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March 16, 2016

Volume 17 Issue 52

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Russia May Sell Rosneft, Bashneft Lube Divisions

The Russian government has sought to sell off state-owned assets since last December due to continuing economic problems, including lubricant producers Rosneft and Bashneft.

During one of the biggest privatization programs since the 1990s, the Kremlin is desperate to raise money and fill the federal budget gaps that have emerged because of the crash in oil prices and sanctions by Western countries. The state expects to cash in around 800 billion rubles (U.S. $10.7 billion) from this sale of assets.

The asset-sale also includes a slate of big banks and other energy, transportation and mining companies, considered a significant part of the Russian industry.

Some government officials are still mulling the amount of shares the state wants to put on sale for each company and what companies could actually participate in the tender, though most prominent in the officials’ comments have been the Rosneft and Bashneft energy giants.

Alexei Ulyukaev, economic development minister, said recently that the government won’t hesitate to give up more than 25 percent of each company to enter into a strategic partnership with a serious buyer. Potential investors are expected to come predominantly from the pool of privately held Russian oil companies such as Lukoil, or the holdings and groups held by Russia’s business tycoons and billionaires. Foreign investors are also welcomed, the government indicated.

“I don’t think that Lukoil could be interested in Rosneft’s and Bashneft’s lubricant businesses after it recently closed its own in Kstovo, where Lukoil’s base oil and lubricant production in Nizhny Novgorod is located,” Oleg Tsvetkov, head of the lubricants department at VNIINP, the Moscow-based All Russia Research Institute for Oil Refining, told Lube Report. “However, if the takeover deal of Rosneft’s or Bashneft’s fuel business is conditioned with that, [Lukoil] could actually purchase some lube assets.”

Another industry expert confirmed that the sale of the lubricant subsidiaries of both oil majors is very much related to their profitability. “If the investors are assured that the lube divisions are profitable, they would continue to operate them; otherwise, the subdivisions might be closed,” Tamara Kandelaki, head of InfoTek, a Moscow-based consultancy, told Lube Report. “At this phase, it is too early to say whether the potential investors will consider Rosneft’s or Bashneft’s lubricants business at all.”

Tsvetkov said that if the privatization ends with the state retaining control of the oil majors, it won’t close their lube operations and could continue the current modernization programs underway in some of the refineries. “Bashneft’s base oil production would definitely not be closed, as it has the only low-temperature dewaxing unit in the country,” at its Ufa refinery, Tsvetkov said. “Rosneft’s Angarsk refinery and its base oil plant there are strategic assets – it is the only regional base oil and lubricants supplier in Eastern Siberia and in the country’s Far East.”

The state controls 69.5 percent of the shares of Rosneft, Russia’s largest oil company. After Lukoil, it is the second biggest lube marketer in the country. In 2015, Rosneft produced 750,000 tons of base oils and finished lubricants, and held 30 percent of the country’s total lubricant market, according to the company.

At the end of 2014, Bashneft was nationalized when the state acquired 71.6 percent of its shares from AFK Sistema, a holding company that fully owned the oil major. In 2013, it held around 7 percent of Russia’s lube market, according to InfoTek.