By Douglas Busvine

ST PETERSBURG, Russia (Reuters) - "State capitalism is not our goal," Vladimir Putin said in his first big speech on the economy since his return to the Kremlin, managing to leave investors at Russia's premier business forum little wiser as to how serious he is about selling state assets.

Privatisation has come to the fore as Russia's most divisive policy issue since Putin, elected in March to a third term as president after four years as prime minister, named a new government last month.

Although dire markets preclude major deals that would reduce the state's 50 percent share in Russia's $1.8 trillion economy at the moment, the privatisation debate has caused a power realignment that could have far-reaching consequences.

The kicker to Putin's state capitalism quote was that private-sector monopolies should not replace state ones - a dig at the rushed sell-offs of the 1990s that handed the Soviet Union's industrial legacy to a new breed of industrial oligarch.

"Without healthy competition, a market economy shows a tendency to decay that is no less pronounced than the command-administrative system," Putin said on Thursday.

Despite that skepticism, Prime Minister Dmitry Medvedev has committed to a string of sell-offs that, starting small, that would see the state exit entirely as owner of major firms such as oil major Rosneft within four years.

Igor Sechin, the energy 'tsar' in Putin's last government and recently named chief executive of Rosneft, has other ideas.

Sechin has lobbied to create an energy commission subordinate to Putin that, sources said, may evolve into a separate centre of power that would further his goal of building a state energy champion.

Oil bosses outnumbered bank CEOs at the St Petersburg forum, and it was they who were granted an audience with Putin, who himself has blessed recent oil exploration deals between Rosneft and Eni, Exxon Mobil and Statoil.

But the 59-year-old Putin also made clear that the 25 percent foreign share of output in the world's largest oil-producing nation was quite sufficient. "We think we have great openness in our economy," Putin told them.

SMALL IS BEAUTIFUL

Medvedev's privatisation ambitions collide with the realities of Europe's sovereign debt crisis, which has delivered a double whammy of rapid capital outflows and sliding oil prices that has pummeled Russian asset prices.

That is keeping on hold the state's proposed sale of a 7.6 percent stake in Sberbank, even though the Russian market leader has ridden out the global credit crunch to become Europe's second-largest bank by equity market value.

With Russian public finances still in rude health - sovereign debt is 10 percent of gross domestic product - the government can afford to be a price-sensitive seller, investment bankers say.

"The purpose of the privatisation program is a strategic process of continued liberalization of the financial system," said Nicholas Jordan, UBS's CEO for Russia and the Commonwealth of Independent States.

"It is not because the country needs the money. So, why sell certain precious jewels at what you think is not the right price?"

Medvedev's government has agreed to sell a stake of nearly 50 percent in the United Grain Company, a grain trader, to Russian investment group Summa, and further deals could follow in sectors that are not strategically sensitive.

"There is a new government in place. They are young, active and want to do something. The problem is not the government but the market and the order in which assets get privatized," said Sergei Arsenyev, managing director for investment banking at Goldman Sachs in Russia.

"The process will start. The non-energy assets - I do not think there is any issue about. There are a lot of young guys (in government ...) who will prove themselves."

STRATEGIC ASSETS

Sechin, under Putin's patronage, is seeking to consolidate oil industry assets under Rosneftegaz, the state energy holding company he was expected to join as a director.

The first big oil deal of Putin's third presidential term could, sources say, be the entry by the state into No.3 oil firm, TNK-BP, following British oil major BP's decision to sell its 50 percent stake.

"It seems very likely the state is going to consolidate assets in certain industries," said Stephen Jennings, chief executive of Moscow-based emerging markets bank Renaissance.

"In other industries, I think we will see more privatisation. Over time some of these really big state entities (will see) partial privatizations."

One powerful state manager and opponent of privatisation, Russian Railways head Vladimir Yakunin, took Putin's speech as a cue to launch a media offensive to speak against privatisation.

Yakunin told local media that proceeds from the proposed sale of a 25 percent stake in Russian Railways, the country's fourth-largest company and employer of 1 million workers, would not cover huge investment commitments that needed to be met.

Former finance minister Alexei Kudrin, a strong proponent of privatisation before he was ousted by Medvedev from government last autumn, said the debate on privatisation missed the point.

"The main problem is not the state's formal ownership of business, but its informal involvement in business," said Kudrin, who remains politically active and, some analysts say, could return to government should Medvedev stumble.

"This is not the best moment for privatisation. It would be better to take other more serious measures to reduce the state's influence over the economy."

(Additional reporting by Megan Davies, Melissa Akin and Maya Dyakina; Editing by Dan Lalor)