Rosneft PJSC has been transformed during Vladimir Putin’s reign from a collection of unwanted oil fields to the dominant oil company in Russia, the world’s biggest crude producer. The metamorphosis has been driven by Rosneft’s chief executive officer, Igor Sechin, allegedly a former KBG agent and a close associate of Putin since his days in St. Petersburg’s city hall. Rosneft’s growth strategy, such as it is, has been to take over the assets of private investors. Those who try to resist can wind up facing criminal charges.
1. Who has faced off against Rosneft?
The most recent target was billionaire Vladimir Evtushenkov, who was the majority owner of Bashneft PJSC, a regional oil company. His fortune slumped by $7.2 billion as Russia maneuvered to gain control of Bashneft and investigated him on money-laundering charges that were later dropped. The government re-nationalized the producer in 2014 as it was preparing for an initial public offering. Two years later, when the government put Bashneft up for sale, Rosneft was the lone bidder.
2. Who else has Rosneft targeted?
Former Economy Minister Alexei Ulyukayev, after declaring his opposition to Rosneft’s purchase of Bashneft, was charged with taking a $2 million bribe -- making him the highest-ranking official to be arrested under Putin. He says that he’s innocent and was set up by Sechin, who was the only witness to the alleged payoff. Yukos Oil Co., once Russia’s biggest oil producer, was taken down in a similar manner to Bashneft. Its CEO, Mikhail Khodorkovsky, Russia’s richest man at the time, claims Sechin masterminded the strategy in which the government presented the company with an outsized tax bill and then sold off its assets to Rosneft in forced auctions. Khodorkovsky spent a decade in a Siberian prison after fighting to keep his company. The takeovers are not always hostile. When BP Plc fell out with a group of billionaires over the management of its Russian joint venture, TNK-BP, Rosneft scooped it up in the biggest deal Russia has ever seen.
3. What explains Sechin’s power?
His nickname is Darth Vader, which would make Putin the emperor. In other words, they fight on the same side. When Putin was first deputy mayor of St. Petersburg, Sechin was his chief of staff. He then moved with Putin to the Kremlin as deputy head of the presidential administration, before taking over Rosneft. When Sechin was short of cash, after oil prices crashed and Rosneft was smacked with international sanctions, he was saved by $15 billion of emergency funding backed by Russia’s central bank. The secret deal spooked the market, causing the ruble to tank and leading to a rare rebuke from the president. The Bashneft saga, and its effect on Evtushenkov, suggests that Sechin is back as one of Putin’s most powerful advisers.
4. What was the impact on Evtushenkov?
He chose not to fight the seizure of Bashneft, influenced by investigators holding him under house arrest for three months in 2014. But when Rosneft sued his investment company Sistema PJSC in a regional court for damages suffered during a reorganization of Bashneft’s assets, Evtushenkov had had enough. The case served as a bellwether for investor rights in Russia. When the judge awarded Rosneft $2.3 billion, Russia’s investment climate was seen as among the losers. And Evtushenkov was a good deal less rich. Evtushenkov still controls Mobile TeleSystems PJSC, Russia’s biggest mobile phone operator, for now at least. He may need to sell part of his stake to settle with Rosneft.
5. Will Rosneft take over any other oil companies?
Surgutneftegas PJSC and Lukoil PJSC certainly hope not. The owners of the two largest non-state oil producers in Russia say they have no plans to cash out. But if they do, Rosneft would be first in line to buy their companies.
6. Do companies outside the oil industry face similar risks?
Government-owned behemoths dominate in Russia. Gas pipeline exports are monopolized by Gazprom PJSC. State-controlled lenders such as Sberbank PJSC are the biggest winners of an ongoing bank purge that’s taken out one in three private banks since 2014. The government is also increasing its control over the internet in the run-up to next year’s elections, with Putin expected to be a shoe-in. But when it comes to corporate raiding, Sechin’s appetite is second to none.
The Reference Shelf
- A QuickTake explainer on Putin’s Russia.
- Glencore’s Ivan Glasenberg shows how to work with Sechin.
- Ulyukayev’s very bad, no good day.
- Sechin won again when the Kremlin gave him permission to buy Bashneft.
- Massive debt problems from the TNK-BP purchase didn’t dampen Rosneft’s appetite.
- A QuickTake Q&A on the bumpy ride of Bank Otkritie FC, Russia’s largest private bank.
— With assistance by Alexander Sazonov, and Stephen Bierman