Putin Said to Blame Energy Chief Sechin After Rosneft Missteps

OAO Rosneft CEO Igor Sechin
Rosneft’s trouble is debt: Chief Executive Officer Igor Sechin, who served Putin as a deputy prime minister, borrowed to finance the $55 billion takeover of competitor TNK-BP in 2013. Photographer: Meridith Kohut/Bloomberg

Igor Sechin, who’s been close to Vladimir Putin for more than 20 years, has long been the president’s point man on energy: first as an adviser, then deputy prime minister, and since 2012 head of state oil company OAO Rosneft.

Today, the relationship is showing signs of tension as Sechin’s quest to build a dominant player in Russia’s most important industry falters in the face of lower oil prices and economic sanctions.

The editor-in-chief of a Moscow newspaper tweeted this week that people were telling him Sechin was about to be fired. While that hasn’t happened, Putin is becoming more critical of Sechin, according to two people in the president’s circle of advisers, asking not be named because the comments are private.

The main point of discontent is Sechin’s decision to spend $55 billion in 2013 buying competitor TNK-BP, a deal that’s left Rosneft more indebted than rivals. Putin has said that the TNK-BP merger hadn’t been as successful as expected, according to one of the people.

Sechin, 54, has made other missteps. Rosneft borrowed hundreds of billions of rubles in December in an opaque deal that confused the market and helped undermine the currency. The ruble collapse angered Putin, for whom a stable currency was a point of pride, according to the other person. Sechin has also asked for direct financial aid from the state, a request that’s still under review, and lobbied for tax breaks.

Putin criticized Sechin publicly for the first time on Feb. 4 for changing his position on issues, including oil-tax breaks, after moving from the government to become chief executive officer of Rosneft.

‘Real Sechin’

“Where is the real Sechin -- before or after?” Putin asked, according to a transcript on the Kremlin website. “The company’s interests are important, the company is industry-forming, but there are also the interests of the whole economy.”

Putin’s spokesman, Dmitry Peskov, and a Rosneft spokesman declined to comment on the president’s relations with Sechin, although both dismissed speculation that he would be fired.

Sechin maintains access to the president and has influence across the government, according to two other officials, who asked not to be identified.

A weaker relationship with Putin might see Sechin forced to rein in his ambitions for Rosneft, already under pressure from lower oil prices and economic sanctions. The company has a near monopoly on drilling rights in Russia’s Arctic Ocean, for example, something that was criticized by other producers. More major deals are almost certainly off the agenda.

Heavily Geared

“It has made a lot of acquisitions, it needs to consolidate,” said James Henderson, a senior research fellow at the Oxford Institute of Energy Studies. “They are more heavily geared, so paying debt will be more difficult.”

Putin’s association with Sechin goes back to the early 1990s when they were both working in the office St. Petersburg mayor in the chaotic days that followed the collapse of the Soviet Union.

When Putin became president in 1999, Sechin joined him in the Kremlin as a key aide. He helped orchestrate the bankruptcy of Yukos, then the country’s largest oil producer, according to its former CEO Mikhail Khodorkovsky, who was imprisoned for a decade and now lives in exile in Switzerland.

Sechin saw increasing government control over the oil and gas industry as a way of reasserting the state’s authority after the free-for-all of the Yeltsin years. Under his guidance, Rosneft absorbed Yukos’s largest assets.

Rosneft Helm

Once put directly at the helm of Rosneft three years ago, he used acquisitions to build a company that pumps 4 million barrels a day, or about 5 percent of global production.

It hasn’t been a big success for investors, though, the biggest of which is Russia’s government with a 70 percent holding. The company’s share price has risen 4 percent since the deal was announced, while OAO Lukoil, its nearest Russian competitor is up 40 percent in the same period.

As Rosneft grapples with $44 billion in net debt, the Moscow-based company’s ability to raise finance has been curtailed by economic sanctions limiting access to western capital markets. That forced Sechin to borrow heavily in rubles late last year as Russia’s currency was in free fall. While the central bank governor said Rosneft’s deal didn’t have any material impact, it stoked concern Russia might use the banking system to support state enterprises.

Sanctions, imposed to punish Russia for military intervention in Ukraine, have also halted exploration deals with Exxon Mobil Corp., Statoil ASA and Eni SpA, to drill Russia’s Arctic waters and shale deposits. The U.S. has also placed sanctions on Sechin personally.

Rosneft will be able to pay all debts from operating cash flows, including $25 billion over the course of this year, the company said in an earnings presentation.

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