REVIEW: Fate of Rosneftegaz cash still unclear
MOSCOW. Sept 28 (Interfax) - The most controversial, and perhaps most high-stakes, subject being discussed in the Russian government has gained a new top-ranking participant - the president.
He has finally weighed in on the issue of what to do with the huge cash pile of state company Rosneftegaz, which holds a controlling stake in oil major Rosneft and a large stake in gas giant Gazprom on behalf of the state.
Finmarket reported that Rosneftegaz chairman Igor Sechin, who is also president of Rosneft and secretary of the presidential commission on the fuel and energy sector, back in early September complained personally to President Vladimir Putin that the government, "without any grounds," is trying to force fuel and energy companies to pay at least 25% of profits in dividends, and is demanding 95% from Rosneftegaz. Putin heard Sechin's complaint, and his resolution on the letter, seen by Finmarket, states: "Agree, work out with government." Which is what Sechin tried to do by writing an angry letter to Prime Minister Dmitry Medvedev.
The problem is that the issues that need to be worked out go far beyond Sechin's brief. The government wants to use Rosneftegaz's money not only to reform the country's electricity sector, but also plug several holes in the budget plan, including some related to instructions issued by Putin.
The money has already been apportioned. The Economic Development Ministry has already drafted orders, also seen by Finmarket, to Rosneftegaz's board of directors to pay out dividends of 50 billion rubles.
Sechin, the former deputy prime minister in charge of the fuel and energy sector, at the end of last year came up with a plan to recreate a piece of Russia's former electricity monopoly based on Rosneftegaz.
The company was supposed to acquire large stakes in hydropower giants RusHydro and OJSC Inter RAO UES , as well as the latter's stake in Irkutskenergo . RusHydro is supposed to issue 41.4 billion rubles in new shares to Rosneftegaz.
In addition, Rosneftegaz was supposed to merge two other power holding companies: Federal Grid Company (FGC) , which operates the country's high-voltage grids, and IDGC Holding, which combines regional distribution grid companies.
The commission for development of the fuel and energy sector chaired by Putin gave tentative approval to Sechin's ideas in July. But the government's new energy tsar, Deputy Prime Minister Arkady Dvorkovich intervened, proposing alternative options to the president for raising investment in the electricity sector without involving Rosneftegaz.
At the same time, the government moved to take away the money that Rosneftegaz had set aside for investment in the power companies. The Economic Development Ministry is recommending that wholly state owned Rosneftegaz pay out 95% of profit as dividends, and that other state companies in the fuel and energy sector pay out at least 25% of net profit.
The initiative to collect the money in Rosneftegaz's accounts was supported publicly last week by Prime Minister Dmitry Medvedev.
But the fight for the hundreds of billions of rubles is only just beginning. Sechin in his letter to Putin accused the government of making contradictory and unfounded decisions.
The Economic Development Ministry's proposals on dividends are "mutually exclusive," he said. For example, the ministry is proposing to determine the net profit for dividend payments on the basis of both Russian Accounting Standards and consolidated statements, as well as by adding these figures, which "contradicts the principles for reflecting financial indicators" and is "simply wrong."
In proposing to collect Rosneftegaz's funds, the Economic Development Ministry is not taking into account the presidential decree according to which Rosneftegaz is the investor in fuel and energy companies.
Another inappropriate decision by the government, Sechin said, is to allocate the Skolkovo Science and Technology Institute 1.9 billion rubles from Rosneftegaz's funds, which the latter is supposed to receive from additional dividends paid by Rosneft (the government owns 75.16% of Rosneft through Rosneftegaz). The government's inconsistent dividend policy is "negatively impacting the transparency of the activities of Russian companies and the country's investment climate," Sechin said.
He said the government is clearly dragging its feet in carrying out instructions and is making "contradictory decisions." He cites the example of Rosneft, which was supposed to pay the government dividends equivalent to 25% of IFRS profit for 2011. The Economic Development Ministry, Energy Ministry and Federal Property Agency were instructed to present the corresponding orders at the end of June, but no one ever saw them, Sechin said.
In light of all this, Sechin asked that the "relevant government officials" be obligated "to carry out the decisions of the commission for the development of the fuel and energy sector in full," and to clarify decisions on dividends.
Sechin said last week that he was of course prepared to comply with a government decision to pay money into the federal budget if Rosneftegaz is given such an order. "Approved by the president," he added.
Finmarket has also reviewed the draft orders that the Economic Development Ministry submitted for consideration by the government on Friday. They propose to collect 50.2 billion rubles in dividends from Rosneftegaz for the first nine months of 2012. This money could be used by the government to buy out a new share issue by RusHydro, giving the company the resources to implement its investment program. The Economic Development Ministry said the lack of resources was due to the fact that the government, which owns 60.5% of shares in RusHydro, has drastically reduced financial support for the company. Government support for RusHydro from the federal budget tumbled to 5.7 billion rubles in 2011 from 15.7 billion rubles in 2009; and the amount of support by adding an investment markup to prices for capacity fell by more than half to 12.9 billion rubles from 26 billion rubles. In the 2012 budget law, financing for RusHydro investment projects, at just 1.7 billion rubles, is 25 times less than the amount of support provided in 2009.
The orders drafted by the ministry also propose the acquisition of Irkutskenergo shares from Inter RAO in order to increase the stake in the company to 40.01% (the shares are need by RusHydro in order to consolidate energy assets in Eastern Siberia to form a consolidated hydropower company by 2015); the sale of 2.09% of shares in Inter RAO to Rosneftegaz; and contributing shares in Ust-Srednekan HPP, RAO Energy Systems of the East, Sakhalin Power Company and Irkutsk Power Grid Company to the charter capital of RusHydro (the shares are need to form a strategic partnership with Eurosibenergo, which owns the remaining shares in these companies).
The orders essentially repeat Dvorkovich's proposals for an alternative way to raise money for the electricity sector, without Rosneftegaz's participation but using its cash.
But after Putin's resolution, it will not be easy for the government to defend its position. Dvorkovich acknowledged on Wednesday that the order for Rosneftegaz to pay dividends into the federal budget does not require the formal approval of the presidential administration. "But we are holding consultations," he said. Judging by the tone of Sechin's letters, the consultations are probably hard going.
The government's only chance is to link the collection of Rosneftegaz's cash to plugging budget holes, which clearly concern Putin no less than the projects of his associate Sechin.
Rosneftegaz is already becoming a universal tool for solving budget problems. Finance Minister Anton Siluanov proposed on Wednesday to use Rosneftegaz dividends for a cash injection into the Russian Direct Investment Fund, and the president said that this should be done.
