Maduro, Schröder, and the Rosneft. Energy Blog

Aug 15 2017

One of the key stories of last week was another major instance of political activity unrelated to business on the part of the Russian state-owned oil giant Rosneft.

At the same time, the company’s name is now linked to two political figures: Venezuelan President Nicolas Maduro, who struggles to keep his presidency at any cost, and ex-chancellor of Germany Gerhard Schröder, who is also well-known as one of the key lobbyists for Russian energy companies in Western Europe.

Reuters, referring to the high-ranking manager of the state oil company Petroleos de Venezuela, has recently reported that in at least two situations the Venezuelan government used funds provided by Russia to avoid a looming bond default. Russia and Rosneft have become a key source of Funding for the government of Nicholas Maduro, who is trying to avoid both a sovereign default and a political coup.  The ruling regime is increasingly turning to Russia for loans and in return offers valuable oil assets as collateral. This information was reported right after the news that Rosneft paid $ 6 billion in prepayments for the supply of oil from Venezuela.

Free Russia asked Vladimir Milov, the director of the Energy Policy Institute to comment:

“It looks quite clear that decisive actions of the Maduro regime – aggressive pushing through the establishment of the Constituent Assembly, effectively overriding the opposition-led Parliament – have some financial backing from outside powers, namely Russia. Otherwise, why would oil-rich Russia buy oil from Venezuela worth $6 billion (that’s about the size of the annual oil output of Vietnam), and even provide full advance payment for it – whereas Rosneft’s own production volume is one of the biggest in the world (5,7 million barrels per day). Even if that is not enough to meet the company’s downstream needs, extra oil could have been easily bought in the market for better conditions without such generous advances.

The answer clearly is politics. Putin wants to support the Maduro regime, but it’s difficult to do it via state or state-bank loans – Venezuela’s “quality” as a borrower is a joke, there’s something of a consensus in the market that this state is near default. Then Rosneft comes along with “prepayments”. This scheme does not leverage the Russian state or the Russian banks with “toxic” assets and it will be repaid in a natural form (being out of cash, Venezuela nonetheless still produces physical oil).
Despite Rosneft’s claims that “it does not intend” to buy more Venezuelan crude with prepayment, who knows. So far, the scheme has worked, and so far, saved the Venezuelan regime from collapse. There’s a price to be paid: many newswires reported Rosneft’s net earnings dropped by 20% during the first half of this year.  The primary reason for this was the increase in the costs of purchased oil by over 30% (we’re back to the question of why would one of the biggest oil-producing companies be interested in buying oil at world prices from someone else). Generous oil purchases from Venezuela have clearly contributed to that. If the Maduro regime needs more money from Putin, here’s a scheme which can always be expanded. That may explain Maduro’s decisiveness.”

As for ex-Chancellor Gerhard Schroeder, his future is also likely to be closely connected to Rosneft.  Schroeder was nominated to the Board of Directors by the Russian government on August 11th.

We have asked the Free Russia Foundation’s energy expert, Ilya Zaslavsky, to share his thoughts on this:

“The news that Gerhard Schröder will be an independent member of Rosneft’s Board of Directors is another stain on the history of his moral fall, as an unprincipled politician and man. It is quite widely known that right before he left the post of German Chancellor he approved the Gazprom gas pipeline project Severny Potok-1.  He then quickly received a warm high-paying place in the company in 2005, where he was in the company of Putin’s friend from Stasi Matthias Warnig (now head of Nord Stream).

The term “shroedification” was born exactly out of such well-known facts which. This term denotes the fact of a veiled bribe from the Kremlin to the former great political figures from the West, so that they justify and in every way serve the subversive interests of Moscow in democratic countries.

It is less known that Schroeder served the interests of the Kremlin, and also helped the Russian oligarchs some years before the Nord Stream 1,  to make the Institute of independent directors in the Russian corporations vacant.  In 2009, after corporate raiding and the capture of TNK-BP by oligarchs close to the Kremlin and Igor Sechin, Mikhail Fridman and his partners from the consortium of AAR, Schroeder and Alexander Shokhin has been called independent directors of the company. However, it was clear to everyone that they would be “independent” only in favor of the Russian part of the company’s owners who seized the operational control of TNK-BP with the help of the FSB and other law enforcement agencies.

Rosneft, a company where Igor Sechin rules, bypasses commercial logic when it comes to the interests of the Kremlin, both inside and outside of Russia, is now going through hard times thanks to such mediocre leadership. As the latest accounts show, the company essentially has a debt of $ 82 billion, out of which, on behalf of the Kremlin, it actually gave $13.5 billion to the kleptocratic regime of Venezuela. Servants like Schroeder are obviously called upon by the company to try to “normalize” such results.”

 

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