Rosneft unwilling to disclose what it regards as commercial secret

The oil major’s initiative concerns all state-owned companies
The Vedomosti
Galina Starinskaya, Elizaveta Bazanova
Rosneft believes that information qualifying as commercial secret should not be disclosed in the annual report and that uniform requirements should apply to state and privately-owned companies, as proposed in Rosneft Vice-President Larisa Kalanda’s letter dated February 20 to Russia’s Deputy Minister of Economic Development Nikolay Podguzov (a copy of which is available at the Vedomosti). The letter also informs that the company requested Russia’s Prime Minister Dmitry Medvedev to revise the approach to information disclosure as early as in August 2015.
Now the list of information subject to disclosure by state-owned companies is provided in the Government’s Decree No. 1214 signed on December 31, 2010. Last year, this decree was amended to oblige state-owned companies to disclose more information in addition to what they have been publishing for a long time, which Rosneft is unwilling to do.
In particular, the state-owned oil producer believes that the target indicators of the long-term development program, the non-core asset disposal program (specifying the reason(s) for deviations of the actual value of assets sold from the balance sheet value), expenses for implementing investment projects, as well as information on the company's investments where the projected rate of return exceeds 10% p.a. (in the latter case, the Government obliges companies to disclose the purpose and amount of investment, as well as the sources of financing) qualifies as confidential information and should not be publicly available.
Rosneft is ready to provide this information to the Russian Federation (the company’s majority shareholder holding a 69.5% stake through the Federal Agency for State Property Management / Rosimushchestvo upon request.
“The state-owned company has to disclose substantially more information, and in more detail, than private Russian and foreign companies,” Ms. Kalanda’s letter points out. Such requirements discriminate state-owned companies against other market players, she argues, while competition implies equal legal conditions for economic entities without unreasonable preferences.
The Ministry of Economic Development’s representative confirmed the receipt of the letter: “The Ministry is currently formulating its position in this regard.”
Rosneft’s proposals have rather dim prospects, the federal official acknowledged: Rosneft has voiced them several times, but appropriate disclosure of information means better corporate governance. Moreover, the idea to expand the mandatory scope of disclosure for private companies is already undergoing a public discussion, he added laconically.
Seeing as Rosneft operates in a competitive market, there is no logic in the Government’s actions to put the oil producer in a disadvantaged position against private competitors, a representative of Rosneft commented: “We are not going to oppose transparency, though.” Another reason for Rosneft’s proposal is the burden of sanctions imposed on it.
In February, Igor Sechin, President of Rosneft, and Alexey Miller, Chairman of Gazprom’s Management Committee asked Prime Minister Medvedev to exempt certain transactions effected by their companies from the procurement legislation. The U.S. and EU supervisory authorities can use information on them to verify compliance with the sanctions, to strengthen them and to penalize the counterparties. A related draft decree is pending finalization and approval by the government. It is proposed that the public disclosure requirement should not apply to information on purchases of crude oil and gas, related transportation services, land sales and borrowings from foreign banks, etc.
“One could not say that Rosneft is non-transparent. It discloses everything required by the law," Aton senior analyst Alexander Kornilov notes. But the company usually does not really go into details, though, Raiffeisenbank analyst Andrey Polishchuk points out: “Investors always expect more information from the
Disclosure by Rosneft of long-term plans, return on projects, etc. would make its business more understandable, GL Asset Management portfolio manager Sergey Vakhrameev says. If financial reporting principles are anything to go by, Rosneft is an open company: it publishes a report according to international standards, as well as the MD&A (Management's Discussion and Analysis of Financial Condition and Results of Operations). That said, compared with Western companies, Rosneft still has room for improvement Rosneft, he adds. One example Vakhrameev gives is that Rosneft is implementing a long-term development program but has never revealed how it was adjusted as oil prices plummeted.
API Executive Director Alexander Shevchuk believes that the companies should disclose disposals of non-core assets: “I see no strategic relevance. The Government apparently wishes to increase transparency of handling non-core assets.”
RusHydro’s spokesperson declined to comment, while Gazprom, ALROSA and inter RAO did not respond to inquiries.
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