Clash between Russian oil chiefs could undercut Putin ally

Reuters News
Posted: May 17, 2013 10:16 AM
Clash between Russian oil chiefs could undercut Putin ally

By Olesya Astakhova and Douglas Busvine

MOSCOW (Reuters) - A rare public clash between two leading figures in Russia's state-dominated oil industry hints at a split in President Vladimir Putin's inner circle and could be intended to rein in one of his closest advisers.

Igor Sechin, who has built oil company Rosneft into the world's largest with Putin's help, has pushed for an expansion of a pipeline "spur" to take more oil to China, a profitable alternative market to Europe where demand is falling.

But on Thursday, the head of Russia's pipeline monopoly Transneft, Nikolai Tokarev, attacked the plans by asking whether he was becoming just a "service company" to Rosneft - unusually outspoken comments for a member of Russia's siloviki, otherwise known as "the men of power" around Putin.

A year into his third term, splits are emerging in Putin's ruling team after street protests which have unsettled the president. Three ministers, most recently his former political strategist Vladislav Surkov, have been ousted.

"Who will pay to expand the pipeline spur to China? Transneft isn't just a service company for Rosneft," Tokarev said on Thursday evening after a meeting of Transneft's expert council on innovation.

Rosneft declined to comment.

Sechin, 52, has been close to Putin for two decades but, since completing the $55 billion takeover of Anglo-Russian oil firm TNK-BP in March, his ambitions have become increasingly curtailed and Rosneft's share price has weakened.

Putin recently upbraided Sechin for promoting a $15 billion offshore liquefied natural gas venture with ExxonMobil that could breach the export monopoly of Gazprom - a company used by Putin to project Russia's energy power abroad.

Tokarev is also a long-time ally of Putin. He is believed to have served with him in the KGB in Dresden and Putin, Tokarev and Sechin worked in the St Petersburg city administration in the 1990s after the collapse of the Soviet Union.

But Tokarev and Sechin have been battling for influence, with the Transneft chief concerned by Rosneft's growing might and emboldened by Putin's recent shot across Sechin's bows.

"This sort of thing didn't happen before, and the fact that they are going public may reflect nervousness over the recent government resignations," said an energy consultant in Moscow whose clients include state companies. "They were already at loggerheads over jobs and influence. This is confirmation."

Rosneft and Transneft supported a major eastbound pipeline and when it opened in 2009, it made Russia, the world's largest oil producing nation, a swing supplier between West and East.

Rosneft and Transneft borrowed $25 billion from Beijing that year under a deal to build the southern spur and deliver 300,000 barrels per day to China for 20 years from 2011.

The Eastern Siberia-Pacific Ocean (ESPO) pipeline, its second leg running to the Pacific port of Kozmino, was completed at the end of last year at a total cost of $25 billion and boosts capacity to 1.6 million bpd by 2025.

But boosting volumes depends on Rosneft and other oil firms ramping up production at new fields in eastern Siberia and bringing onstream new discoveries to offset declines in its traditional oil heartland to the west.

And both companies are struggling with large debts. Rosneft's net debts hit $58 billion after the TNK-BP deal. Transneft faces a state audit over cost overruns, which Tokarev said was ordered "by a big oil company with sizeable debts".


Despite the challenges, Sechin reached further by announcing during new Chinese leader Xi Jinping's visit to Russia in March that Rosneft would treble oil supplies to China.

Sechin did not give a timeline, but said that deliveries could reach nearly 50 million metric tons per year (1 million bpd).

Analysts said the spat was Tokarev needling Sechin, arguably still Russia's second most powerful man even after leaving government to take the helm at Rosneft a year ago.

But, they said, the more likely motive was to bargain over the costs of a pipeline upgrade that would have to be borne by Transneft. "This is just a fight between two business units, there's nothing more to it," said one, who requested anonymity.

Transneft recoups its costs from transit fees, and if Rosneft dictates which lines it builds it is effectively getting a cheap deal at the expense of other Russian oil companies.

"We don't agree with this approach, because the only source of revenue we have is tariffs," said Tokarev, who is also a former KGB agent.

"Rosneft intends to go to China ... If Rosneft wants an exclusive pipeline to go there, then let's agree on how we will pay for with tariffs that we will increase for you."

With oil output growth slowing, Tokarev said he was not sure whether further increases in Russia's export capacity were either necessary or desirable.

"The oil balance calculated by Rosneft, with deliveries to China, is based on proven reserves, but also on reserves that have not yet been discovered," said Tokarev. "We think this is incorrect and do not intend to take responsibility." ($1 = 31.3274 Russian roubles)

(Additional reporting by Gleb Gorodyankin, Writing by Douglas Busvine,; Editing by Elizabeth Piper and Ralph Boulton)