Battle between liberals, Siloviki heats up over Rosneftegaz cash

(Business New Europe – September 21, 2012) Russian Prime Minister Dmitry Medvedev has ordered his cabinet to draw up urgent plans to “seize” 95% of the RUB130bn (€3.2bn) sitting on Rosneftegaz’s accounts to meet President Vladimir Putin’s demands to increase spending on state salaries and infrastructure investment.

The move would emasculate Rosneftegaz CEO and Kremlin insider Igor Sechin’s plans to leverage those funds to consolidate government stakes in the energy sector and turn the holding into a super-energy giant uniting Russia’s main state-owned gas and oil assets, Gazprom and Rosneft, instead of privatising them as Dmitry Medvedev has called for.

In a happy coincidence, grabbing the Rosneftegaz money would solve much of Medvedev’s budgetary problems, but the move is also clearly political, as it will clip the wings of Sechin, nicknamed Darth Vader and the “scariest man on earth”. Since appointing his new government, Putin has set up a clash between liberals who are mainly based in the government, and the old school Siloviki (those with ties to the security services) who want the state to take the leading role in the economy and mainly sit in the presidential administration.

The two sides have been tussling for the upper hand in recent months and analysts have been watching this fight closely, as who ever wins will set very different courses for Russia.

Following the successful sale of a 7.6% stake in Sberbank, which has in effect relaunched Russia’s stalled privatisation programme (designed and championed by Medvedev and Sergei Guriev, the rector of the New Economic School), it appears that it’s advantage liberals. The ball is now in Sechin’s court to try to block the asset grab of “his” money, however formal power to order the transfer of the funds is in Medvedev’s hands.

Putin’s position on all this remains unclear. In May, he seemed to back Sechin when he signed a decree allowing Rosneftegaz to participate in the privatisation of state energy assets. Sechin has said that Rosneftegaz should use its funds to buy stakes in RusHydro, FSK (the national grid company), IDC Holding, finance a Kyrgyz hydropower plant, and buy a 40% stake in Irkutskenergo (one of the biggest power stations in the country). The government has countered that all these deals could happen without Rosneftegaz’s involvement and the company’s money should go into the budget.

What happens with this money should shed some light on which way the president is leaning.