Last month, Sechin threw a wrench into the talks over privatization, outlining heavy terms in exchange for his acceptance of the deal. He already had demanded the authority to set the price and choose the buyer for the piece of Rosneft that was to be sold. Sechin then added the condition that the Kremlin must agree to let Rosneft bid on the portion of Bashneft up for sale. Putin opposed allowing Rosneft to bid on Bashneft because it would undermine Rosneft's own privatization and render void the attempt to transfer more energy holdings (and financial risk) out of state hands. Furthermore, Putin worried that allowing such a deal would empower Rosneft so much that it would threaten his power and that of other rival factions over Russia. At a time when Putin is becoming increasingly politically isolated, the struggle between two of Russia's most powerful men seems particularly pertinent.
If the rumors are true and Putin has in fact sanctioned the sale of Bashneft to Rosneft, it would seem as if the leader has bowed to Sechin under mounting political and financial pressure. According to the Kommersant report, Rosneft will pay $5 billion for the Bashneft shares, slightly more than a previous bid that many had deemed too high. The hefty price may be Sechin's compromise to Putin.
The conflict between the Kremlin and the energy sector is far from over. Bidders could still come forward for a slice of Rosneft, despite the high price tag. So far, Moscow has courted the interests of China, Japan and India, of which only New Delhi has shown interest, even if it probably cannot afford the entire stake.
The Kremlin is also considering raising energy taxes to cover next year's budget — a proposal that has already sparked debate. Currently, oil is taxed through a mineral extraction tax, an income tax and an export tax. The plan is to increase the extraction tax, while possibly decreasing the other taxes, transferring much of the financial burden from the export phase to the extraction phase. In addition, the Energy Ministry is proposing a 70 percent tax on profits from oil projects (up from 20 percent). The proposal, of course, has been rejected by oil companies and is receiving considerable pushback from the Energy Ministry. It will be worth noting whether the Kremlin can push through such a major tax reform on energy assets before the 2017 budget is finalized and whether it will make the much desired partial privatization of Rosneft completely unpalatable for foreign investors. Its financial solvency might just rest on the answer to those questions.
