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Shadow Governance Intel

Shadow Governance Intel

Shadow Governance Intel (www.shadowgovintel.com), the analytical arm of West Sands Advisory Limited, conducts in-depth research on power players and power plays that challenge the transparency…

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The Mysterious Rosneft Deal And Its Consequences

Rosneft HQ

Approximately two months ago, Vladimir Putin awarded high-level state honours to a cadre of individuals in recognition of their contribution to Russia.

The Order of Friendship award was given to Ivan Glasenberg, Sheikh Abdullah Al Thani, and Carlo Messina. The common denominator between these figures being a deal struck in December 2016 involving the entities which the aforementioned individuals oversee, i.e. Glencore International, Intesa Sanpaolo and the Qatar Investment Authority (QIA), and Rosneft, Russia’s prized oil company.

According to open source information at the time, a 19.5 percent share of the oil giant transferred to Glencore Plc and the QIA, but all else remains shrouded in mystery.

Given the relative obscurity of the deal at the time, Shadow Governance has been closely following developments. Political exposure and integrity issues are a particular source of concern as details continue to emerge about the transaction.

Although only mid-way through 2017, several developments now compliment the initial signing of the agreement at the tail end of last year.

In late March, Italy announced that it had finally approved the €5.2 billion loan by Banca Intesa SanPaolo to the Qatar-Glencore consortium to finance the privatisation. The decision was made after months of scrutiny from the Italian Financial Security Committee (FSC), which eventually found that the deal did not constitute a breach of EU sanctions against Russia. Notably, Chairman of Banca Intesa Russia, Antonio Fallico, received the Order of Honour in Putin’s April ceremony for his role.

Additionally, Rosneft’s privatisation was mentioned during the U.S. House Intelligence committee hearing on Russia’s alleged interference in the 2016 presidential elections. The U.S. Representative for California, Jacqueline “Jackie” Speier, questioned the Director of the FBI in regards to the role of Carter Page, Donald Trump’s national security advisor, in the Rosneft privatisation deal.

Scandal, What Scandal?

The controversial Trump dossier published in January 2017 suggested that Rosneft’s CEO Igor Sechin had offered Page, who is a known close associate of Sechin, the brokerage of the 19.5 percent stake in Rosneft in July 2016 – in exchange for the lifting of U.S. sanctions, should Trump be elected president.

Subsequently, on the 7th of December 2016, Glencore Plc and its largest shareholder Qatar Investment Authority (QIA) jointly acquired a 19.5 percent stake in Russia’s state-owned energy giant Rosneft PJSC for an estimated U.S. $11 billion. Naturally, the scale and the controversy of the deal placed all its participants at the centre of extensive media attention. However, as details of the deal started to emerge, speculation about its true beneficiaries intensified.

Most media coverage has so far treated Rosneft’s deal with Glencore and QIA as a one-off development. However, this was not the first deal between Glencore and Rosneft. In fact, the two companies have an established relationship. Glencore has been buying Rosneft’s oil via Ros-GIP Limited, established in February 2013, to cater for Glencore’s long-term contract with Rosneft. Also, the choice of partners for the sale of Rosneft’s stake was in line with the business strategy Russia has been pursuing since sanctions were imposed.

Facts and Unknowns

Glencore and QIA’S acquisition of a stake in Rosneft came as a surprise to the international business community. However, given the deal’s swift conclusion, it was almost certainly destined to unravel in such controversial fashion.

It had been prepared in secrecy due to sanctions against Rosneft. Until the very last moment it was not clear if Rosneft would be able to find an investor, or would have to buy back its own shares. Almost all media sources described the deal as a victory for Rosneft and Igor Sechin as it is likely to bring Russia back to the forefront of global markets. According to the Financial Times, international bankers have highlighted the fact that the deal was forged during turmoil in the Middle East, with Russia and Qatar notably on opposite sides in the Syrian Civil War.

In the aftermath of the Rosneft share sale, highly regarded Russia analysts have called the deal a ‘sham transaction’, primarily because of lingering (unanswered) questions of where the money has come from. According to investigative journalist John Helmer, “Kremlin and Russian banking sources acknowledge the money originated from the Central Bank of Russia, recycled through the Russian state banks to Rosneft and back, and finally concealed inside secret fiduciary agreements with a consortium of Glencore, the Swiss trading company, and the Qatar Investment Authority.”

Helmer highlights that the agreement appear to make Glencore and the QIA 19.5 percent shareholders in Rosneft, but importantly, they are fiduciary shareholders. He further explains, as the Central Bank of Russia cannot simply print money and give it to the federal budget, this deal was engineered for Glencore and QIA to appear to be purchasing shares, with the terms of their agreement rewarding them for acting as fiduciaries. Interestingly, Helmer and his Russian and European banking sources are adamant that Glencore and QIA cannot vote their shares without instruction from the Russian state (i.e. Igor Sechin); ultimately inferring that the privatisation is not genuine. The consortium’s ownership unlikely extends beyond the paper it is written on.

Related: Trump Aims To Scrap Gulf Coast Oil Royalties

Adding to these suspicions were the rumours that Banca Intesa SanPaolo had not verified its involvement in the deal; with an international banking source (quoted by Helmer) stating that the bank could not finance Rosneft under the current U.S. and E.U. sanctions rules. Recent developments show that Intesa SanPaolo has finally resolved its concerns, but allegations that Glencore and QIA merely acted as intermediaries during the deal acquired greater substance in January 2017.

As such, the Financial Times reported on the 18th of January 2017, that it was confirmed that one of Russia’s largest banks, VTB Bank, provided a bridge loan to Singapore-based QHG Shares, a special purpose entity co-owned by Glencore and QIA, to finance the deal. The money was then transferred to the owner of Rosneft’s state shares, Rosneftegaz. This effectively means that the privatisation of 19.5 percent of Rosneft was financed by a state-controlled bank, thereby directly contradicting President Putin’s order.

That VTB’s Head Andrei Kostin received a commendation from President Putin in April indirectly confirmed the bank’s role in the deal.

The Qatari-Russia Connection

Russia’s flagship oil company, Rosneft, has pressed ahead undeterred with investments despite the opacity surrounding its high-profile deal with foreign entities. Although Glencore’s name litters media headlines regarding the deal, more informed observers will have noted the importance of the Qatar Investment Authority (QIA) as an actor here. This follows a wider trend whereby Russia has been leveraging its commercial assets away from Western entities, primarily due to U.S. and EU imposed sanctions, and moving closer to other external actors. In this sense, Putin’s political manoeuvring, or power plays, should not be interpreted solely from an overtly Western standpoint.

In particular, the QIA’s involvement in the Rosneft deal is only the tip of a Qatari-Russian iceberg whereby external Qatari financing has proved a valuable addition to Russia’s economy. For example, the QIA also owns a stake in Pulkovo Airport, having acquired approximately 24.9 percent of Thalita Trading in July 2016, the entity in receipt of the concession for St. Petersburg’s airport. Additionally, the QIA bought newly listed ordinary shares in VTB Bank following its dilution in 2013 and injected U.S. $500 million into the Bank; it is worth noting that VTB is a much-prized asset of the Russian state, compounded by the emergence of its facilitating role in the Rosneft deal, whereby “VTB provided QHG Shares Ltd…with financing of almost Rbs700bn”.

Related: Europe Joins Race For Cheaper Batteries With New Gigafactory


Most of these reports state that up-front Qatari investment also comes with the caveat of addition injections into the national economy (of up to U.S. $2 billion), in conjunction with the Russian Direct Investment Fund. Essentially, non-U.S. and EU actors present Russia with opportunities to evade the punitive financial measures levied against it by Western powers and a way to keep stimulating its economy. Putin has simply navigated the geopolitical realities facing Russia in light of its marginalisation over the conflict in Eastern Ukraine.

Interestingly, Russia has continued to use Rosneft in its expansion into the wider Middle East and North Africa (MENA), where its footprint has steadily grown in the wake of U.S. disengagement in the region.

For example, on the 21st of February 2017, Bloomberg reported that Rosneft agreed to buy oil from Libya’s National Oil Corporation, with the option for exploration and production. Likewise, Iraq Business News announced one day later that a Cooperation Agreement had been signed between Rosneft and the Kurdistan Regional Government (KRG) for development of Iraqi Kurdistan’s oil sector. This follows a host of military agreements already in place with Arab countries including Egypt and the United Arab Emirates (UAE).


In sum, the recent allegations against Carter Page may turn out to be substantiated, but such close collaboration between Russian and U.S. power players was never an altogether unlikely scenario. The Trump administration’s connections to Russia, both in commercial and political terms – which are increasingly inseparable variables when discussing these two states – have come under greater scrutiny recently.

All in all, this transaction appears to fall within the modus operandi of Glencore – willing to engage in questionable transactions under persuasion of hefty rewards for essentially acting as a front. Likewise, that QIA has made bold choices with regards investment strategy and its willingness to act as a fiduciary shareholder shows where it stands politically. As the layers continue to peel away in this deal, investors must take note of the political risks facing business interests in those jurisdictions involved.

By Shadow Governance Intel for Oilprice.com

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