What is #Rosneft doing and who is it working for?

Several days ago, the Russian company Rosneft filed a lawsuit in the Moscow court of arbitration against the Russian Duma deputy Valery Rashkin. The company took issue with an interview Rashkin gave, in which he expressed his discontent with the finance and credit policy of Rosneft’s management. 

However, Rashkin isn’t the only person who is unhappy. Just recently, we wrote about BP shareholders’ discontent with one of their assets: shares of the Russian oil company Rosneft. The reason for their unhappiness can be summed up in the form of a question: what is Rosneft doing and who is it working for?

The profitability of Rosneft’s shares is falling, which testifies either to the ineffectiveness of the company’s management and its funding streams, or to the existence of some hidden agenda that contradicts the rules of fair play and has some other goal. EU Reporter has already written about the company’s “idiosyncratic” accounting and financial reporting.

It’s no secret that Rosneft is not properly accounting for its real losses and is “hiding” them in various sections of its reports: 'Other funds and reserves', 'Foreign transactions', etc. and thus it shows only profits when it is really losing money.

These new and peculiar activities by Rosneft became apparent during the state-own corporation’s fight to purchase a share in the oil company Bashneft, which the Russian government had removed from the list of strategic resources and thus made available for purchase.  One of the most persistent contenders for this asset is Eduard Khudaynatov’s Independent Petroleum Company (IPC). Khudaynatov is the former director of Rosneft, and in 2014 his company had already tried to acquire Bashneft.

However, according to Bashneft president Alexander Korsik, with its present financial state, IPC is not capable of purchasing such a high-value asset on its own. Nonetheless, the company does have the means of making such a deal, and according to Russian industry sources, Rosneft transferred these to IPC. This comes as no surprise, as there is no doubt about the bond between Igor Sechin (pictured) and Eduard Khudaynatov who, until 2013, was vice president of Rosneft.

On the other hand, however, the situation is a paradoxical one: a state-owned corporation is transferring its own funds (i.e. state funds) for a private company to purchase an asset.  Some Russian sources believe that Khudaynatov’s IPC is a sort of “alternate airport” for Igor Sechin, who may soon be accused of ineffectively managing Rosneft.

If that is the case, then the company’s behaviour is understandable, but it raises ethical and legal questions concerning such a deal.  This highly dubious and eyebrow-raising setup has generally long been a subject of debate in Russia’s media and corridors of power. European and Russian media sources have often written of late about the improper use of the company’s financial means.

At present, in Russia, the little-known company Prozhektor is going through litigation against the Russian oil pipeline operator Transneft. The goal of this litigation is to turn the plaintiff’s preference shares into voting shares. For its part, Transneft claims that the owners of these shares are attempting to confuse the Russian government with their demands, and they are deliberately distorting the facts regarding their allocation.

According to the Russian media, standing behind Prozhektor may be a certain Ilya Shcherbovich, head and managing partner of United Capital Partners, and a man believed to be a financial consultant to Igor Sechin. The media has noted how he himself had carried out many large transactions with the money of Rosneft and Igor Sechin and in their interest, such as the Transneft preference share game, as well as financing the aforementioned IPC.

Thus, in the opinion of some journalists, it is obvious that Russian state financial means have been used for solving other business, including the affairs of Russian private businesses. All this, along with what the media calls a close relationship between Sechin, Shcherbovich and Khudaynatov, has led some experts to suggest that a plan may exist to personally enrich the management of Russian state-owned corporations.

In other words, it’s a matter of corruption.  Thus, Russian Duma deputy Valery Rashkin has drawn the attention of the Russian authorities and law-enforcement bodies to a series of paradoxical and peculiar matters linked with this company. First of all, this is Rosneft’s placing its spare financial means in banks at a low percentage rate. Such placement, when Rosneft itself owes a considerable amount to Western banks, is more than odd. In addition, the company borrowed 40 billion dollars in loans from Western banks to buy TNK-BP. It has yet to pay back these loans.

Secondly, the state-owned corporation has – as a result of its work over the past year – raised the earnings of top managers, even as the company itself is experiencing losses. All this was the reason for deputy Rashkin to launch an official inquiry aimed at drawing the attention of the state prosecutor and Russian law enforcement to the situation, so that all of this plotting might be uncovered and the corruption revealed.  For BP shareholders, the best option thus remains the one in which the company’s management will decide to increase its share in Rosneft.

If this is done, then as we have already written, long-awaited fundamental changes can be made within Rosneft’s top management and policies.  At the same time, as analysts point out, this will bring profits not just for BP shareholders but for the entire Russian economy, which will – after ridding itself of Rosneft’s present dubious and murky arrangement – will get a national company that runs like clockwork, is transparent and, most importantly, truly profitable.

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