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Published in Stream:
Russia Update: June 22, 2015
Press by
The Interpreter
@Interpreter_Mag
Russian-to-English translation journal, with original analysis and commentary on Russia's foreign & domestic policy.
Interpreter_Mag
Putin Returns Controlling Interest of More than 25% Shares in Bashneft to Bashkortostan
5 years
Russia Has More Challenges In Store

Putin signed a decree giving 38.13 million regular shares to Bashneft which were under federal ownership, which is a little more than a fourth of the voting shares, meaning Bashkortostan can block votes. Bashkortostan will also receive 6.28 privileged shares. The transfer is to be made within two months at no cost to Bashkortostan.

Last year, Vladimir Yevtushenkov of Sistema was put under house arrest when the government contested his past purchase of an interest in Bashneft, accusing him of fraud.  The case was compared to Putin's confiscation of YUKOS and jailing of Mikhail Khodorkovsky, although on the opposite side of the political spectrum -- Yevtushenko was said to be close to deposed Ukrainian president Viktor Yanukovych and to have helped the Russian-backed separatists.

But ultimately the case ended differently. Yevtushenkov didn't contest the confiscation and cooperated with the government, ultimately saying he bore no grudges. There had been rumors that Bashneft would be given to Rosneft, which needed to make up shortfalls in revenue, but that did not happen.

Bashneft's profits dropped by 18.4% in the first quarter of 2015 to 11.39 billion rubles ($211 million).

In an interview with RBC.ru, Bashkortostan's leader Rustem Khamitov said that the transfer was being made in time to give out dividends by August and September. The funds were needed to compensate the expenses of the Ural Foundation, which is Bashneft's philanthropic organization. The total amount of dividends is about 20 billion rubles, so the fund would get 5 billion. Bashneft will add in more to cover the whole budget.

Asked if there were plans to privatize the 25%-plus ownership after the market settled down,  Khamitov said there were no immediate plans, because the value of the shares would be significantly higher 3-5 years from now. Asked if that meant a time-table for sales, he said "never say never," but there were no current plans to sell off the shares. He noted that Bashneft is discussing projects with companies in China and India, but not Europe due to sanctions. Currently the Austrian company Kronosplan is completing construction of a wood-working plant in June. Khamitov said the company opposed the sanctions and "is a supporter of our side."

He also mentioned a project with Alstom which was sold to General Electric but which was now stalled until GE studied it further after the purchase. There are other European companies including Saint Gobain with projects.

RBC.ru pressed Khamitov, asking him if Western investors had been driven away from Bashkortostan by the sanctions and chilling of relations between Russia and the West, but he denied this, and said China and India were not replacements for Western investors. Bashkortostan is among the top 10 areas for investment in Russia, he said, and also in competition with Tatarstan for first place in Russia's milk production.

RBC.ru also asked about plans to sell a petroleum chemical complex to Sistema, Yevtushenkov's company. But when the shares were confiscated, Sistema backed out of the deal. He explained why it wasn't sold to the company Sibur, either (translation by The Interpreter):

"Subjectivism. This is one of the problems of the modern market economy. If suddenly somebody doesn't like someone, someone looked at them the wrong way or told an off joke, then there will be no deliveries of raw materials, even if the company is right across the fence."


Khamitov denied charges of corruption in his company, which were set forth in an anonymous letter from Bashneft managers to the state energy ministry, Minenergo and the Prosecutor General's office. He said there could be a struggle for power in the company (which would explain why some factions were claiming others were corrupt). Khamitov then gave some insights into the expectations that large state companies like this should dispense social welfare as they did in the Soviet-era company towns.


"This is my point of view: the company must be modern, successful, grow capitalization, receive additional revenues and work in the interests of shareholders. Therefore when I am asked: 'But will you still burden Bashneft with additional social obligations? Another billion and still another billion' I reply: 'No." It is much more important for us that the company be stable and competitive. And everything else is secondary. If there is some additional profit and from that profit a small piece goes to the republic, we will not refuse. But what we had in the early 2000s, when the company was still Bashkirian and provide free fuel and fertilizer and covered many social issues, that will not go on."


Finally, RBC.ru asked Khamitov if he was the one that initiated the complaint against Sistema that started the inspections of the company. Khamatov said he was interested in the story "as a resident of the republic" but "in reality, of course, completely different forces were involved."

Asked if that meant Rosneft, he said he couldn't comment. He said he learned about the inspection of the past privatization in February 2014 from the media. RBC.ru pressed further, inquiring why such a long period of time went by after shares in Bashneft were sold before the government complained about the transaction. Wasn't that a bad signal for investors?

He didn't think so, but saw the confiscation and return as restoring legality, which he thought was a signal to investors that they must be honest. Khamatov denied that any investors complained, but instead claimed they saw the events as a restoration of justice.

-- Catherine A. Fitzpatrick