Russian government united in demanding full dividends from Rosneft’s holding company

Russian government united in demanding full dividends from Rosneft’s holding company
President Vladimir Putin and Rosneft CEO and Chairman of the Management Board Igor Sechin discussing the deal to sell a stake in the Russian oil company Rosneft
By Vadim Dumesh May 10, 2017

The Russian Ministries of Finance, Economic Development and Energy have drafted a bill requiring Rosneftegas to pass 100% of the dividend it receives from its stakes in state companies to the budget, according to a report by Vedomosti daily of May 10.

Rosneftegas, an infamous holding which controls stakes in state energy giants Rosneft (50% plus one share), Gazprom (10.97%), and RAO UES (23.36%), has a complicated quasi-state ownership scheme that has allowed it to duck government requirements for state-controlled companies.

Previously Rosneftegas, chaired by the influential aide of President Vladimir Putin Igor Sechin, has repeatedly defied the government and appealed directly to the presidential administration.

Reports in the beginning of 2017 claimed that the Finance Ministry had already budgeted all the dividend income from Rosneftegas in its 2017-2019 budget in its long battle to extract finances from the holding, which is nicknamed “Sechin’s piggybank”.

According to unnamed government officials, the issue of the dividends was already discussed with First Deputy Prime Minister Igor Shuvalov and the talks will continue “at the highest level”, Vedomosti wrote on April 5.

Rosneft this year projects IFRS net profit of RUB373.8bn ($6.6bn), rising to RUB392.3bn and RUB432.3bn in 2018 and 2019. As dividends move through Rosneftegas, the finance ministry budgeted to receive 100% of the amount of dividends passed on by state companies through the holding. Rosneftegas, in turn, has invoked the 50% dividends rule and has refused to surrender more.

Rosneft and Sechin previously defied the government by not disclosing the investment programme of Rosneftegas, saying they have appealed “directly to the presidential administration”. The company’s pivotal role in such strategic projects as oil supplies to China and Arctic drilling are making it easier to get special treatment approved by the Kremlin.

“This [holding] is a black hole living by its own rules,” an unnamed federal official told the daily in October when the finance ministry first locked horns with Rosneftegas over the dividends. He added that: “it is not clear why Rosneftegas is ignoring all requests by its owners and appealing directly to Putin as if he was the owner”.

Moreover, Rosneftegas was permitted to not publish its 2016 financial accounts, the television network Dozhd reported on January 11.

In the meantime, in the first quarter of 2017 Rosneft paid its board RUB1.5bn (€24mn) in bonuses, Vedomosti reported separately on May 10 citing the company’s RAS reports. 

Reportedly, the bonuses were paid for the successful “privatisation” of another state oil company Bashneft, as well as the sale of 19.5% of Rosneft to investors. It was not clarified who of the top managers received the bonuses or whether Igor Sechin was amongst those rewarded.

Rosneft was allowed to participate in the privatisation of the Bashneft oil company in 2016 arguing that it is not a state company due to its indirect ownership through the Rosneftegas holding.

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