After dragging his feet for years, Rosneft chief Igor Sechin has sold off a sizable share of Russia's largest oil company. On Dec. 7, Rosneft announced that a consortium comprising Swiss oil trader Glencore and Qatar Investment Authority had bought a 19.5 percent stake in the firm for $11.3 billion. Sechin, who saw the shares as an important source of political power in Russia, has held onto them for some time. But the Kremlin finally ordered Rosneft to find a buyer before the end of the year in the hope of using the funds to plug the gaping hole in its budget. Under mounting pressure from Moscow, Sechin agreed to settle the sale on the condition that his company be permitted to buy out Bashneft, the country's sixth-largest oil firm. Russian President Vladimir Putin initially rejected the compromise, but as the Kremlin's finances worsened, he eventually gave in. Sechin then surprised Moscow once again by offering to privatize Rosneft's shares by cannibalizing them with its own funds.
Though Putin agreed to the move, he also publicly stated that it would be temporary. In November, several leaks surfaced in Kommersant and Vedomosti that Putin was working behind the scenes to divvy up Rosneft's privatized stakes among a coalition of energy firms made up of China's Sinopec, Kazakhstan's KazMunaiGas, and Russia's LUKoil and Surgutneftegas. Should these rumors prove true, some of Rosneft's competitors would have a say in its operations, a scenario that would undermine Sechin's interests. However, Sechin has found two foreign firms that would avoid meddling in Rosneft's — or Sechin's — affairs to take the shares instead. Interestingly enough, presidential spokesman Dmitri Peskov gave a nod to Sechin in leading the negotiations by publicly stating that Sechin had informed Putin of the sale.
With this chapter in the power struggle between Sechin and Putin coming to a close, it's unclear whether a new one is opening. Last week, Russian Energy Minister Alexander Novak announced that Russia would cut its oil output by 300,000 barrels per day as part of its recent deal with OPEC. Rosneft, however, has already refused to participate in the cutback. Most of the company's production comes from Russia's older, maturing fields, making it a prime candidate for shouldering the cuts over other Russian firms such as Gazprom Neft that have invested in newer fields. Because these fields have also received significant tax incentives, older fields with heavier tax burdens, such as Rosneft's, would make more sense from the companies' perspective to cut.
But convincing Rosneft to get onboard with the OPEC agreement will not be easy for the Kremlin. According to recent chatter among Russian oil firms, companies expect some sort of compensation from the government for scaling back their operations. Novak met with many of these firms' representatives on Dec. 7 to map out how and when they will implement the cutbacks, ahead of OPEC's meeting with non-member countries on Dec. 10. So far, the Russian Energy Ministry has not reached a deal with the country's energy companies, though the talks are scheduled to continue later in the week. Because Russia's older fields are one of the biggest tax contributors in the country, the Kremlin may yet find room to compromise with Rosneft, though in all likelihood the two are headed toward another political spat.