NEWSLINK: Kremlin oil control drive could backfire

Oil Well file photo

Kremlin oil control drive could backfire – Reuters – By Dmitry Zhdannikov – September 27, 2012 –  click here for original article

Reuters reports on the Russian government’s efforts to bring more oil assets under state control.  Critics charge that growing state control could cripple industry, strain budget resources and even cause social unrest.

Some observers warn that paradoxically the moves could undermine what Putin needs to successfully sustain political power:

Officials, businessmen and economists told the Reuters Russia Investment Summit they had little doubt that Igor Sechin, Russia’s most powerful oil boss and confidant of President Vladimir Putin, would soon succeed in folding new assets into the state-controlled behemoth Rosneft that he runs.

But the ultimate price may be too high for the Russian economy and taxpayers, warned Sergei Guriyev, a liberal economist and one of many informal advisers to Prime Minister Dmitry Medvedev.

“If Putin wants to stay in power for the next six years, he needs a lot of cash and he needs a lot of productivity gains,” Guriev said in an interview.

“And those are not feasible under a scenario when you are buying more and more. You need to find cash somewhere and these state companies are destroying a lot of value.”

State control and re-nationalization represents an historic shift away from privatization that had occurred under Boris Yeltsin:

Russia privatized its oil industry, the world’s largest, under late President Boris Yeltsin in the 1990s but regained 40 percent back under Putin last decade, nationalizing top firm YUKOS and jailing its politically active co-owner Mikhail Khodorkovsky for tax evasion.

The Kremlin also limited the access of private firms to big fields and passed investment legislation that subjected large transactions to state approval.

… The state’s share in the oil industry would rise to over 50 percent if Rosneft buys out oil major BP (BP.L: Quote, Profile, Research, Stock Buzz) from its troubled TNK-BP (TNBP.MM: Quote, Profile, Research, Stock Buzz) joint venture with a group of Soviet-born tycoons.

The $20 billion-plus deal is widely expected to be followed by a transaction of a similar size in which Rosneft buys out the rest of TNK-BP owned by billionaires Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik.

Putin’s critics have repeatedly accused the Kremlin of creating inefficient state-run behemoths, some warn of a return to socialism, and metals oligarch Vladimir Potanin accuses expanded state ownership of causing capital flight:

“It becomes increasingly difficult to find where to invest. The field for business activity is shrinking,” said Potanin, Russia’s fourth richest man with a fortune estimated at more than $14 billion.

Capital outflows from Russia topped $80 billion last year and are continuing this year despite high oil prices, strong budget performance and relatively low public debt levels.

click here to read more from the original article