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The Company’s management continually
cooperates with representatives of
various AUTHORITIES OF THE REPUBLIC OF
BASHKORTOSTAN
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growth
growth
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Country risks
Bashneft Group operates in the Russian Federa-
tion. The Russian market is usually categorised as
a developing market, and such markets are riskier
than developed ones. Moody’s agency assigned a
Baa1 credit rating to the Russian Federation, with a
stable outlook.
Russia received the highest financial strength rating,
as Moody’s assesses Russia’s financial strength
based on its government’s considerable assets
which could act as a buffer in the event of a fall in oil
prices, exchange-rate depreciation and capital out-
flow. Moreover, Russia’s national debt remains very
low, the debt-to-GDP ratio in 2011 being the lowest
(around 10%) among all investment-grade countries.
However, Bashneft Group does not rule out the
possibility of a crisis in the Russian market. Such
an event would have negative consequences for the
Group’s operations. During a crisis, companies oper-
ating in developing markets could face a significant
lack of liquidity due to foreign capital outflow. This
is what happened in Russia in 2008-2009, during the
global economic crisis.
In spite of maintaining the continuity of Russian
state power in recent years, Russia’s political system
is prone to risks due to the population’s dissatisfac-
tion. This includes discontent with the results of the
privatisation in the 1990s and claims for autonomy
of certain ethnic and regional groups. Political, eco-
nomic and social reforms of recent years have been
often inconsistent.
Russia’s economic instability may have a negative
impact on Bashneft’s business. The economy is
still export-oriented and has not been diversified in
recent years. If the international economic situation
gets worse and if there is a fiscal deficit in Russia,
there is no guarantee that Russia will be able fulfil
its social obligations and settle economic liabilities
without taking measures that would have a nega-
tive impact on the situation and business conditions
of Russia’s tax residents, including all Bashneft
Group’s companies.
A large part of Russia’s infrastructure was created in
the Soviet era and is still in operation. Often, funds
for repairs have not been provided in a timely man-
ner, leaving most assets in bad condition. Sectors
posing the largest threat to the Group in terms of
unfavourable business conditions include roads and
railways, pipelines, power plants and power lines,
communications infrastructure and the physical
condition of buildings and constructions.
Regional risks
Bashneft’s main production operations and business
activities are conducted in the Republic of Bashkor-
tostan. Bashneft’s subsidiaries and affiliates are
located in Ural Federal District, Volga Federal District
and Central Federal District.
The Republic of Bashkortostan is an industrial and
agrarian republic rich in mineral resources. The
region’s credit rating assigned by Standard & Poor’s
is BB+, positive outlook.
The most significant risk inherent in the social and
economic development of the Republic of Bashkor-
tostan is its complicated environmental situation and
the high probability of anthropogenic accidents in
some districts and cities caused by the high number
of facilities that serve the oil, refining and petro-
chemical industry, and by the numerous oil and gas
pipelines running through the Republic. Therefore,
the Government of the Republic of Bashkortostan
might take special measures to protect the region’s
environment. This may have a direct negative impact
on Bashneft’s performance and financial situation.
Besides, there is no guarantee that, in the long term,
no conflict will arise between the federal and the
regional authorities. Such circumstances could inter-
fere with the Group’s long-term planning and prevent
Bashneft from successfully accomplishing long-term
strategic tasks.
To speed up decision-making concerning environ-
mental protection, a task group including repre-
sentatives of JSOC Bashneft and authorities of the
Republic of Bashkortostan has been created. The
Company’s management continually cooperates with
representatives of various authorities of the Republic.
In 2010, Alexander Goncharuk, the Chairman of JSOC
Bashneft’s Board of Directors and a member of JSFC
Sistema’s Board of Directors, became a member
of the Presidential Council of Bashkortostan. The
Council is a permanent advisory body responsible,
among other things, for preparing proposals outlining
the main trends of the Republic’s government policy
and aimed at increasing the operational efficiency
of regulatory bodies. In March 2009, the Republic of
Bashkortostan and JSFC Sistema concluded a Gen-
eral Agreement. The Agreement is aimed at a fruitful
collaboration between the Republic and the Group in
order to create favourable conditions for economic
and social development of Bashkortostan.
To reduce regional risk, Bashneft Group is diversifying
its business into other regions. For instance, in Feb-
About the Company
Main risk factors
Country and regional risks
among other things, for preparing proposals outlining
the main trends of the Republic’s government policy
and aimed at increasing the operational efficiency
of regulatory bodies. In March 2009, the Republic of
Bashkortostan and JSFC Sistema concluded a Gen-
eral Agreement. The Agreement is aimed at a fruitful
collaboration between the Republic and the Group in
Trebs and Titov oilfields, and the Administration of the
Nenets Autonomous District signed an Agreement on
Cooperation that provides for investments in the de-
velopment of the social and economic infrastructure
of the Nenets Autonomous District, job creation in the
district and the implementation of charity projects.