March 31, 2011 / 9:51 AM / 7 years ago

UPDATE 5-Kremlin: Sechin must resign as Rosneft board chief

* Deputy Premier Sechin told to go as Rosneft chairman

* Finance Minister Kudrin to leave lender VTB

* Transport Minister Levitin should quit Aeroflot

* Government source says changes will be “cosmetic”

* Rosneft shares fall 1.7 percent

(Rewrites lead, adds Rosneft source, paras 4-5)

By John Bowker

MOSCOW, March 31 (Reuters) - Russian President Dmitry Medvedev ordered Deputy Prime Minister Igor Sechin to quit the board of oil major Rosneft (ROSN.MM), hardening up his campaign to separate politics from business in the pre-election year.

Sechin, the most prominent target of a wider shakeout of ministers from senior company positions, has sweeping control over energy policy and as chairman of Rosneft masterminded a troubled strategic alliance with Britain’s BP (BP.L).

The removal of Sechin, Prime Minister Vladimir Putin’s most trusted ally, from the helm of Russia’s biggest oil company would stoke fears of a struggle for the Kremlin’s top job ahead of the March 2012 presidential election. [ID:nLDE72L07K]

There is no obvious replacement for Sechin, who guided Rosneft through a $10 billion stock market float and won a $15 billion loan from China secured against pipeline deliveries from Rosneft’s giant Vankor oil field.

“It is clear to everyone that, without Igor Ivanovich (Sechin), no projects on this scale will be executed,” a source close to Rosneft management told Reuters on Thursday on condition of anonymity.

A senior official who sits on the boards of major state firms said, however, that Medvedev’s proposal would have only a “cosmetic” impact as the government would still call the shots.

“Since we have been told, we will have to go. But this measure is cosmetic because the government will still issue key directives,” the source told Reuters.

Kremlin economic adviser Arkady Dvorkovich said Finance Minister Alexei Kudrin would also have to quit as chairman of bank VTB (VTBR.MM), while Transport Minister Igor Levitin should go as chairman of airline Aeroflot (AFLT.MM).

Dvorkovich’s comments come a day after Medvedev ordered the general removal of ministers from the boards of state firms by mid-year, saying state meddling is holding back Russia’s economy. [ID:nLDE72T1HC] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Reuters Breakingviews column on: [ID:nLDE72U0KH]

Russia’s biggest state-controlled companies [ID:nLDE72U1AF] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

BEWARE

A spokesman for Putin declined to comment. Putin and Medvedev, who run Russia in a power-sharing “tandem”, have yet to agree on which of them will run for the presidency next year.

Medvedev has made improving the investment climate in Russia a priority, although in 2008 he also demanded a purge of government officials on company boards with little success.

“Medvedev should beware of alienating powerful officials who benefit from these board seats. So far he has not been successful in changing the problematic status quo,” said Ariel Cohen, senior research analyst at the Heritage Foundation.

Shares in Rosneft closed 1.7 percent down, making them the weakest large-cap stock on the Moscow market, as analysts warned Sechin’s removal would weaken Rosneft’s position as Russia’s most powerful oil company.

Sechin was the prime mover behind a deal struck by Rosneft and BP in January to explore for oil in the Arctic and conduct a $16 billion share swap that has fallen foul of a legal challenge by the tycoon partners in BP’s Russian venture TNK-BP TNBP.MM.

An arbitration panel will next week rule on whether the share swap can go ahead independently of the offshore venture.

“This is obviously negative for Rosneft as Sechin was seen as the biggest advocate of its interests ... although the financial impact may be minimal,” said Karen Kostanian, head of research at Merrill Lynch in Moscow.

The chairman of Gazprom (GAZP.MM), Deputy Premier Viktor Zubkov, was spared the axe, confirming the gas export monopoly’s privileged status as an instrument to project Russia’s energy might abroad. Medvedev chaired Gazprom when he was Kremlin chief of staff during Putin’s time as president.

But the wider move was seen as potentially positive for the state firms that dominate the Russian stock market, but whose politicised corporate governance leads them to trade at a valuation discount to their international rivals.

“From an investment standpoint, there’s huge efficiency gains that could be made at state-owned companies. If there is more energetic management and better oversight it could be a big driver for the market,” said Roland Nash, chief investment strategist at Verno Capital. (Editing by Douglas Busvine and David Holmes)

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