Russian President Warns Rosneft

AP ^ | 8/10/2005 | ALEX NICHOLSON

[Tailgunner Joe]

President Vladimir Putin warned the head of state oil company Rosneft on Wednesday that he should count on competition when tapping Russia's vast reserves.

Putin's remarks to Rosneft chief Sergei Bogdanchikov underscored the energy ambitions of powerful groups in the Kremlin, including Rosneft's chief rival in the race to consolidate control of the oil industry _ Gazprom.

advertisementAfter Bogdanchikov informed Putin that Rosneft would be the nation's biggest oil producer in two years' time, with daily production of some 2.5 million barrels within a decade, the president cut in.

"How much do you plan to grow by?" a smiling Putin asked in footage broadcast on state television. "I understand that you will grow actively, but we don't plan to create a monopoly. ... I'm counting on other companies developing actively as well."

Analysts suggest that two groups have emerged in the Kremlin and are fighting to dominate the nation's oil riches.

One comprises the more liberal elements of Putin's entourage and backs Dmitry Medvedev, Putin's chief of staff and a board member of state natural gas monopoly Gazprom.

On the other side are the Kremlin hawks united behind Igor Sechin, a Rosneft board member and former secret services worker. He is also Medvedev's deputy.

"The two groups are clearly vying for a dominant position in energy," said Chris Weafer, chief strategist at Moscow's Alfa Bank. "The only thing we are sure of is that ultimately a state company will be dominant."

Rosneft has grown aggressively in the past year, sweeping up the biggest production unit of the Yukos oil company following a disputed auction.

Gazprom, the world's biggest gas producer, has oil ambitions of its own. It had been expected to win the auction of the Yukos subsidiary and eventually merge with Rosneft in a Putin-backed deal that would have given Gazprom control of Rosneft's assets. Rosneft bitterly fought it, however, and the merger never happened.

Now with two apparent defeats, Gazprom has its eyes on other oil assets and is in negotiations to buy out another company _ Sibneft.

But Rosneft is also thought to be interested in Sibneft and appears to be angling to take control of Yukos' remaining assets.

Weafer said that makes Bogdanchikov's predictions realistic.

"Imagine _ six months ago Bogdanchikov was a minor bureaucrat," he said. "Now he's telling the president that he plans to run a company that would have more oil output than Kuwait."