Ingushetia’, or ZEF. At the same time he became an economic advisor to President of Ingushetia Ruslan Aushev who logically endowed BIN Group with the function of servicing the zone.
It was one of the first projects in which the Group ran a risky business taking advantage of some weak points in the Law. ZEF became not so much a free economic zone but rather an experimental offshore when the government gave it a tax credit in the amount of 1.65 billion rubles for favored registration of companies. ZEF existed up to 1996 when tax authorities took to visiting IFC BIN and BIN Bank for check-ups as the Finance Ministry officials assumed that the budget missed 2 billion rubles over the activities of the Group in 1995. The Government of Ingushetia violently advocated the Group. After all Aushev and Gutseriev were old friends. Besides, many vital projects were implemented in the republic using the means thus gained. But the tax authorities went out of the way to prove that BIN Group used nearly a quarter of received funds in its turnover. They failed though as what could be considered as violations or withdrawal of means for the ends of the Group turned out to have been sanctioned by the federal authority itself.
The then-scandal for the first time attracted attention of the market to BIN Group. Everything ended in transferring the zone under the competence of International Business Center but already with Shishkhanov at the head. BIN Bank resumed its operating function having strengthened its position at that as it had kept its five thousand ZEF clients. 
Chechen record
When working in the ZEF Gutseriev took to politics. In 1995 he was elected LDPR deputy and became a vice-speaker at the State Duma. According to those familiar with the situation, Gutseriev wrote and managed to lobby many draft bills. Later he was elected to the 3rd Convocation Duma, this time without LDPR, but he didn’t stay an independent deputy for long though.
By that time his prior activity in the Caucasus came up. According to one of the interlocutors of SF, during the Chechen war Gutseriev released many hostages from captivity. “He knew that he was held in high respect in the Caucasus, therefore from time to time he merely went to villages and took away captives from the rebels,” a source communicates. Moreover often Gutseriev bought out people for ransom, informed Gueidar Jamal, Chairman of Russia’s Islamite Committee.
Freed captives were handed over either to Sergey Stepashin, a law enforcement officer, or Vladimir Rushailo of the Internal Affairs Ministry whose departments were ever rivaling over a number of people released from captivity. “Gutseriev himself did it without compensation, but his points scored and by the end of the 1990s he gained political weight and became a reputable businessman. At some point his informal activity in Chechnya was noticed and he began to be pushed up,” informs the source.
It is said that at first there were plans to place Gutseriev in the presidential seat of state-run Rosneft. Yet finally the chair was occupied by oilman Sergey Bogdanchikov, and in January 2002 Gutseriev was put in charge of Russian-Byelorussian Slavneft.  
  The new post became a great challenge for Gutseriev, he found himself a big state manager. It was just that level of involvement into the state affairs which satisfied the businessman’s ambitions but never assumed the material form conceived.
Apple of Discord
Slavneft represented a neglected offspring of a most unsuccessful integration of the two states. The company appeared in 1994 and since then kept reducing its oil output. Gutseriev had to enhance Slavneft capitalization. By that time Gutseriev’s entrepreneurial gift basing on phenomenal insight had not been displayed to the full. “His strong point is the ability to find first-rate managers and team them; however like anyone coming from the east he makes all the decisions by himself”, says one of SF interlocutors. Thus Gutseriev began to pursue an aggressive policy which was not in the line of the prior Slavneft. This policy was aimed at acquiring assets. His first acquisition was Varieganneft bought at $200 million from Suleiman Kerimov of Nafta-Moscow with whom Gutseriev had long standing relations through BIN Group. Finally within a year Slavneft’s oil output jumped by 22%. Moreover the number of its petrol stations grew in several times, revamp of its two refineries began, and Middle East field development contracts were concluded.
Only a few months later after Gutseriev was appointed president they decided in the government to make Slavneft a private company. Sibneft and TNK that used to control the company and were interested to obtain the state stake started to struggle for it. Then Gutseriev who was in the trust of no-state holders of Slavneft’s shares had to choose a partner among them. And he took the side of Sibneft. However the presidential election in Ingushetia set for the spring of 2002 confused all his plans.
“There is nothing more important for Gutseriev than Ingushetia,” the source says. “Being president of Slavneft he kept on investing money in it. He enjoyed participating in the life of the republic. Soon it became clear that the Kremlin was going to remove Aushev. And Gutseriev began to make plans of how to legally take the governance of the republic into his hands. As a result of these efforts he lost Slavneft.
Market
In Russia there are only 6% of the world’s proved crude oil reserves and nearly one hundred oil producing companies.  At that the first ten   vertically integrated oil holdings cover nearly 90% of Russia’s total oil output equaling to 459 million tons, in accordance with the 2004 results. In the time period from 2000 to 2005 crude oil consumption in the world grew by 7.5%. The main consumers of Russian crude have always been European countries. However upon start-up of the Pacific pipeline the bulk of its crude will go to Asia, particularly to the Far East. Oil consumption growth in these areas is first of all secured by China and India, covering 30-35% of this growth.
Not my Game
In the spring of 2002 events took place that turned out a dramatic game for the Gutserievs. Mikhail Gutseriev persuaded his brother Khamzat  Gutseriev, who was in the head of the Republic’s Interior Ministry, and his friend Alikhan Amirkhanov, a State Duma deputy, to run for presidency in Ingushetia. At first the Kremlin accepted these moves silently. Later on when the federal authorities picked out Murat Zyazikov, deputy director of the Astrakhan region’s federal security service, Gutseriev was requested to move out of the election campaign. He refused though.
Expert of the Globalization Problems Institute Boris Kagarlitsky says that unlike Gutseriev Zyazikov suited Moscow due to complete absence of any influence in Ingushetia. Gueidar Jamal adds that the federal authorities feared to lose control over the Republic. And it might have happened if the elections had been won by those close to Gutseriev, a loyal businessman but not permanent staff member.
To withdraw Khamzat Gutseriev from the elections were used bags with $4 million in cash, part of it being counterfeit, detained at the airport of Magas. It was announced that the money was meant to bribe people to make them vote in favor of the head of the Republic’s Interior Ministry. Later the Gutserievs were discharged of the accusations but it happened when Zyazikov was already president of Ingushetia.        
At the same time Sibneft misled in the expectations made a demonstration of its ascendancy. In search of backing during the elections in Ingushetia Gutseriev had enlisted the support of the founder of Mezhprombank, or MPB, Sergey Pugachov, close to the security services. Therefor Gutseriev was to transfer Slavneft’s financial flows to MPB and later help the bank receive a share in the company. Sibneft was thus moving to the background. But in May 2002 Abramovich initiated a meeting of Slavneft shareholders in order to displace Gutseriev and MPB could do nothing about it.
As one of Slavneft employees pointed out, even before the meeting Gutseriev stepped out having appointed another person acting as president. Since he never took part in the argument between Sibneft, TNK and MPB over Slavneft whose 74.95% stake went by auction at $1.86 billion in all. They say the whole story was a real knock to Gutseriev, and he was thinking of going back to BIN Group and arrange for its consolidation into one holding company. Still he couldn’t step aside from the oil business.
When resigning from Slavneft Gutseriev managed to exchange his share in the trust for Slavneft’s major oil producing asset, Varieganneft. To do this he actually blocked the operation of the trust company, so Sibneft and TNK thought it best to get rid of the partner on his terms. In the autumn of 2002 the former state manager with Varieganneft in his holding began to establish his own RussNeft having announced that he was going to make his company a major.
Eastern Language
At that time the market was skeptical about the claims of the new player, as in the country there were no free assets which could be used to develop his company. For the three years though RussNeft acquired more than 35 different oil companies, and presently is going to buy Orsknefteorgsinthez, a refinery, Samaraneftegaz and Orenburg retail network. By buying out assets RussNeft has increased its oil output in 10 times. Gutseriev assures that in a few years the company will come to 60-80 million ton annual volume of oil production.
This statement though has been dubiously taken by the market. Such oil production levels have state-backed Lukeoil, TNK-BP and Rosneft. To come near them RussNeft will have to find several billion dollars to acquire the rest companies out of the first-rate ten. At that, as experts point out, its own capitalization is currently not more than $2-3 billion.
However it looks as if the plans of private RussNeft confuse everybody except Gutseriev. He feels very confident at the field which has in fact almost completely passed under the state control. It can’t be ruled out though that Gutseriev has got some sort of a political cart-blanche.
Dmitry Tsaregorodtsev, a FIM Securities analyst, assumes that the rapid growth of the company is accounted for by the right policy, as Gutseriev is successfully taking advantage of the fact that he has no responsibilities to other shareholders. Due to this he can take risks and conclude deals with a long pay back period. Another interlocutor of SF adds that running the company all by himself Gutseriev is doing what other players do not venture to do. He overpays for assets if he thinks it is necessary for RussNeft thus gaining advantages for himself. Moreover Gutseriev gets odds because he attaches to RussNeft those assets which are considered by other companies to be low-quality. The company does a lot of drilling as well, achieving growth in oil production at already developed oil fields.
With all that going on Gutseriev uses borrowed means to do his purchases. Credits don’t make up the bulk of the company’s financial flows because the main financing goes via first-rate international stock trader Glencore. This political partnership proved one of the smartest moves of Gutseriev’s, which enables him to act free hand and make his long-term projects. Apart from other liabilities on the part of RussNeft or shares in financing arranged for the company, this summer Glencore got in exchange stakes in the company’s three oil producing entities.
Thus, the debts of RussNeft are not too big, but there are plenty of risks. So his 60-80 million tons of crude Gutseriev is going to gather not so much in Russia where the subsoil is parceled out, but abroad.
 “Gutseriev has created a company that conforms to the scope of his plans and ambitions better than any other asset of BIN Group”, says a businessman knowing Gutseriev. “He speaks about RussNeft as a major project of his life and wants to make it a no-state transnational corporation of Russian extraction. Therefore it cannot be ruled out that RussNeft will do its IPO. And later on Gutserie will lead his company to other countries having crude oil, such as Kazakhstan, Azerbaijan and even to the Middle East with its unpredictable political background. The advantage of Gutseriev though is that he comes from the east himself, which means he is a good diplomat. At any point he can find common language with the right people”.