Confidante follows Putin goal for state control over key industries
The chairman of giant Rosneft oil company, Igor Sechin, shares Putin’s back-to-the-future fascination with Russia’s communist past.
Big oil in Russia
Rosneft is the world’s largest publicly traded oil company by output and reserves. It controls about 40 percent of Russia’s crude production.
Oil and gas output: 4.88 million barrels a day
Proven oil and gas reserves: 29.6 billion barrels of oil equivalent
2012 revenue: $159.2 billion
Market cap: $76.6 billion
Big deals: Yukos Oil, TNK-BP, Morgan Stanley’s global oil trading and transport business; $85 billion deal to supply China with 100 million metric tons of crude oil over 10 years; and investing in Venezuela oil production.
Born: Native of St. Petersburg, when it was called Leningrad
Education: Studied Portuguese at Leningrad State University; received Ph.D in economics, 1984;
Career: Served in military as translator; worked in St. Petersburg City Hall in 1988, working with then Deputy Mayor Vladimir Putin; followed Putin to Moscow in 1996; deputy chief of staff to President Putin, 2000-08; deputy prime minister to Dmitry Medvedev.
Rosneft: Putin named Sechin CEO of Rosneft in 2002; in 2004, Sechin became chairman.
When Igor Sechin was working as President Vladimir Putin’s deputy chief of staff a decade ago, visitors to his Kremlin office noticed an unusual collection on the bookshelves: row after row of bound volumes containing minutes of Communist Party congresses.
The record stretched across the history of the party and its socialist predecessor — from the first meeting in March 1898 to the last one in July 1990, a year and a half before the Soviet Union collapsed.
Sechin regularly perused the documents and took notes, says Dmitry Skarga, at the time CEO of Russia’s largest shipping company, OAO Sovcomflot.
“He was drinking from this fountain of sacred knowledge so that Russia could restore its superpower status and take its rightful place in the world,” Skarga says.
Sechin’s back-to-the-future fascination with his country’s communist past is something he shares with Putin, who, soon after coming to power in 1999, restored the music (though not the lyrics) of the Soviet-era national anthem and later described the collapse of the USSR as the greatest geopolitical catastrophe of the 20th century.
Sechin himself is an admirer of socialist icons such as Fidel Castro, Venezuela’s late leader Hugo Chávez and Argentina’s Che Guevara, says Victor Mashendzhinov, who studied with Sechin at college. As a young man, Sechin served alongside Cuban fighters in the Cold War hot spots of Angola and Mozambique.
Sechin, 53, has put his careful study of communist-era documents into practice at state-run Rosneft, the world’s largest publicly traded oil company by output and reserves.
During a decade at Rosneft, Sechin has turned it into about the size of the gargantuan Soviet Union ministry that once ran oil production, mainly by swallowing up rivals.
Beginning in 2004, when Putin appointed him Rosneft’s chairman, Sechin arranged Rosneft’s takeover of the main assets of Mikhail Khodorkovsky’s Yukos Oil, Russia’s largest crude producer at the time.
Last year, after becoming Rosneft’s CEO in May 2012, he orchestrated the company’s $55 billion purchase of TNK-BP, a BP oil joint venture in Russia.
Sechin is the leading proponent of Putin’s determination to restore the state’s role in the Russian economy. Putin used Rosneft, through its acquisitions, to return Russian oil to state control. The company, 69.5 percent government-owned, controls about 40 percent of Russia’s crude output.
In a similar vein, Putin re-established majority state control of natural gas-exporting behemoth Gazprom. The company had been privatized in the mid-1990s under his predecessor, Boris Yeltsin, cutting the government’s stake to 41 percent.
To develop high-technology industries such as armaments and pharmaceuticals, Putin created Rostec, a state corporation that encompasses 663 companies employing 900,000 people, or 1.2 percent of the entire Russian workforce.
He expanded state-run banks Sberbank and VTB Group, whose dominance in retail banking has edged out foreign rivals such as HSBC Holdings and Barclays.
Sechin declined requests to be interviewed or to answer written questions.
Putin, 61, has spent his time in office reshaping the economy to resemble the country’s Soviet past.
After Rosneft’s March 2013 acquisition of TNK-BP, state-owned enterprises accounted for more than 50 percent of Russia’s gross domestic product, up from 30 percent in 1999, according to data published by BNP Paribas’ Moscow unit and the European Bank for Reconstruction and Development, or EBRD.
Russia’s economy probably grew 1.3 percent last year, Deputy Economy Minister Andrey Klepach told reporters in January. That’s the slowest expansion since the 2009 recession. The ministry projects growth will average 2.5 percent a year through 2030, compared with an annual 7 percent from 2000 to 2008.
“Under Putin’s rule in Russia, the state is monopolizing key branches of the economy,” says Anders Aslund, a senior fellow at the Peterson Institute for International Economics in Washington, D.C. Aslund was an economic adviser to Yeltsin in the 1990s, when the government carried out a wave of sell-offs of state assets that put 70 percent of the economy in private hands.
“Incredibly, Putin seems oblivious both to the collapse of the Soviet Union’s economic system and why it happened,” Aslund says. “Half of the economy is controlled by state companies, and that is why the Russian economy isn’t growing.”
Such criticism ignores competitive realities, Putin spokesman Dmitry Peskov says.
“For example, in shipbuilding it’s absolutely pointless to carry out privatization,” he says. “You can privatize enterprises, but they won’t be competitive; they will be doomed to failure. So consolidating the assets under the state’s wing is the only way to preserve key sectors of the economy.”
The slowdown in Russia coincides with widespread malaise in some larger emerging markets — including Brazil and India, which, along with Russia and China make up the BRIC countries, as they are known.
Putin has said Russia stacks up favorably with many European countries on some key economic indicators. For example, Russia’s unemployment rate for November was 5.4 percent compared with 11.1 percent in the eurozone.
In furthering Putin’s mission, Sechin is more than just a loyal underling to the president, says Khodorkovsky, who accuses Sechin of orchestrating the destruction of Yukos. In December, Putin showed he’s confident enough in the economic change he’s wrought to free Khodorkovsky, once Russia’s richest man and Putin’s most powerful rival.
Khodorkovsky, who was imprisoned in 2003 on tax evasion and fraud charges and spent 10 years in prison camps, says Sechin tried to block his release.
Khodorkovsky also says Sechin has helped to shape as well as execute Putin’s economic policies.
“Sechin is a real oligarch, in the classic meaning of this word,” Khodorkovsky said in Berlin on his fourth day of freedom. “He convinced Putin that state capitalism is right and is realizing this idea in practice.”
Putin, a one-time KGB colonel, maintains his tight grip on the economy by drawing on Sechin and other members of his inner circle to ensure that loyal allies direct the country’s industrial strongholds and revenue flows. Sechin, like Putin, is a St. Petersburg native and worked for Putin in the 1990s when the Russian leader was deputy mayor there.
Putin’s other favored few are men associated with him before he became president. They include the CEOs of Gazprom, Sberbank, Rostec and monopoly rail operator Russian Railways. Gazprom, Rosneft and Sberbank are now the country’s three largest companies by market capitalization.
Putin, Sechin and other senior figures want to ensure that big companies central to the economy are in state hands, says Chris Weafer, a senior partner at Moscow-based consulting firm Macro Advisory.
“They hanker after what they recall as the stability of the Soviet system, and part of that is keeping control of so- called strategic industries,” he says.
Jim O’Neill, the former Goldman Sachs Asset Management chairman who coined the term BRIC in 2001, says Putin’s stifling of private enterprise has led to Russia’s growth slowdown.
“Unless they do undertake reform, that’s the future,”