Medvedev govt to rule on BP's sale of TNK-BP

Thu Sep 27, 2012 4:20am EDT

A British Petroleum (BP) logo is seen at a petrol station near the Burj Khalifa in Dubai August 29, 2012. REUTERS/Jumana ElHeloueh

A British Petroleum (BP) logo is seen at a petrol station near the Burj Khalifa in Dubai August 29, 2012.

Credit: Reuters/Jumana ElHeloueh

(For other news from Reuters Russia Investment Summit, click here)

By Darya Korsunskaya and Melissa Akin

MOSCOW (Reuters) - The government of Dmitry Medvedev holds the key to BP's (BP.L) ambitions to sell out of Russian oil company TNK-BP TNBP.MM, his deputy, Arkady Dvorkovich, said on Tuesday.

TNK-BP, Russia's third largest crude oil producer, is suddenly caught between Medvedev's government and Igor Sechin, the powerful chief executive of state-controlled Rosneft (ROSN.MM), in a tug of war over rights to set policy for Russia's oil industry.

Sechin, an ally of President Vladimir Putin for 20 years and a strong voice for the industry, has declared he wants to buy out BP's stake in TNK-BP and sell the British major a stake in Rosneft, holder of the world's largest oil reserves.

"There is only one bid for that (stake) right now, as far as we heard," Dvorkovich said of BP's holding in TNK-BP

"In any case, Rosneft, if it will go for this transaction, will have to ask for instruction from the government. It cannot do otherwise." he told the Reuters Russia Investment Summit.

The government wants to raise $20 billion over the next six years through the sale of remaining state assets, including part of its stake in Rosneft. Dvorkovich said the possible TNK-BP deal ran counter to its plans to cut state influence on the economy by putting a major producer under control of a state controlled company.

CONSOLIDATED ENOUGH

"The (domestic oil) market structure is both competitive and at the same time consolidated enough, at least for the market to be predictable, and I do not see any specific arguments why ... the government should stimulate further consolidation in the oil market."

"It doesn't mean companies cannot have their own thoughts and ideas about consolidation and about commercially based transactions, and it is natural that companies are looking for all kinds of deals, including M&A."

Sechin has countered that a sale of a stake in Rosneft to BP would advance the privatization agenda if the state were to sell part of its stake in the No.1 Russian oil producer.

"A very particular transaction is being considered separately and if an official proposal comes to the government we will consider it," said Dvorkovich.

If Medvedev's government were to dig in its heels on the sale of TNK-BP for a stake in Rosneft, it could force a showdown between Sechin and Dvorkovich.

The two men are seen as proxies for a wider row between Putin and Medvedev, who have traded barbs in recent days, Putin rebuking ministers in his former protégé's government for ignoring orders and Medvedev for Putin's management style in his former role as prime minister.

"There is a very good relationship between the president and the prime minister, full trust, and we have working relationships with the presidential administration," Dvorkovich said.

Sechin has said he could work constructively with Dvorkovich on policies that have already been approved, despite "diametrically opposing" views expressed during policy debates.

Both men say they want to avert privatization of state assets on the cheap, and say the government should try to boost the fundamental value of state energy assets before offering them to the market.

POWER PLAY

Sechin wants to concentrate energy assets, including several state utilities, under the roof of Rosneftegaz, the holding which owns most of the state stake in Rosneft, using dividend proceeds to make needed investments.

He has resisted privatizing some assets altogether, including state pipeline monopoly Transneft (TRNF_p.MM). Dvorkovich said the sale of a very small stake in Transneft was still under consideration.

The litmus test of Sechin's plan is a final ruling on four state-controlled electricity companies. Putin is due to decide shortly on one, a plan to recapitalize hydroelectric power company RusHydro (HYDR.MM) with state funds.

Dvorkovich said the government responded with a counter offer to consolidate scattered stake holdings in one of them, state power trader Inter Rao (IRAO.MM), with Rosneftegaz.

"There is some sense in consolidating these stakes in a single pair of hands, with a company that is government controlled," Dvorkovich said.

"For RusHydro, the Federal Grid Co. (FEES.MM) and MRSK (MRKH.MM), we don't see the arguments at all."

The state's role in raising the value of state companies is the nub of their disagreement, Dvorkovich said.

"The position of the government is that we should improve market regulation. We can have sufficient private investment inflow that will move the energy sector forward without state intervention," Dvorkovich said.

"His (Sechin's) position is that before we will do all that, the state should increase its role, and intervene more, and provide services directly," he added. "The common part of that is that we need better conditions for investments and we need a more transparent market in general."

(Writing by Melissa Akin; Editing by Douglas Busvine and Hans-Juergen Peters)

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