Authors: Iurii Barsukov and Kirill Mel’nikov
Translator: Anna Bar
President of Rosneft’ Igor’ Sechin will be the main speaker at today’s meeting of the Presidential Fuel and Energy Commission, the first meeting in almost a year. He is to propose a new economic policy for the diversification of the country’s economy under Western sanctions. Measures will include, the accelerated distribution of new deposits in eastern Siberia and the Far East, the reduction of monopoly tariffs in the region, liberalization of gas exports, and the abolition of tax “maneuvers.” Theoretically, the proposal applies to all players, but Rosneft’ will likely be the key beneficiary.
The Presidential Fuel and Energy Commission will meet today in Astrakan’. As the Kremlin Press Office announced yesterday, the Commission will “focus on questions regarding the diversification of the sector’s development and the realization of a series of fuel and energy investment projects in the Far East, as well as the pricing problems in the domestic gas market.” The Commission last met almost a year ago in August 2013. According to Kommersant’s sources, there were talks of meetings at the end of 2013, then in February-March 2014, “but Spring was simply too busy.” The last possibility was in May, right around the time of Putin’s visit to China. But the meeting was finally moved to June, “so as to not overload the schedule.”
Active preparation for the meeting started at the beginning of April. It was then that the secretary in charge of preparation, President of Rosneft’ Igor’ Sechin, sent Putin a letter about “measures to diversify the external sectors of the Russian economy,” say Kommersant’s sources. Sechin substantiated the necessity of these measures with the current tense situation in the fuel and energy sector due to Western sanctions (the head of Rosneft’ was personally blacklisted by the United States). Putin ordered the commission to address these proposals, and since then “their substance has remained virtually unchanged.“ Rosneft’ declined comment. In his letter, Sechin directly stated that “public and unqualified” discussion of the situation surrounding the sanctions is undesirable.
In general, Sechin considers the current market situation to be favorable to Russian oil companies, particularly Rosneft’. State oil reserves in Europe can cover only five months of Russian supply, and America’s reserves could cover no more than six months. Although Europe could increase supply from the Middle East, this would raise consumer costs. According to Sechin, Rosneft’ reduced risk by entering into long-term contracts. Nevertheless, the company is vulnerable to other problems. It buys equipment in the United States (6%), as well as Canada and the European Union (11%). For now, there is no risk of a disruption in supply, assures Sechin, but the possibility of a future disruption should not be ruled out. He warns that Western countries could deliver another blow, beginning with lowering prices for oil and oil products. Therefore, Sechin concluded, it is necessary to develop an new economic policy.
Sechin proposes to redistribute land properties with oil and gas reserves in the Far East and eastern Siberia among the companies “whose majority shareholders are Russian legal entities or citizens.” Sechin also calls to provide independent gas producers the right to export to countries in Asia and the Pacific Rim. According to experts at Kommersant, this mainly concerns the participation of Rosneft’ and other companies in the export gas pipeline.
“Ever since Gazprom reached an agreement with China, these problems ceased to be pressing. But it is necessary to understand the position of the Chinese, who for the time being are not eager to increase purchases,” said one of Kommersant’s sources.
Igor’ Sechin also noted the necessity of expanding the Eastern Siberia- Pacific Ocean Oil Pipeline (Rosneft’ needs the capacity to increase supply to China, as well as to build the Far East Petrochemical Company). Although the issue of expanding the pipeline has already been settled, Rosneft’ is still in talks with Gazprom and Russian Railways about the infrastructure of the Far East Petrochemical Company. In order to lower transport tariffs, Sechin proposes using accumulated pension funds as a source of financing for the expansion of the pipeline. He also mentioned the possibility of additional available shares of Transneft’, which would be favorable to oil companies. He also added that Vladivostok should be developed as a “gas hub,” the prices of which will be the reference point for spot supplies and fixed-term contracts.
But Igor’ Sechin did not limit himself to industry issues. In particular, he supports the creation of a national rating agency (the state company refused the services of American company Fitch), and calls to accelerate “de-offshore-ization” and create zones and territories in Russia with favorable conditions. But the tax “maneuvers” that the Ministry of Finance hoped to discuss would, according to Sechin, worsen the investment climate, forcing the revision of the investment plans in several economic spheres.
According to experts at Kommersant, Sechin had several more interesting ideas. He suggested that Putin intensify the privatization process of state companies, which, in the context of failing markets, could become an additional means to attract investors and financial resources. Moreover, Sechin raised the topic of an “alternative OPEC.” The union, in which Russia would play a leading role, could include Iran, Venezuela, Angola, Brazil, and Kazakhstan. These questions, however, were left off of today’s agenda.
Valerii Nesterov of Sberbank Investment Research noted that all of the measures that Sechin outlined benefit Rosneft’ first and foremost. According to the expert, oil and gas companies are not extremely worried about the sanctions. But he recognizes that a partnership with the countries of Asia and the Pacific Rim would allow them to avoid problems in the future. Achieving this goal, however, would require resources and different players. Rosneft’ alone cannot do it.
Link to original article: http://www.kommersant.ru/doc/2485937