Privatization Russian Style

There was a short post in The American Interest on Friday about the rumor that Rosneft is now off the list of potential purchasers of the government’s approximately 50% stake in Bashneft. And I want to clarify a few things.

First of all, Rosneft is still denying this story, as far as I know.

Here is what we know (or are being told). VTB Capital was given responsibility for the so-called privatization of Bashneft. They drew up a list of potential groups who might be interested / capable of making the purchase of Bashneft. Rosneft was on that list. In addition, there were several other state-owned companies who made the final cut that was presented to the Kremlin.

Lukoil has also expressed an interest in purchasing Bashneft, but says the price is too high. In fact, they are saying the whole company is worth about $4 billion, which is just a little more than what the government is asking for its 50% stake.

I do not see this as a political decision, to be honest. In fact, I would say it is more likely a way for Rosneft to bow out and save face. Rosneft is just as cash poor as any other corporation in Russia at the moment. They do not really have the money to buy anything. And they are under sanctions, which limits their access to capital markets, so borrowing money to buy a stake in Bashneft is problematic.

In the meantime, Rosneft is also supposed to be on the list of future privatization action. They are slated to sell a 19.5% stake in the company either this year or next year.

But I also want to explain the so-called “privatization” that the Russian Regime is currently carrying out. What is really happening is that the money and shares are being moved around. So it looks like Russia is making money, but in reality, all that is happening are trades.

Think of Russia as a giant conglomerate. Each of the state (and “private”) corporations are subsidiaries of the massive Russian Corporation. This “privatization” project is being carried out to make it look like these subsidiaries, and therefore the State, are more solvent than they actually are.

For example, VneshEconomBank (VEB) recently sold its stake in Gazprom back to the gas company (at market rate). Both are state corporations, so all that really happened was that both the money and shares switched hands from one subsidiary of the State to another.

And that is what will happen here again with the sale of Bashneft.

One thought on “Privatization Russian Style

  1. Pingback: The Deluge – Nina Jobe

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