In Russia, Spotlight Falls on Oil Boss

By James Marson Features Dow Jones Newswires

The corruption trial of a former Russian economy minister is casting a spotlight on a Kremlin power struggle and the clout of the country's top oil boss.

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The trial revolves around a November meeting between Igor Sechin, who heads a state-controlled oil giant, and the then-minister, Alexey Ulyukayev, at the firm's Moscow headquarters. Mr. Sechin, who was sanctioned by the U.S. in 2014 after Russia annexed Crimea, has in recent years turned the firm into a global powerhouse.

At the meeting, Mr. Sechin gave Mr. Ulyukayev a basket of sausages -- a typical gift from Mr. Sechin, often made from the meat of animals he has hunted, former employees have said -- and a lockable bag, according to transcripts of covert recordings read out in court by prosecutors and published by Russian news outlets.

"You may consider the mission accomplished," Mr. Sechin said, according to the transcripts. "There you go: Take it, put it away, and let's go and drink tea."

As Mr. Ulyukayev prepared to drive away, agents from Russia's Federal Security Service swooped in and found that the bag contained $2 million in cash, prosecutors have said. Mr. Ulyukayev told investigators he thought the bag contained wine, according to court documents.

When the trial opened in mid-August, Mr. Ulyukayev pleaded not guilty and said Mr. Sechin had framed him. Mr. Sechin told state television Mr. Ulyukayev had "demanded an illegal payoff for his regular work," and added, "That's a crime."

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Mr. Sechin didn't respond to requests for comment. A lawyer for Mr. Ulyukayev didn't respond to requests for comment.

Mr. Sechin, 57, is a veteran of Russia's security services who has worked with President Vladimir Putin since the 1990s. Mr. Sechin has enhanced his power in recent years as PAO Rosneft, the company he runs, has taken over smaller oil companies. The Russian state owns half of Rosneft, which accounts for around 40% of Russia's total crude production.

"He is in theory only an oil boss, but he stands out from most of the rest of the elite," said Andrei Kolesnikov, an analyst at Carnegie Moscow Center. "Putin allows him to rattle others. It's useful for Putin to keep a balance of power."

Rosneft's economic clout and large crude output give Mr. Sechin a prominent role in the Kremlin's foreign relations. He has cemented Russia's links with China through oil-supply contracts and a deal this month that made a Chinese energy firm Rosneft's third-largest shareholder.

Mr. Sechin's Rosneft has also helped shore up Venezuela's state oil company with billions in loans.

The U.S. Treasury Department noted Mr. Sechin's ties with the Kremlin when it imposed sanctions on him in 2014, saying that he "has shown utter loyalty to Vladimir Putin -- a key component to his current standing."

In July, the Treasury Department imposed a $2 million fine on Exxon Mobil Corp. because the company signed eight documents in May 2014 related to oil and gas projects in Russia that were also signed by Mr. Sechin. Exxon, which was headed in 2014 by Rex Tillerson, who is now the U.S. secretary of state, is challenging the fine.

Economic liberals in the Russian government have advised Mr. Putin to open up Russia's state-dominated economy. The Bank of Russia forecasts Russia's gross domestic product will grow in a range from 1.7% to 2.2% this year following two years of recession.

Some ministers who favor a more free-market approach, including Prime Minister Dmitry Medvedev and Deputy Prime Minister Igor Shuvalov, last year initially opposed Rosneft's proposed acquisition of a smaller state-owned oil firm.

Mr. Ulyukayev spoke out against the proposed deal in August of last year, saying privatization of one state company by another was inappropriate. The next month, though, he said Rosneft would be allowed to participate.

With the Russian budget under pressure and in need of extra revenues, the deal was approved in October and foreign investors later bought a 19.5% stake in Rosneft for about $11 billion.

The next month, Mr. Sechin called Mr. Ulyukayev and invited him to Rosneft's headquarters across the Moscow River from the Kremlin, according to transcripts read in court.

After Mr. Ulyukayev's detention, Mr. Putin fired him as economy minister, citing a loss of confidence.

Mr. Sechin told state television that he was surprised that transcripts were being read out loud in court because he said they contained information that isn't relevant to the case and is a distraction.

The openness of the trial and the relatively neutral tone of state television coverage are signs that Mr. Sechin's tactics have united various opponents, according to Alexei Makarkin, a political analyst at the Center for Political Technologies, a think tank in Moscow.

"When one of the top players becomes too powerful, no one wants to be his next target," he said.

Mr. Makarkin also noted that Mr. Putin had recently met with Mr. Sechin and the main owner of a private firm that Rosneft had demanded nearly $3 billion from in a legal dispute, and that the president had told reporters that the two should come to an amicable resolution. That was seen by elites as a signal to Mr. Sechin to curb his appetite, Mr. Makarkin said.

Write to James Marson at james.marson@wsj.com

(END) Dow Jones Newswires

September 28, 2017 05:44 ET (09:44 GMT)