News

When Vladimir Putin greenlighted the sale of Russia’s 50% stake in Bashneft in May, it became a test case for how the government may reshape Russia’s oil industry—would it opt for a more consolidated or diversified and competitive Russian oil market?

Analysts are also taking notes on how the government handles Bashneft’s privatization to see if it offers clues as to how it may deal with Russia’s largest oil company, Rosneft, which is also on the docket for privatization.

Bashneft, Russia’s sixth largest producer, has been one of the sector’s success stories at a time when ongoing low oil prices and Western sanctions have posed serious threats to producers’ investment programs and output plans.

Bashneft’s output grew by over 10% in 2015, and the growth rate in the first half of this year was only slightly less. The company achieved this despite being renationalized in late 2014 after its majority-owner Sistema and boss Vladimir Yevtushenkov, were accused of money laundering during the purchase of Bashneft shares.

The 75% transferred from Sistema at the time is now split, with 50% plus one share owned by the federal government, and a further 25% owned by the regional government of the Republic of Bashkortostan. So far, only the central government has said it intends to sell its stake.

If the government opts for consolidation, Rosneft may get the nod as the buyer. But several officials have been outspoken recently about Rosneft not taking part, seeing little logic of a privatization where one state-owned company buys another.

And a sale to the state-owned giant would raise questions of monopolization and weaken the image of Russia as a competitive market, some experts say.

Rosneft has already submitted its bid for the asset, according to reports by local media, but it is unclear whether Rosneft can win the Kremlin’s support to go ahead with the plan.

No doubt, Bashneft’s dynamic crude production growth would be a bonus to Rosneft. With an eye to its eventual privatization, the addition of Bashneft’s growing assets would increase Rosneft’s value at a time when Rosneft is struggling to maintain output levels as new projects fail to compensate for declining production at brownfields.

In terms of Rosneft’s own priorities, the asset acquisition strategy that saw it take control of TNK-BP and Itera in 2013 seems to have slowed.

If diversification is the way forward, several individuals a...