So Rosneft is showing that it is serious about buying a stake in TNK-BP, the Anglo-Russian joint venture, by seeking to raise $15bn in financing.
But, as Igor Sechin, Rosneft chief executive, knows well, money alone won’t secure the deal. The final decision will rest not with Rosneft, BP, or BP’s Russian oligarch partners in TNK-BP, but with president Vladimir Putin. And while Putin is fully aware of the importance of money, much more is at stake in this deal – not least the balance of power in his administration between economic hawks and liberals.
The proposed acquisition sets Igor Sechin, Rosneft’s hawkish chief executive, on a collision course with liberal officials opposed to the relentless rise of the state oil company that already controls a quarter of national output.
And it is not clear whether the oligarchs, led by billionaire Mikhail Fridman, who have crossed swords with Sechin in the past, will take kindly to the prospect of a partnership with Rosneft.
The opportunity for Rosneft to swoop on TNK-BP arose after BP announced plans in June to exit the venture, citing irreconcilable differences with its 50:50 Russian partners Alfa-Access-Renova.
Rosneft plans to buy BP’s stake in TNK-BP with a mixture of cash and shares and is seeking to raise up to $15bn on international capital markets to help fund the acquisition, as the FT reported. As well as its own 2.7m barrels of oil of a day, it would then have access to TNK-BP’s 1.8m.
The deal’s opponents in the administration have already come out into the open, notably liberals in prime minister Dmitry Medvedev’s cabinet. “Overall it serves no useful purpose for any state company to expand its role in the economy,” Arkady Dvorkovich, deputy prime minister , told a conference in London last week. Rosneft’s plan to acquire TNK-BP would not go ahead without government approval, he added.
Dvorkovich may have to pipe down if, as it appears, Sechin has Putin on his side. Only this week the Russian president joined Sechin for talks with Robert Dudley, BP’s chief executive and Carl-Henri Svanbeg, BP chairman, for talks about the UK’ major’s future in Russia.
Over the years Sechin has orchestrated the transformation of Rosneft from oil industry laggard to national champion controlling oil reserves even larger than US Exxon’s.
Rosneft began hitting the big time after Sechin became chairman in 2004. First the company scooped up assets formerly owned by the Yukos group that had been bankrupted during a highly-politicized tax evasion case involving the company and its founder Mikhail Khodorkovsky.
But not everything always went Sechin’s way. Rosneft had to fight off a serious government plan to merger it with Gazprom, the Russian natural gas monopoly, in which Gazprom would have had the upper hand.
Further embarrassment followed last year. Rosneft’s move on TNK-BP follows the failure of a $7.8bn plan negotiated by Sechin to swap shares with BP and explore the highly prospective Russian Arctic in a partnership with the UK major. AAR challenged the deal in court and won claiming that BP, as a TNK-BP shareholder, had no right to pursue opportunities in Russia with other partners.
At the time Sechin was said to be furious that AAR had scuppered his plans.
But even if this is the case he has come back with a plan that is arguably better for Rosneft. BP cold be a more useful partner for the Russian giant, once it is free of the shackles of TNK-BP. The proposals to explore in the Russian Arctic could be revived and BP could help Rosneft gain entry to projects in third countries.
A share in TNK-BP would bring Rosneft’s oil output close to 4m barrels a day and boost the company’s plans to become an important natural gas producer challenging Gazprom’s monopoly of the domestic market. Fridman and Co did not get on well with BP’s Dudley. If this deal goes ahead, we will see how they make out with Sechin.
Rosneft eyes BP cash and equity deal, FT
Dvorkovich: should Sechin head both Rosneft and Rosneftegaz? Good question, beyondbrics
TNK-BP/Rosneft: 6 scenarios for a sale, beyondbrics
Russian privatisation: Dvorkovich 1, Sechin 0, beyondbrics