Exclusive: Arrested Russian minister wanted state to cede control over Rosneft - sources

[November 29, 2016]  By Alexander Winning

MOSCOW (Reuters) - Russia's former Economy Minister Alexei Ulyukayev privately argued to colleagues in government that the state should give up control over oil giant Rosneft, before he was arrested two weeks ago in a sting inside the company's offices, according to two sources.

A source familiar with Ulyukayev's thinking, speaking before Ulyukayev was arrested on bribery charges on Nov. 15, told Reuters that the minister had been promoting the idea of reducing the government's stake in Rosneft <ROSN.MM>, Russia's biggest oil company, to below 50 percent.

The second source, a government official, confirmed that Ulyukayev had discussed this idea with other officials before he was detained.

"Ulyukayev was talking about that," the second source said.

Several government officials who spoke to Reuters said that there was no evidence that his arrest was motivated by anything other than a desire to tackle corruption. Reuters has uncovered no evidence that Ulyukayev's stance on state control of Rosneft was linked to his prosecution.

However, oil industry experts say any plan to reduce state control of Rosneft would have weakened the position of the company's powerful boss Igor Sechin, a confidant of Vladimir Putin blacklisted by the United States as part of the Russian president's inner circle.

Reuters sent written questions to the Kremlin and Rosneft, which provided no immediate response. Previously, Kremlin spokesman Dmitry Peskov has referred questions about Ulyukayev's case to prosecutors. Roman Nesterov, the state investigator handling Ulyukayev's case, declined to answer Reuters questions. Rosneft has praised law enforcement officials for "effective and adequate" action in detaining Ulyukayev.

Ulyukayev, who was fired hours after his arrest, denies the charges against him. He was the first sitting cabinet member to be arrested in more than two decades. The Kremlin and investigators say it is a straightforward criminal bribery case with no other targets.

Investigators say Ulyukayev tried to extort a $2 million bribe from Rosneft in exchange for approving its $5 billion purchase of a stake in mid-sized Russian oil firm Bashneft <BANE.MM> earlier this year.

The role of Rosneft in helping to prosecute the case has led some in Russia's ruling elite to view it as part of a battle between powerful clans within the ruling elite.

Prosecutors say the company had alerted the authorities to the wrongdoing before security service officers swooped into its offices to arrest Ulyukayev, and several sources have said a member of the company's security staff worked for weeks helping gather evidence against the economy minister.

File photo of then Russian Economy Minister Alexei Ulyukayev who was detained by law enforcement officials on corruption charges, is escorted upon his arrival for a hearing at the Basmanny district court in Moscow, Russia, November 15, 2016. REUTERS/Maxim Zmeyev

Ulyukayev, 60, is under house arrest while he awaits trial. His lawyer Timofei Gridnev said confidentiality rules prevented him from answering Reuters questions about the case.

PARTIAL PRIVATIZATION

The Russian state controls Rosneft through a 69.5 percent stake held by state holding company Rosneftegaz.

Under a partial privatization planned for this year, the holding company is already expected to reduce its stake to 50 percent by selling off 19.5 percent. Rosneft itself is expected to buy those shares, though the government has said the shares should later be sold on to private investors. Ulyukayev's idea, as described by the two sources, would have seen Rosneftegaz sell a further stake, reducing its share of Rosneft below 50 percent, with the rest being held by private investors. That would mean the state would no longer have direct control over the firm, although it would retain a blocking stake.

The source familiar with Ulyukayev's thinking said the economy minister's view was that government had to think about reducing Rosneftegaz's stake to below 50 percent as part of efforts to increase privatization revenues, although he said this would not happen in the next three years.

The idea of the state ultimately ceding control over Rosneft had been floated before in government circles, but it has not been previously reported that Ulyukayev himself was actively promoting it in the period before his arrest.

(Additional reporting by Katya Golubkova, Svetlana Reiter and Tatiana Ustinova; writing by Christian Lowe; editing by Peter Graff)
 

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