Alexei Kudrin, former Russian finance minister.
OAO Rosneft (ROSN), headed by Igor Sechin, a long-time ally of President Vladimir Putin, asked last month for more than $44 billion from Russia’s Wellbeing Fund to finance investment after sanctions closed capital markets for the company. The request runs totally against the spirit of the reserve, designed to hedge against dependence on energy exports, said Alexei Kudrin, who was finance minister for more than a decade until 2011.
Investing the fund’s $81.7 billion in oil and gas defeats the purpose, as does concentrating so much of the money in one place, said Kudrin, who charted Russia’s path through the 2008 financial crisis when oil crashed to less than $40 a barrel. He envisaged one of
the fund's roles as insuring Russia’s public pension system.
“Otherwise, at the moment when it’s necessary to use it, the value of the Wellbeing Fund will fall, together with oil and Russian capital markets, and will be of no help,” he said.
Russia, the world’s largest energy exporter, stands on the brink of recession, caught by the impact of economic sanctions and crude oil’s tumble to a four-year low. Faced with a darkening economic outlook and cut off from international capital markets, Russia’s largest oil producers are looking to the government for support.
Customers queue for fuel on the forecourt of an OAO Rosneft gas station in Moscow,... Read More
Refinance Debt
As well helping to refinance debt, Rosneft wants state money to replace funds it had expected to get from international oil companies to pay for exploration of the Arctic. Prior to sanctions on drilling, Exxon Mobil Corp. (XOM), Eni SpA (ENI) and Statoil ASA (STL) had planned to spend $14.4 billion searching for oil by 2018.As Russia’s largest taxpayer, with a credit rating equal to Russia’s, Rosneft has basis for seeking Wellbeing funds, Sechin said on state television Oct. 29.
Parties seeking Wellbeing Funds must provide securities in exchange for the cash, Deputy Finance Minister Tatiana Nesterenko said in Moscow last month.
“The main terms are that a project is economic,” she said. “If this condition is fulfilled then the project will be considered for support from the Wellbeing Fund.”
Arctic Exploration
Rosneft will have to present a financial justification for its use of the funds, Artem Konchin, an oil and gas analyst at Otkritie, said by e-mail. Arctic exploration might not fit in this case, he said.OAO Novatek (NVTK), the Russia’s second-largest natural gas producer, has a request for 150 billion rubles ($3.3 billion) to finance the Yamal LNG project to liquefy natural gas.
Rosneft’s press service declined to comment on the request for funds.
The Russian state owns 69.5 percent of the world’s largest traded oil producer by output, BP Plc (BP/) owns just under 20 percent and the remainder is in free float.
Russia successfully used money from the Reserve Fund, another-rainy day fund worth $90 billion, to support currency exchange rates and recapitalize banks after the global financial crisis in 2008 and 2009, Kudrin said. This crisis has only begun and may last several years, Kudrin warned.
Russia, which relies on oil and gas revenues for half of its budget income, has seen Brent crude prices fall 23 percent since the start of the year to $84.85 a barrel.
“My advice to Rosneft is not to take from the Wellbeing Fund,” Kudrin said. “Even if the Wellbeing Fund became simply a source of anti-crisis financing instead of the principal insurance for the pension fund, that means that it will be judged that Rosneft is in crisis. That’s not in Rosneft’s interests.”
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