Sechin`s hard sell at western investors

Mr Sechin is adamant: Rosneft has the potential to become a global supermajor. The new executive line-up, and the deals it has forged recently with international oil companies such as ExxonMobil to develop Russia's Arctic oilfields, are proof of that.

The fact that it is majority-owned by the Russian state is neither here nor there, he says. "In public companies, effectiveness is determined not by the form of ownership but by the efficiency of management." 

He says Rosneft is working constantly to reduce costs and increase profits, has among the lowest production costs in the industry and the "highest growth rate in Russia".

Mr Sechin was speaking ahead of his first presentation to Rosneft investors ­ part of a drive to burnish the company's credentials as it negotiates its biggest deal, the acquisition of BP's 50 per cent stake in TNK-BP, Russia's third-largest oil producer.

It is also part of Mr Sechin's emergence into the high-profile world of global business. A former military officer and close ally of Vladimir Putin, the Russian president, he was long seen as a leading member of the clique of former security and defence officials known as the siloviki ­ literally "men of power". 

It was this group that is believed to have overseen the controversial takeover of the Yukos oil group, whose assets largely ended up with Rosneft.

Appointed this year as Rosneft's chief executive, Mr Sechin is facing his biggest challenge, associates say: he must prove to western shareholders his mantra that state companies can be as ­ if not more ­ efficient than privately owned ones.

"The biggest challenge for him is to run Rosneft not as a statesman who doesn't care about efficiency but as someone who runs it as a commercial, efficient company," says one associate. "Otherwise, it will be another elephant."

The obstacles he faces are huge. Investors remain sceptical of the virtues of state ownership: its five-year total shareholder return trails TNK-BP's and Bashneft's.

Mr Sechin has also clashed with liberal-leaning ministers, who have questioned the logic of Rosneft's bid for the BP stake in TNK-BP.

The announcement on Monday by BP's Russian billionaire partners in TNK-BP that they are also ready to sell their 50 per cent stake could at the very least complicate Rosneft's bid, one senior Moscow banker says.

However, Mr Sechin insists that Rosneft is on track for big efficiency gains with a new team of top managers poached from the likes of ExxonMobil, Morgan Stanley and TNK-BP. 

The partnership agreements it signed recently with the international oil majors will give it access to the technology needed to exploit the Arctic's vast oilfields and Russia's reserves of hard-to-extract "tight" oil in Siberia.

But as he seeks to improve perceptions of Rosneft, he indicated he was on the retreat in a separate privatisation battle with the Medvedev government.

Mr Sechin had proposed that state stakes in energy companies be purchased by Rosneftegaz, the state investment vehicle he chairs, instead of sold on the open market as Mr Medvedev's privatisation programme had proposed. 

But on Friday, Rosneftegaz was forced to hand over a key part of its firepower ­ Rbs50bn ($1.6bn) it held in dividends ­ to the government. When asked whether he was still proposing such a role for Rosneftegaz, Mr Sechin said: "No, of course not." He also added that not all privatisations in the energy sector should be postponed.

"The market is accepting deals where partners are successful in negotiating agreement, especially for companies in the energy sector," he says. "I think we need to just work and get an effective result." 

He also denied that his appointment by Mr Putin to a new presidential commission for the energy sector implied the creation of a parallel government.

As he took to the podium in the ballroom of the Mandarin Oriental in London on Friday to address Rosneft investors, including BlackRock, Goldman Sachs Asset Management and Pimco, investors said they welcomed the increased openness but still questioned whether he could leverage the advantages granted to Rosneft into a growth story. 

Mr Sechin tells them output growth at the company will reach 1 to 2 per cent a year for the next five years, despite capital expenditures of about $16bn a year over the same period.

A senior Russian oil executive says that despite the new hires, a great deal remains to be done to turn Rosneft round.