How Russia’s power minister plotted merger of nation’s oil majors | USAEMALL.com

Russia’s energy minister has attempted to combine the country’s oil majors in a sign of the power struggle at play over the Kremlin’s key wartime revenue source, according to four senior Russian energy industry figures.

The pitch by Sergei Tsivilev, a relative of president Vladimir Putin who was appointed to the role in May, involved nationalising Lukoil and tightening control over state-run Rosneft and Gazprom Neft, a unit of gas monopoly Gazprom, according to the people.

However, Putin did not give Tsivilev the greenlight to explore the idea, which is opposed by company executives, the people said.

The move is one of the most ambitious efforts yet by loyalists and relatives of the president to increase their influence over Russia’s economy. The economic boom, fuelled by record defence spending, has prompted the biggest asset carve-up since the collapse of the Soviet Union.

Such a merger would be the biggest restructuring of Russia’s energy market since the nineties, creating the world’s second-largest oil producer after Saudi Arabia’s Saudi Aramco. It would greatly increase ministerial oversight of the energy majors, which have traditionally been run by powerful Putin allies such as Rosneft’s chief executive Igor Sechin and Gazprom’s Alexei Miller.

But the heads of Russia’s oil companies have political leverage to push back on such an idea, the people said. The merger plan was first reported by The Wall Street Journal.

Tsivilev is married to Putin’s first cousin once removed, Anna Tsivileva, who became deputy defence minister in June amid a cabinet reshuffle in which several other relatives of top officials received promotions.

He took over the energy ministry in May after six years running the Kemerovo region, where he and his wife built a fortune in the coal sector.

Tsivilev pitched the idea during his first one-on-one meeting with Putin in his new job last month, said the people familiar with the matter.

“Putin said something like ‘we’ll think about it’, which is his usual approach of staying above the fray to observe what unfolds,” one of the people said.

Kremlin energy officials have long expressed frustration over the ministry’s limited control of oil companies, particularly regarding foreign currency revenues held by smaller traders in jurisdictions such as Hong Kong and the UAE, structured to bypass western sanctions.

“The minister has found that the sector is largely uninterested in him,” a former senior Russian oil executive said. “It is a common situation in this industry, where oil executives have operated independently, and the minister role has been more technical.”

The executive added: “Leveraging his family connection, [Tsivilev] approached the boss with a proposal: let’s streamline the system; the situation is urgent, the homeland is at risk.”

Rosneft appeared to dismiss the idea of a merger, suggesting the leak to the press had intended to hurt Sechin: “Evil Sechin” did not have “insidious intentions to take over the assets” and the company “has not any need for”, it said in a statement on Tuesday.

It also said taking over Gazprom Neft and Lukoil did not have “any reasonable business logic.”

When asked if the government was considering the merger, Rosneft spokesman Mikhail Leontiev said: “How would we know? They are entirely free-spirited individuals. The scope of their imagination defies comprehension.”

Dmitry Peskov, Putin’s spokesman, said: “There is nothing to comment here.”

Gazprom Neft and Lukoil did not respond to requests for comment.

Analysts from Russian banks and brokerages said such a combination lacked strong economic rationale. “A merger of this scale always carries the risk of temporarily reducing productivity . . . potentially negating any short-term theoretical benefits,” analysts at the Russian Finam broker wrote.

They also pointed out that separate Russian companies and foreign-registered trading firms make it easier to circumvent western sanctions. Meanwhile, a unified company would be an easy target, two former senior Russian oil executives said.

One person briefed on the discussions said part of the attraction of a merged state oil company would be to give Rosneft and Gazprom Neft access to Lukoil’s UAE-based trading arm, Litasco Middle East DMCC, which has become one of the biggest movers of Russian oil since the full-scale invasion of Ukraine. This would give the Kremlin more oversight of the financial streams outside of Russia.

However, a former Rosneft executive and two former top sector executives played down the need for the company to expand its trading options, pointing to the network of companies Rosneft had already been relying on since the start of the Ukraine war.

Alexander Dyukov, chief executive of Gazprom Neft, was mentioned at the Putin-Tsivilev meeting as a possible leader of the merged entity, people familiar with the matter said.

While Gazprom Neft’s revenue is lower than that of Rosneft and Lukoil, its net profit margin exceeds 18 per cent, compared with 14 per cent and 15 per cent for the other two.

Gazprom Neft’s profits have partly offset its parent company’s enormous losses after the war in Ukraine effectively destroyed Gazprom’s business model of selling gas at high prices to Europe.