Breaking News
Investing Pro 0
Cyber Monday SALE: Up to 54% OFF InvestingPro+ CLAIM OFFER

Russia, bowing to budget pressures, revives oil firm sell-off

Commodities Sep 30, 2016 04:22PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. People walk past headquarters of Russian state-owned oil producer Bashneft in Moscow
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio

By Darya Korsunskaya

SOCHI, Russia (Reuters) - Russia said on Friday that it was resuming the shelved privatisation of oil firm Bashneft, in a sign of how anxious the Kremlin is to raise money to fill holes in the budget left by the economic slump.

The Bashneft privatisation, the most significant sell-off of Russian state assets in years, had been postponed indefinitely in August.

Sources close to the government and the bidding process said at the time the postponement was ordered by the Kremlin to staunch infighting among rival clans over who would be the eventual buyer.

But in a U-turn, Deputy Prime Minister Igor Shuvalov said on Friday steps to resume the privatisation would be taken immediately.

He said that Rosneft - the state oil giant whose ambition to acquire Bashneft triggered the infighting - would be free to take part. A spokesman for Rosneft said the company would be lodging a bid.

Shuvalov also said the government would proceed immediately with the sale of a minority stake in Rosneft itself, an acquisition of potential interest to international oil majors who covet a share in Russia's massive crude reserves.

"Money is needed urgently," a source in the government said, when asked what brought about the government's U-turn on its privatisation plans.

A second source in the government said: "The sale of Bashneft to Rosneft is a done deal."


Russia is in its second year of economic recession, mainly because of the fall in world prices for crude oil, its principal export. It expects only very moderate growth next year,

The government has struggled to find funds to cover its growing budget deficit. The finance ministry said on Friday the deficit may hit between 3.5 percent and 3.7 percent of gross domestic product this year, compared to a 3 percent estimate a few months ago.

Russia's sovereign wealth funds are depleting fast, and its ability to raise debt on international capital markets is limited by financial sanctions imposed on Moscow over its role in the conflict in Ukraine.

The government has little scope to cut spending. That could alienate ordinary people whose support President Vladimir Putin will need if, as expected, he seeks re-election in a presidential election in 18 months.

"After further study of the Rosneft and Bashneft privatisation issues by the government, and after a presentation to the president, it was decided to resume the preparations for selling a controlling stake in Bashneft and immediately proceed to prepare for selling a 19.5 percent stake in Rosneft," Shuvalov said.

Speaking to reporters at a business forum in the Black Sea resort of Sochi, he said the government had reconsidered its position after seeing investor appetite for the two stakes and learning what the potential bidders planned to do if they won.

"According to the assurances that we have received from investment consultants, we hope to receive above 1 trillion roubles ($15.92 billion) from these deals by the end of the current year," Shuvalov said.

"The money from the Rosneft privatisation will be counted as budget revenue, and the revenue from the sale of Bashneft (will go on) covering the federal budget deficit," he said.

On the Bashneft sale, Shuvalov said: "Rosneft will not be prevented from participating."


Two years into an economic crisis made worse by the Kremlin's political stand-off with the West, Putin faces a difficult choice.

He needs to find ways to plug the holes in the budget and put money into the pocket-books of ordinary Russians who have seen their incomes drop in real terms. But the prescriptions for achieving that goal could also unleash conflict within his own entourage, potentially destabilising his rule.

The plan to sell a 50.8 stake in Bashneft had attracted interest from Rosneft, a company headed by Putin's long-standing associate Igor Sechin, and Lukoil, Russia's biggest privately-owned oil company run by billionaire Vagit Alekperov.

The interest from Rosneft provoked a storm of protests from pro-market groups within the Kremlin elite who did not see the benefit of one state-owned company acquiring another, according to the sources close to the government and the privatisation process.

But in an interview earlier this month, Putin signalled he did not see a problem with Rosneft bidding.

"It looks like Rosneft convinced the government that it is the most suitable suitor to buy Rosneft," said Sergei Vakhrameyev, analyst with GL Asset Management.

Shuvalov said there has been substantial interest in both the Bashneft and Rosneft sell-offs.

He said Bashneft has attracted interest primarily from Russian investors.

The planned sale of the 19.5 percent stake in Rosneft, by contrast, was garnering interest mainly from foreign investors, Shuvalov said.

($1 = 62.8070 roubles)

Russia, bowing to budget pressures, revives oil firm sell-off

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email