The Moscow Times, by Anatoly Medetsky, 19 May 2008

Rosneft's stellar growth proves that state control over companies does not necessarily hurt efficiency, Igor Sechin, the company's chairman and newly appointed deputy prime minister, said in comments published Friday.

Sechin's comments come as the state has rapidly increased its control over the oil industry and other strategic sectors of the economy, prompting warnings from some liberal economists that the government is not the best business manger.

"The results of Rosneft's work in 2007 vividly disprove opinions that it is impossible to achieve high efficiency in companies where the state is a majority owner," Sechin said in the company's annual report to shareholders, posted on its web site.

The company's annual shareholders meeting will be June 5.

Rosneft is seeking to consolidate the array of former Yukos assets it acquired in bankruptcy auctions last year, including two major production units and several refineries, becoming the country's top oil producer as a result.

In March, it also grew to rank as the country's biggest refiner, an analyst said.

Sechin is widely believed to have engineered Rosneft's rise on the back of Yukos' demise. He was a deputy head of the Kremlin administration at the time then-Yukos CEO Mikhail Khodorkovsky was arrested on tax and fraud charges in 2003.

In last week's government shakeup, Sechin was given responsibility for overseeing industry and energy policy. While Sechin's backing for state control fits well with the creation of state corporations in major industries, such as aviation and shipbuilding, it will probably worry those who hoped a Dmitry Medvedev presidency would mean less government interference in the economy.

Sechin's comments were likely aimed at the liberals who pushed for the privatization of state property in the 1990s, said Sergei Pravosudov, director of the National Energy Institute.

Rosneft's performance will be put to the test when it begins operations at its first greenfield project, Vankor, in eastern Siberia, later this year, Pravosudov said.

But state control certainly helped Rosneft to acquire the remnants of Yukos and boost production and refining, said Alexei Kokin, an analyst at Metropol.

It also managed to control some of its expenses better than privately held LUKoil last year, he said. Rosneft's sale, general and administrative expenses were about $2 per barrel, compared with LUKoil's $4.50, he said.

"These expenses show the management's ability to run the company thriftily," he said.

Its success in saving on costs last year was especially important because it needed to invest in Vankor and put aside money to pay back its huge debt, he said.