Sechin must resign as Rosneft board chief - Kremlin

MOSCOW Thu Mar 31, 2011 1:07pm BST

Russian President Dmitry Medvedev (L) speaks with Deputy Prime Minister Igor Sechin at their meeting in the presidential residence at Gorki, outside Moscow March 14, 2011. REUTERS/Mikhail Klimentyev/RIA Novosti/Kremlin

Russian President Dmitry Medvedev (L) speaks with Deputy Prime Minister Igor Sechin at their meeting in the presidential residence at Gorki, outside Moscow March 14, 2011.

Credit: Reuters/Mikhail Klimentyev/RIA Novosti/Kremlin

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MOSCOW (Reuters) - Ministers, including Rosneft (ROSN.MM) Chairman Igor Sechin, must resign as board chiefs of Russian state-controlled companies to reduce any claims of state meddling, an aide to President Dmitry Medvedev said Thursday.

Kremlin economic adviser Arkady Dvorkovich said that Finance Minister Alexei Kudrin would also have to quit as chairman of bank VTB (VTBR.MM), while Transport Minister Igor Levitin should go as chairman of airline Aeroflot (AFLT.MM).

Dvorkovich's comments come a day after Medvedev ordered the removal of ministers from the boards of state firms by mid-year, saying state meddling is holding back Russia's economy.

The removal of Prime Minister Vladimir Putin's most trusted ally Sechin from the helm of Russia's biggest oil company will stoke fears of a struggle for the Kremlin's top job ahead of the March 2012 presidential election.

A senior government source who sits on the boards of major state-controlled companies told Reuters the Kremlin's proposal for government ministers would have only a "cosmetic" impact on company policy, as the government will still be pulling the strings as the ultimate owners.

"Since we have been told, we will have to go. But this measure is cosmetic because the government will still issue key directives," said the source.

A second government source agreed that the state would still hold sway, and that the entrenched elite was not worried about losing influence.

BEWARE

Sechin, the man behind a now-blocked $16 billion (9.9 billion pounds) share swap and Arctic offshore exploration pact between Rosneft and Britain's BP (BP.L), is known as Russia's oil tsar because he oversees the country's vast energy and metals sectors.

A spokesman for Putin declined to comment. Putin and Medvedev, who together run Russia in a power-sharing 'tandem', have yet to agree on which of them will run for the presidency next year.

Both have hinted they could stand in presidential polls.

Medvedev has made improving the investment climate in Russia a key priority ahead of next year's elections, although in 2008 he also demanded fewer government officials on company boards with little success.

"Medvedev should beware of alienating powerful officials who benefit from these board seats. So far he has not been successful in changing the problematic status quo," said Ariel Cohen, senior research analyst at the Heritage Foundation.

BIGGEST ADVOCATE

Rosneft shares were down 1.3 percent at 12:46 p.m., underperforming the wider Moscow market, as analysts warned Sechin's removal would weaken Rosneft's position as Russia's most powerful oil company.

"This is obviously negative for Rosneft as Sechin was seen as the biggest advocate of its interests -- the shares are down -- although the financial impact may be minimal," said Karen Kostanian, head of research at Merrill Lynch in Moscow.

But the wider move was seen as positive for the state firms that dominate the Russian stock market but whose politicised corporate governance leads them to trade at a valuation discount to their international rivals.

"From an investment standpoint, there's huge efficiency gains that could be made at state-owned companies. If there is more energetic management and better oversight it could be a big driver for the market," said Roland Nash, chief investment strategist at Verno Capital.

Other investors said relieving state-controlled firms of their ministerial board members would help ease the perception that Russia is not a level playing field when it comes to contact and licence awards.

"This would be an excellent move to create fair operating conditions in Russia," said Ivan Mazalov, oil & gas fund manager at Prosperity Capital, which runs one of the biggest Russia-focussed funds.

"There is great conflict of interest between state representatives being a strong driving force in the development of companies and at the same time setting the rules for the sector in which the company operates," he added.

A spokesman for BP declined to comment on the how Sechin's removal would affect its joint venture plans with Rosneft, which lie in tatters after four billionaire partners of BP's other Russia venture TNK-BP TNBP.MM won a court judgement to block the deal.

Another tribunal awaits on Monday to rule on whether BP can complete its share swap with Rosneft without agreeing a joint venture.

(Reporting by Moscow bureau; writing by John Bowker; Editing by Douglas Busvine and Mike Nesbit)

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