Sechin’s thrust

Igor Sechin is acknowledged to be one of the most influential figures in “Putin’s team”. From 1999, he held the position of a deputy head at the Presidential Executive Office; from 2004 - deputy head at the Presidential Executive Office, Assistant to President; from May 12, 2008 till May 21, 2012 — Deputy Chairman of RF Government.

Having headed Russia’s “strategic” company, Sechin seems to spread his influence for “adapting” the adjacent industries in compliance with the company interests for business optimization purposes. 

“Adapting” of LNG

Rosneft had decided to enter the global market of LNG and in conjunction with Novatek (having another influential business Gennady Timchenko as one the shareholders) succeeded in breaking of Gazprom’s LNG export. According to the bill brought into the State Duma, the licensing of LNG exports will be conditioned on a company’s own LNG plant. So, apart from Gazprom, Rosneft and Yamal LNG project of Novatek meet this requirement.

In late September 2013, RF Minister of Energy Aleksandr Novak announced that the bill was brought into the Government with the State Duma likely to pass it at the autumn session. Later on, RF President Vladimir Putin also applauded the idea of LNG market liberalization.

In 2013-2014, Rosneft and Exxon Mobil plan to complete design works including selection of a technology for gas liquefaction and specification of major requirements to equipment. Besides, they will carry out engineering survey, develop project documentation according to Russian standards applicable to LNG plant and perform assessment of environmental impact. 

Iljinskoye settlement at the south-west coast of Sakhalin seems to be the most economically reasonable location of an LNG plant. There is a plan to build a state regional power plant (GRES-2) and to develop social infrastructure there. New highway is to approach the site which also meets seismic safety requirements. The final decision on the location and technologies is to be made by the end of this year.

Read more about LNG export prospects >>>> 

“Adapting” of shipbuilding

Shipbuilding is also being “adapted” by Rosneft. We mean the acquisition of the complex of large-capacity shipbuilding being built on the basis of the Far Eastern Shipbuilding and Ship Repair Center in Bolshoi Kamen (Primorsk Territory) by a consortium of investors representing vertically integrated oil and gas companies of Russia (with  Rosneft as a key player). So offshore shipbuilding can actually fall under control of its customers, first of all Rosneft.

Read more about the problems related to construction of large capacity vessels in Russia >>>> 

“Adapting”of stevedoring

One of Sechin’s priorities in the sector of transportation was to get the government’s stake of Novorossiysk Commercial Sea Port OJSC (NCSP). Igor Sechin suggestion was that 20% of Russia’s largest stevedoring group holding the assets in Novorossiysk and Primorsk (including the largest oil export terminals) could be sold to Rosneft without a competition. As of today, NCSP shareholders are Transneft and Summa Group of Ziyavudin Magomedov who is close to “Medvedev’s team”. Sechin addressed this proposal to RF President Vladimir Putin.

However, the Government was rather half-hearted about the idea to sell NCSP stake directly to Rosneft. “We think the privatization should be arranged in keeping with the best traditions as a market transaction,” RF Minister of Economic Development Aleksei Ulyukayev said in November 2013. The Minister confirmed that NCSP privatization had been planned for 2013. According to earlier comments of Deputy Prime Minister Igor Shuvalov, none of privatization ways are ruled out.

“Adapting” of bunkering

In his invasion at transport sector, Sechin does not neglect the bunker market. In September 2013, he addressed RF Prime Minister Dmitry Medvedev with a proposal to put implementation of the programme on bunkering market development into the hands of ship fuel producers with a priority provided to companies with long-term contracts.

According to the letter, the volume of Russia’s bunkering market is estimated at 8-9 mln t per year with subdivisions of vertically integrated systems accounting for 70% of sales. Among such companies Sechin mentioned RN-Bunker, LUKOIL-Bunker and Gazpromneft Marine Bunker (this is the order used by Sechin).

The letter also says that apart from VIS subdivisions, Russian bunkering market is represented by a pool of independent players which “purchase fuel from mini plants, so called “teapot refineries” producing low-quality products”. “Later these dumped products are sold through shadow and offshore schemes, leading to considerable shortfall of taxes in the budget,” Sechin writes.

Sechin also expressed his opinion that state fiscal agencies have no possibility to execute proper control of bunker fuel sales.

According to the order of Dmitry Medvedev, Sechin’s initiative is being worked out by the Federal Customs Service and the Ministry of Transport.

The response of the bunkering community was not late to arrive. Russian Association of Marine and River Bunker Suppliers (with bunkering subdivisions of VIOCs also being its members) addressed Russian Prime Minister Dmitry Medvedev with a letter criticizing the initiatives of Rosneft President Igor Sechin calling for narrowing of the bunker market in Russia. 

The letter says that implementation of Sechin’s provisions will lead to the market monopolization and associated consequences like drastic fall of fuel supply, surge of fuel prices as well as regulation of VIOC bunkering subdivisions by the Federal Tariff Service.

Sechin’s initiatives actually provide for a transition from economy management through state corporations (a system being developed from early 2000-s) to management through a small number of large state-run mineral companies. Whether it is good or bad – it is a separate question. However, Sechin can succeed in the context of a challenging financial situation and stagnating economy – the budget allocations for state structures are decreasing while the budget itself is being fed by vertically-integrated companies. With its influential head, Rosneft seems to embark on converting its significance for national economy into specific preferences.

Vitaly Chernov