For today’s press conference: *Gunvor was founded in Geneva in 1997 by Russian businessman Gennady Timchenko and his Swedish partner Torbjörn Törnqvist. In 10 years, the trader became the world’s third largest: in 2007 it exported 83 million metric tons of oil and petroleum products worth $43 billion. This year, Gunvor is doing even better: it is exporting 90 million metric tons, generating at least $70 billion in revenue, Törnqvist, chairman of the trader’s board, told the Financial Times. *http://www.vedomosti.ru/newspaper/article.shtml?2008/05/15/148447 **Seventy billion!!! What the hell. **Transcript of my remarks at the press conference: Good afternoon, dear friends. We are glad that you have come to our press conference. First of all, we would like to congratulate you on Zenit’s victory yesterday in the UEFA Cup, which is in part also a success of the country’s oil and gas sector, the subject we would like to discuss today. Although, apparently, we will be touching on far less dazzling aspects of how oil companies operate—those aspects they prefer to keep quiet about. Lately, we have all been able to observe the development of an external economic environment highly favorable to Russia. Above all, this means the sharp rise in energy prices. The largest investment companies are setting a target price of $200 per barrel of oil, and yet not long ago Russia’s budget was based on a price of $29 as an optimistic scenario. Over the past six years, the price of oil has risen fivefold. This state of affairs has inspired a large number of Russian citizens to invest their personal savings in oil company shares. And in Russia, the long-awaited class of owners has begun to take shape. These are people who are not professional stock market players, but who made long-term investments and would like to receive, if not a large return, then at least a reliable and stable income from those investments. There are now hundreds of thousands of such people, and one can say with full responsibility that they have collective interests significant even on a national scale. I am one of those people. Lately, I have been investing my savings in shares of oil and gas companies. And like hundreds of thousands of other minority shareholders, I was awaiting—if not rubbing my hands together, then at least with a certain pleasant anticipation—the financial results the oil companies would show under such favorable conditions. And then the period of preparing for and holding shareholder meetings arrived, and what do we see? We see not the slightest sign of the long-awaited cash rain. All we see are bitter tears in the eyes of minority shareholders who invested their money in the oil sector. At this point, it has become more or less clear that among the major players, Surgutneftegaz (a major Russian oil company) is allocating the largest share of profits to dividend payments, and even there the yield relative to the current share price is 2% annually. Rosneft’s management is proposing at the upcoming meeting to pay 1.6 per share, which as of today amounts to half a percent annually. Gazprom Neft and the others will be much the same. This is not at all what we were counting on. It looks like mockery. Especially given that these companies’ shares are not showing any kind of spectacular growth. On the contrary, the slight rise of recent weeks is due only to political events and has nothing to do with the companies’ achievements. This also looks deeply disappointing against the backdrop of foreign oil companies, which do pay dividends. In this situation, I and many other shareholders who have approached me are forced to attempt some alternative analysis of what is happening. Why is this happening? Either we are seeing inefficient use of shareholder capital, or the plain and simple looting of shareholders—something we would, of course, rather not think about. When analyzing the situation in Russia’s oil companies and the way they operate, the first thing that strikes anyone trying to understand it is that not everyone dealing with the oil business is shedding bitter tears of disappointed hopes. Some are smiling quite happily, and some are apparently laughing with delight as they read their names in Forbes’ list of billionaires. We are seeing extremely low dividend yields against the backdrop of the simply extraordinary profitability of oil trading companies that merely resell oil produced by the companies. And first and foremost, our attention turns to the mysterious company Gunvor. Over the past two or three years, this company has astonishingly entered the top three oil sellers in the world and become the largest exporter of oil from Russia. Its profits are measured in billions of dollars. And of course many minority shareholders cannot help but wonder: are those our billions? With that in mind, we made a number of attempts to find out on what terms Gunvor works with our oil companies and what the secret of its phenomenal success is. The reaction to our efforts gives us reason to believe we are digging in exactly the right place. We have handed out to you a briefing on Gunvor, compiled by us from media publications over the recent period. Based on those materials, Gunvor is the main trader for four of Russia’s five largest companies. In that sense, its operations are of keen interest to the overwhelming majority of these so-called ordinary shareholders, some of whom I represent. Naturally, our very first and most logical step was to seek clarification from the companies in which we are shareholders and from state authorities. Because Gunvor’s business scheme is simply a mockery of the whole idea of sovereign democracy (a Kremlin-era political concept) and of the idea that it is Russian companies that should be earning profits from the country’s natural resources and paying taxes on them in the Russian Federation. And all the actions of recent years aimed at gently squeezing foreigners out of the country’s raw materials market confirm that this is the official direction of state policy. And then suddenly some unknown outfit from the Swiss canton of Zug, owned by who knows whom, is trading all of Russia’s oil and skimming off handsome profits from it. So our attempts to clarify the detailed operating scheme, the exact profits, or at least the volumes of oil being shipped—indeed, any information about Gunvor at all—have run into a solid wall of silence. I cannot describe this situation as anything other than mutual cover-up involving both business and the authorities. Let me note that we are not acting as part of a journalistic or public investigation. I am a shareholder, and I am acting on completely clear legal grounds. And I am demanding only the information I am entitled to know. Even the public appeal I voiced at the recent Surgutneftegaz shareholders’ meeting had not the slightest effect. Yes, the company’s head, Bogdanov, answered my question about Gunvor by saying that Gunvor exports only a small share of the oil and that he was prepared to give us supporting data, but when we approached the management directly responsible for exports, we were told: write whatever you want, but we are not going to disclose even the most basic figures. And take all that nonsense about transparency and tell it to someone else. We have different rules here. So then. Neither I, nor, I believe, the other minority shareholders of the companies working with Gunvor, intend to put up with such rules. And we will systematically, clearly, and, if necessary, firmly and publicly seek answers to the questions that concern us, including through the courts. We intend to pursue accountability for all officials who withhold information from shareholders. And we do intend, little by little, to change the situation in which oil companies believe that the ultimate standard of transparency is simply having international financial reporting. Compliance with standards in dealing with shareholders is not a voluntary wish—it is an obligation. Let me say at once that we are far less interested in information claiming that Gunvor belongs to Putin’s friend, to Putin himself, to Putin’s grandmother, or to Koni the Labrador (Putin’s dog). Yes, most analysts and the people in oil companies we have managed to speak with agree that Gunvor could only have consolidated these oil flows because the oil companies silently accepted it under direct instructions from former President Putin. That version looks highly plausible. But the fight against Gunvor is not an end in itself. If we are shown documents demonstrating the economic rationale for working with Gunvor and confirming that cooperation with it is beneficial, then I will be the first to kiss the owners of Gunvor. Assuming, of course, that it is not Koni the Labrador. So far, no such data exist, and we are putting the question, among others, to President Medvedev, who was so eager to fight corruption. Shouldn’t we be looking for corruption here? We are asking Prime Minister Putin whether he is comfortable with the fact that all Russian oil is being exported by an offshore company owned by persons unknown. And we are asking Igor Sechin, who oversees the energy sector and chairs Rosneft’s board of directors: isn’t it time to change the export scheme altogether? If an oil trader is needed, then let it be registered in Russia, let it be transparent, and let it pay taxes here. And we ask the authorities in general: you are planning to reduce the mineral extraction tax for oil companies, those poor suffering souls. But shouldn’t you be looking for internal reserves instead? Perhaps those 100 billion rubles (about $4.2 billion at the time) that tax breaks will tear out of the budget should be sought in the Swiss canton of Zug? One gets the feeling that something might be found there.