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Bashneft Sale To Rosneft Provides $5.2 Billion For Kremlin Budget

Russian President Vladimir Putin announced Rosneft's takeover of Bashneft at a VTB Capital forum in Moscow.
Russian President Vladimir Putin announced Rosneft's takeover of Bashneft at a VTB Capital forum in Moscow.

Russia's state-run oil firm Rosneft bought a majority stake in Bashneft for $5.2 billion, providing a major cash infusion to fill deficits in the Kremlin's budget.

While initially advertised as a "privatization," the sale of the government's 50.1 percent stake in Bashneft to Rosneft, which itself is majority owned by the government, ensures the Kremlin will retain control over both firms.

Russian President Vladimir Putin announced the completion of the sale on October 12 and admitted there was disagreement within the Kremlin over allowing a takeover bid by Igor Sechin, Rosneft's chief executive and a powerful Putin ally, for Bashneft, a regional producer based in Ufa.

Putin told the VTB Capital forum in Moscow that Rosneft won the internal struggle in the end because it offered the highest price for the Bashneft shares and could recoup the cost of the acquisition through the increased stock value of both companies produced by the takeover.

Moreover, Putin reasoned that, while Russia has a controlling stake and runs Rosneft, which is the world's largest publicly traded oil firm, "a significant portion is also owned by foreign investors, in particular British Petroleum."

Rosneft in the end appeared to be the only suitor for Bashneft. An earlier bid by LUKoil, Russia's second-largest oil company and one of the few remaining private ones, fell by the wayside because, LUKoil executives said, they were unwilling to pay as much as Rosneft for Bashneft.

While the Kremln rationalized its manipulation of budget-driven "privatization" sales to increase its grip on Russia's vast oil sector, the deal was widely criticized in business and investment circles.

"It's impossible to call the sale of one state company to another state company privatization," Vedomosti, a leading business daily in Russia, said.

The Bashneft sale "confirms that Russia is knowingly building state capitalism and monopolizing the economy," it said.

The Eurasia Group, a Western investor group, said that "the sale without competitive bidding to a state-owned firm underscores that this privatization wave is intended to raise cash for the government, and not to liberalize the oil sector."

Based on reporting by AFP, Reuters, and TASS