Bad news for balancing the Russian budget this year: the state has decided to delay the privatisation auction for its 60.2%  stake in Bashneft oil company due to weakness on the international oil markets, Premier Dmitry Medvedev’s spokeswoman Natalya Timakova was quoted by Bloomberg as saying on August 16.

“The prime minister made the decision, which was approved by the president, to move the Bashneft privatization to a later date,” Timakova said.

RBC reported an unnamed government source as saying the sale wouldn’t happen this year, 

The state planned to raise RUB1 trillion from the sale of stakes in some of its most valuable companies to investors this year as it attempts to find about RUB2 trillion of extra revenue, or some 4% of GDP, to cover this year’s expected budget deficit.

Bashneft was the frontrunner for privatisation this year from a list that includes stakes in state-owned oil major Rosneft and shipping giant Sovkomflot. The government has already said that the sale of a 19.5% stake in Rosneft will not happen this year and it has been quiet on the sale of Sovkomflot for a while. The state has, however, had one success with the programme after it unloaded a 10.9% stake in diamond miner Alrosa last month.

Bashneft should be the easiest to sell, as it was not part of President Vladimir Putin's state-owned empire. It was nationalised last year following a dispute with the oligarch and owner of Russian conglomerate AFK Sistema, Vladimir Yevtushenkov, so the company has a weak political support network in the Kremlin.

If none of these sales happen, then the government has no chance of closing its RUB2 trillion funding gap and will have to burn through more of its reserve fund, which could run dry as soon as the end of next year at the current rate of spending.

The government was hoping to sell as much as 50.08% of Bashneft, a regional oil producer based in the Siberian republic of Bashkortostan, as early as September. The deal, valued at as much as RUB315bn ($5bn), would have been Russia’s largest since the Rosneft IPO in London that raised $10.7bn for the state in 2006.

The auction has been plagued by political boondoggling from the start. Nine companies, all Russian, were reported to have thrown their hat into the ring to bid for the stake, but the Ministry of Economic Development tried to impose a set of rules to exclude the smaller companies, those in debt to the state, and any using Russian banks to finance the deal.

If these rules were adopted, then only two companies would be left in the running: privately owned Lukoil and Rosneft. However, President Vladimir Putin stepped in earlier this month to say that Rosneft would be banned from the sale because the object of the excise was to bring in fresh capital, not move the state’s own money from one pocket to another. Rosneft CEO Igor Sechin simply ignored Putin's demand and observers say this infighting over a potential Rosneft bid for Bashneft is probably the real reason why the auction has been delayed.

The official reason for the delay was given as including a weak market and the state’s plan to sell other assets this year, including Rosneft, RBC reported.

Lukoil, Russia’s biggest non-state crude producer, also expressed interest in buying a controlling stake, although it said Bashneft was now overvalued after the shares have gained over 50% year to date, reported Bloomberg.