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Russia Delays $10 Billion Rosneft Privatization Due To Low Oil Prices

Russia may not be able to sell its stake in Rosneft in 2016

As low oil prices continue to put pressure on the Russian budget, the government in Moscow continues to look for ways to make up budget shortfalls, including the privatization of part of the state’s interest in Russian oil majors.

The proposed sale of part of the state’s oil interests, along with privatization of other sectors, had been the government’s answer to raising 1 trillion rubles ($15 billion) to help prevent spending from the country’s reserves, but now the Russian government may postpone the sale of Rosneft, the country’s largest oil producer, as it waits for prices to improve.

The Russian government plans to raise at least $10 billion from the sale of a 19.5 percent stake in Rosneft. Currently, the state owns 69.5 percent of the company through its parent Rosneftegaz.

“For now, the plan is to sell Rosneft (ticker: RNFTF) this year, but there is a chance it could be postponed,” a senior official said, according to The Moscow Times. If the sale does not go through, the government will need to increase the budget deficit.

Russia’s cash reserves heading toward zero

If the sale does not happen, and oil prices stay below $40 per barrel for the rest of the year, the government will need to spend nearly all of its reserves. The Kremlin currently needs to spend roughly $35.4 billion from its reserves this year, but if the Rosneft sale is postponed, that number could increase to $46.1 billion, according to Deputy Finance Minister Maxim Oreshkin. At that pace, the country’s reserves will fall to roughly $5.5 billion by the end of 2016, according to the Finance Ministry.

The Economic Development Ministry has received a schedule for privatizing Rosneft and must now make its final decision, according to Economic Development Minister Alexei Ulyukayev. Italian bank Intesa is serving as financial consultant on the sale.

The idea is that the bank will present officials with a list of potential buyers by fall, but rushing any privatization deal would only work to the buyer’s advantage as oil prices, and Rosneft’s value, remain depressed, according to an investment banker involved in the consultations.

Questions remain over $4.7 billion sale of Bashneft shares

Along with the potential sale of Rosneft, the Russian government is also looking to monetize a portion of its interest in Russian oil producer Bashneft. The Kremlin hopes to sell its 50 percent stake in the company for roughly $4.7 billion, but there has been some question as to whether or not the Kremlin would really let go of its control of the company.

Rosneft applied to take part in the privatization, sparking uncertainty about the sale, reports The Moscow Times. Russian President Vladimir Putin has forbidden Rosneft, which is run by long-time Putin ally Igor Sechin, from taking part in the sale, but other companies involved in the process have strong ties to Russia’s largest oil producer.

Strong contenders for the sale include Lukoil (ticker: LKOH), which says it now generates 16 percent of Russian crude oil production (97 million tons in 2014) and 15 percent of Russian crude oil refining, and which Forbes tagged Russia’s largest privately owned company—meaning not a government owned company, and Independent Petroleum Company, or IPC, according to a government official cited by Russian newspaper Vedomosti.

IPC says it presently has 2.5 million tons of oil production, 1.4 billion cubic meters of gas production, 5 million TPA refining capacity, 280 petrol stations, 3 jet fueling stations and 1,440 rail cars. The company was founded in 2012. As of 1 January 2015, IPC held 53 exploration and production licenses for “subsoil plots located in eight constituent territories of the Russian Federation and in Kazakhstan,” the company said.

“IPC has often been billed as a Rosneft affiliated player,” President of the Institute of Energy Policy, Vladimir Milov, wrote in The Moscow Times. Yet even if IPC succeeds in winning the initial privatization, Rosneft may, further down the road, step in to buy off all or most of the “privatized Bashneft assets,” he said.

By Oil & Gas 360

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