Putin says Rosneft buy of Bashneft gives impetus to privatization

MOSCOW (Reuters) - The Russian government’s sale of a controlling stake in mid-sized oil firm Bashneft to the country’s largest oil producer Rosneft should give momentum to Russia’s privatization drive, President Vladimir Putin said on Wednesday.

Russian President Vladimir Putin attends the annual VTB Capital "Russia Calling!" Investment Forum in Moscow, Russia, October 12, 2016. Sputnik/Kremlin/Alexei Druzhinin via REUTERS

The Economy Ministry said that the government had completed the sale of the Bashneft stake to Kremlin-owned Rosneft for 329.69 billion roubles ($5.30 billion).

Rosneft bought a 50.08 percent stake in Bashneft, Russia’s fastest growing oil company with production of 400,000 barrels per day (bpd) and extensive refining assets, beating an offer from an unidentified second bidder.

The sale is a key step in a government privatization push meant to raise cash to plug budget holes amid low oil prices and Western sanctions imposed over Ukraine.

“The main thing is that we don’t stop the privatization process on this (Bashneft sale),” Putin said at an economic forum.

“This privatization is carefully crafted, keeping in mind the synergy effect for obtaining the maximal gain from the point of view of budget and fiscal interests,” he said.

Putin said that now a 19.5 percent stake in Rosneft could be sold to private foreign investors.

The Bashneft deal has caused tensions, with the government postponing the sale in August to calm rivalry among powerful groups before September parliamentary elections.

Several Russian government officials including Deputy Prime Minister Arkady Dvorkovich had said previously they opposed plans by Rosneft Chief Executive Igor Sechin to expand further.

One state-controlled company, Rosneft, buying another, Bashneft, could hardly be called a proper privatization, they said.

“It may sound strange to you but I personally was surprised by this government’s position myself,” Putin said on Wednesday, referring to the decision to allow Rosneft to buy Bashneft.

Putin said later on Wednesday that Rosneft used its own funds to buy the Bashneft stake, where 25 percent is owned by internal republic of Bashkortostan. It remains unclear if Rosneft will buy that stake later, too.

Rosneft production stands at around 4.1 million bpd now and is expected to grow thanks to new fields coming onstream this year.

According to a regulatory statement, Bashneft’s board plans to vote on a new chief executive on Thursday. Alexander Korsik, who oversaw Bashneft’s production spike, is expected to be replaced by Andrey Shishkin, a vice-president at Rosneft.

A source familiar with the situation said the management board was also expected to be taken over by Rosneft managers. Bashneft declined comment.

Sechin has said that the purchase of Bashneft would provide a synergy effect for the company.

Rosneft is considering buying out part of the Rosneft stake set for privatization itself, as one of the options.

The state hopes to raise around 700 billion roubles from the Rosneft privatization to plug holes in the budget.

Additional reporting by Alexander Winning, Katya Golubkova, Denis Pinchuk, Elena Fabrichnaya, Kira Zavyalova, Vladimir Soldatkin; writing by Andrey Ostroukh/Katya Golubkova, Editing by Adrian Croft