LUKoil has bowed out of the biggest privatization auction in Russian history, the Dec. 18 tender for 75 percent of Slavneft, Vagit Alekperov, the CEO of the nation's largest oil company, said Thursday.

The company will instead concentrate its resources on developing fields in Timan Pechora and the northern Caspian, he said in an interview with the BBC.

"We examined the situation and we decided it was not in our interests to bid," LUKoil spokesman Mikhail Mikhailov said.

LUKoil dropped its bid just as rival Sibneft looked like it might surge ahead of the field in the race for the stake, for which the government has set a minimum price of $1.7 billion. Analysts said Sibneft looked likely to seal a deal with the Belarussian government over its sale of a 10.85 percent stake in the company after the Property Ministry in Minsk said Thursday it was making progress in talks. That would add to the 12.8 percent stake Sibneft already holds together with Tyumen Oil Co., or TNK.

"It seems they are going to reach a compromise on the price," Troika Dialog oil and gas analyst Valery Nesterov said. "This is another factor that might frighten off other buyers."

Sibneft has been haggling with the Belarussian government for weeks now over the price of the stake. As the sole bidder, it offered $210 million for the shares in an auction, but the Minsk government repeatedly delayed the tender, saying it wanted to gain at least $250 million.

Together with TNK, Sibneft already owns blocking stakes in two of Slavneft's most important subsidiaries: oil producer Megionneftegaz and the Yaroslavl refinery. Megionneftegaz produces 87 percent of Slavneft's total output. A former Sibneft executive now runs Slavneft after a controversial boardroom showdown this summer.

With big pieces of the puzzle already in Sibneft and TNK's hands, any outside buyer of the 75 percent stake would face tricky negotiations for full control of the subsidiaries, making it unlikely that industry predictions the stake could fetch as much as $3 billion would prove true. Vladislav Metnyov of Trust and Investment Bank said that if LUKoil had won the auction, it would have had to pay an additional $500 million to $700 million to buy minority stakes from Sibneft, Reuters reported.

"The predictions were getting silly," said Adam Landes, oil and gas analyst at Renaissance Capital. He noted that a sale price of $2.75 billion would mean Slavneft was being sold for multiples per barrel of reserves on a par with the Russian industry average despite the fact the company was not integrated and was not traded. "That's ludicrous," he said. "If you're going to buy Slavneft for that amount you may as well buy out an already privatized oil company."

Rumors that British Petroleum might take part in the auction were also quashed Thursday.

"We are not interested in making a bid," said Peter Henshaw, BP's external affairs director in Moscow. His statement followed Prime-Tass quoting an unnamed source close to the State Property Fund as saying Wednesday that BP had applied to take part in the auction. The Anti-Monopoly Ministry said there had been no request from BP so far. "We have not received an application from BP," said the head of the ministry's press service, Larisa Bulgak.

Landes said it would be difficult for a foreigner to navigate the problems of integrating the subsidiaries into Slavneft after the sale. "This is a complex transaction for a foreigner," he said. "The subsidiaries of Slavneft are yet to be fully integrated. ... There are at times still problems with the rule of law."

It also seemed unlikely BP would partner up with TNK for the stake after TNK CEO Simon Kukes said Wednesday the company would bid alone.

China's biggest oil company, cash-rich CNPC, however, is a definite contender, but could still team up with other bidders, analysts said. State-owned Rosneft and No. 3 producer Surgutneftegaz are also rumored to be interested in the stake. Yukos, whose production is quickly approaching LUKoil's, has said it will not take part in the tenders, leaving Sibneft, TNK, and CNPC so far the only declared bidders.

(The Moscow Times 06.xii.02)