Vagit Alekperov: “The state should get out of property” (Part 2)

Vagit Alekperov: “The state should get out of property” (Part 2)

Channel One

Pozner: The program "Pozner" is on air. The guest of the program is the founder and president of Russia's largest private oil company “Lukoil”, Vagit Alekperov. Good afternoon, Vahid Yusupovich.


Pozner: You have said you are in a dialogue with the authorities. Please tell us, does a share of LUKoil belong to the state?


Alekperov: Today it doesn’t. The last share was sold in 2004.


Pozner: Is that all? You once said an interesting phrase: “Everything that is good for Russia is good for our company.” When I read this, I remembered words of Charles Wilson, the former president of General Motors, who said this in the 1940s when President Eisenhower proposed him to be the defense secretary. He was asked in Senate: “Are you able to make a decision as the defense secretary which would be unprofitable for General Motors?” He said yes, but added that he couldn’t imagine something like that “because I have always thought that what is good for the country is good for General Motors and vice versa.” Can you say the same about LUKoil and Russia?


Alekperov: Yes, I can. And it is confirmed in practice. Our company has been working for 15 years to get the project of Western Kurna-2 in Iraq. We started under Saddam Hussein. In the 2000s the Russian government increased their efforts so that the project was given to our company. And we won the contest! Our company will work on one of the major fields, the most unique of those that are known today. This was achieved with the help of the Russian government.


Pozner: But anyway, there is the state oil company "Rosneft", there is the state company "Gazprom". These companies belong to the state and have certain advantages over you, namely in the discovery of strategic energy resources, in particular, on the shelf, and so on. Because the Law on Natural Resources gives the green light to the government companies yes, but not to the private one. Don’t you think that's unfair?


Alekperov: I do.


Pozner: Then it seems that what is good for the state, is not so good for Lukoil.


Alekperov: I think not, and we are constantly working on it. You know, I have been saying that I believe that in our country we should not divide people again into supporters of the state and privateers. There is a good term - Russia national companies. Lukoil is a national company of the Russian Federation, and national interests go far beyond  national borders. But this decision was taken in 2008. Today we, including myself, are making suggestions to cancel the articles of the law restricting private participation, and instead go through contests. Not an auction, but a contest, so that an objective state commission can determine who has the right to participate in a particular project. Why do I say - "determine"? Because graveyards are located on the shelf, maybe somewhere there are military training areas, of course there should be an objective approach as to who has the right to carry out business in a particular area of the shelf of the Russian Federation. These objective commissions could resolve issues on national companies. And define the term “national company.”


Pozner: Well, what is a national company? A company that operates in Russia.


Alekperov: No. I believe that a national company is a company that is registered in the territory of the Russian Federation, is the largest taxpayer, and its re-registration in a third country can be made only with permission of the Government of the Russian Federation. Then it is a national company.


Pozner: Of course, you can call it a national company. It reminds me a little of Mr. Surkov with his definition of democracy, directed democracy and so on. If it exists, then it is a democracy. If it does not, exist, you can call it by any nouns, but it won’t turn into one. So, a national company. Are you in general opposed to the state having its own oil companies, for example? Is this good or bad?


Alekperov: I believe that we have an established structure of natural resource users: Gazprom, Rosneft, Lukoil. There are many forms of ownership, including state-owned and private companies, or with state participation. In Gazprom, there is a package owned by the state, but it is a joint stock company, with state participation. 


Pozner: I persistently ask you a direct question. Do you think that it is good for the country, if the state is one of the major owners of large corporations, in particular oil companies? Is this a positive thing for the country?


Alekperov: It depends on the period of time. At the initial stage, the formation of large conglomerates was indeed positive. But later the state should get out of the property rights.


Pozner: So today it's probably not a positive thing?


Alekperov: I think that the privatization projects that are now available to the state already today demonstrate that many people have realized that it is necessary for the state to leave economic management, and introduce a good legal framework to regulate the process instead.


Pozner: I see. You are raising this question, for example, before Medvedev (still the President), or the President of the future?


Alekperov: No. This is not my property. I have no right to put questions like this to the owner. I can only show with my work what is most efficient.


Pozner: Don’t these things happen in the dialogue?


Alekperov: No, they do occur, but not in such a direct form. Because I cannot tell the owner: "You should sell your property." He must sense the time when it is profitable to do so. 


Pozner: President Medvedev some time ago said that the state should withdraw from the media. Maybe it was half a year ago. That the state should have nothing at all to do with the media. That’s how it is, by the way, in so many, say, backward countries where the state is available, but does not own any of the media. If, for example, the President said that the government should get out of the economy, or rather, not out of the economy, but that it should not own any factories, steamships, and so on, would you find this a useful initiative?


Alekperov: It has been said already, and today a package of privatization objects to be privatized is being actively discussed. In particular, our segment is there as well, Rosneft  and Transneft are mentioned. And I think that in the near future, of course, these decisions will be made.


Pozner: Okay. While reading up on you, I found this curious idea that even though you are in a good relationship with the government, in fact, you are making a straw mat, just in case. Namely, some experts assess in this way the fact that you entered the fuel market in the United States, where Lukoil has acquired more than 200 petrol stations. And then they write the following: "The expansion of Lukoil on a global scale among other things pursued the goal of creating an international subsidiary of the authorities,  uncontrollable by the Kremlin. This would be a guarantee of its weighty presence in the world energy market in the event of possible nationalization of the oil business." Well, this is of course the foreign press, not Russian. What would you say to this?


Alekperov: All our foreign business is 100% owned by the Russian company Lukoil and is directly related to it, and all the money has been invested there with the permission of the relevant government institutions. There is a direct relationship. We do not have an uncontrolled subsidiary, they all belong to the Russian company. All of our projects, we first of all implement our projects where there is economic efficiency, we are witnessing today in 42 countries around the world, they are all connected.


Pozner: So if, say, Lukoil was nationalized they would immediately become..?


Alekperov: Yes, everything. American retail, and Iraqi projects, it's all a unified vertical structure.


Pozner:  Another question that I have to ask you. It is related to Khodorkovsky. In 2005 the weekly "Vlast " asked different people about how they relate to the court decision on Khodorkovsky and Lebedev. The question was: "Do you agree with the verdict? " And then the list of people who refused to answer, in alphabetical order: Roman Abramovich, Vagit Alekperov, Anatoly Chubais, Oleg Deripaska, Mikhail Fridman ,Alexei Miller, Vladimir Potanin, and Viktor Vekselberg. Today, if you were asked this question, do you still refuse to answer it?


Alekperov : No, I'm sorry for Mikhail Khodorkovsky. Because, really, he has a severe punishment.


Pozner: The question is, what do you think, do you agree with the verdict? You did not answer. Do you still refuse to answer?

Alekperov: No, I repeat that I am sorry for Mikhail Khodorkovsky, and I believe that the sentence is harsh.


Pozner: But is it fair? This is an important question.


Alekperov: It is difficult to say, because we do not know the facts. After all, there’s been a lot of declarative things, but no document to read. There were various accusations. But once again I want to reiterate that I sympathize with Mikhail Khodorkovsky, and of course I wish that he is released as soon as possible.

Pozner: You seem to believe that there will be enough oil for our children and our grandchildren. At the same time, you've recently said that there could be a sharp drop in oil production in Russia after 2016. And in order for this not to happen, you call for changes in the tax laws that would increase the efficiency of the tax system. First, what kind of changes are these? And most importantly, how will this increase in efficiency affect ordinary citizens? What does it mean? That some prices will drop? Or, conversely, that there will be new billionaires who buy penthouses in New York, and so on? What are we talking about exactly?


Alekperov: When I talk about the tax system, I never put into question the current system and I never express the idea of lowering taxes or giving breaks to the oil companies. We are quite powerful companies and are self-sufficient for our development. What do I always talk about? That it is not necessary to take more taxes from sales, but we should follow the American system.


Pozner: That is to say?


Alekperov: Added tax revenue. The initial period of field development always requires large investments. There should be minimum taxation. Mid-development projects bring big profits and minimum investment. Here, the tax system should take out all extra income. The third stage, when the field is exhausted, there is a huge capital expenditure to maintain production, but the minimum volume of production. The tax level got to be lower. In general, the tax system will not change during the life-cycle of a field. Why in America today is it profitable to exploit a well that gives 100 kg, 200 kg of oil, and in Russia it is not profitable when it gives 5 tons of oil? The tax system should be flexible. This will extend the life of oil fields and the state will receive the additional amount of oil, and thus additional revenue.


Pozner: Can I assume that I as an ordinary consumer would get something from it?


Alekperov: Of course. There will be new jobs. We will not cease our operations...


Pozner: Why?


Alekperov: Because the wells will serve longer, more wells will be drilled, more contractors will be involved, we will buy new equipment. After all, today's oil industry, we often talk about the oil curse, the oil and gas industries are the driving force of many other industries: metallurgy, automation, electrical  engineering, energy, and so forth. Because we are capital-intensive we are the largest customers for our engineering, that is, for our steel industry. Therefore, the tax system will encourage the development of fields and  the extension of their operation, respectively it will create new jobs.


Pozner: Are you saying that our tax system is not flexible?


Alekperov: It is not flexible, it is more focused on VAT. The export duty, the tax on the extraction of mineral resources and so forth.


Pozner: About the locomotive. For example, in the U.S., as I understand it, the locomotive was the car industry, from which everything else started, the road network, chemicals, tyres and so on. This is what at the turn of the 20th century turned out to be the locomotive of American industrialization.

Alekperov: But in parallel with the development of the oil industry. America still produces huge amounts of oil and gas.


Pozner: Yes, I understand that.


Alekperov: These are combined industries.


Pozner: The reason I say this, where is there a clear indication that the oil industry is the locomotive? You mentioned about the oil curse. Yes, a huge portion of our revenues, particularly in exports, comes from oil and gas. There aren’t many other things in which we can compete in terms of exports. What is being developed as a result of this concentration of oil and gas? To say that the roads are great - no way. Where is the real impact?


Alekperov: The real payoff is, first of all, about 2 million cars will be produced and assembled in Russia. Imagine, what a jump in 15 years. Produced and assembled. That is to say, when we talk about drilling machines, the Soviet Union bought about 30% of drilling machines, valves and pumping units from abroad, from countries of the Commonwealth of the CMEA. Today, all this is produced in Russia. The import content is less than 5% today. If you go to Astrakhan, you'll see how offshore fields are developing, and you'll see how loaded the Astrakhan shipyard is today, where thousands and thousands of people are already working on our orders. Today, when we talk about it, we want to see everything at once. But I gave you some examples.


Pozner: Well, not all at once. At least a little bit.


Alekperov : Yes. I gave examples, millions of people are already working on our orders. This is, perhaps, not quite visible, it's a part of the iceberg that is hidden from the public, but it is so only today. There is a huge number of high-paying jobs that are being created today. You are right, in parallel with these revenues programs should be established and funded for the development of the industries that will shape our future. I also understand that the Stone Age didn't end because they ran out of stones. And the age of hydrocarbons will end at some point. But my task for today is to extend the life of the oil fields and enable humanity to use the product that I produce.


To be continued