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Sechin jumps from Rosneft board - leaving BP to fight alone?

Russian Oil WellIgor Sechin, stepped down as chairman of Rosneft, the state-run oil company, on Monday, in a move that casts further doubt on the Russian giant's tie-up with BP.

Sechin's resignation, announced at a Rosneft shareholder meeting, occurred less than two weeks after President Dmitry Medvedev ordered that ministers should leave the boards of state companies. Sechin is a deputy prime minister and the country's energy tsar.

A statement issued by Rosneft said that the board had met to discuss Mr. Medvedev's order, which set a July 1 deadline for all state companies to begin removing the officials from their boardrooms, reports Reuters. Sechin has decided to leave his position in Rosneft immediately, the statement said. An independent member of the board, Alexander Nekipelov, was appointed acting chairman.

Although Sechin will retain no little influence over Rosneft - which has been his pet project for years - his swift move to comply with Medvedev's order is surprising. It's widely anticipated that many officials sitting on state company boards will look to negotiate their way out of following the order.

The move is a worrying sign for BP, which has seen an agreed $16bn share swap and JV to explore Arctic oil & gas deposits bogged down by legal challenges from AAR - its partner in Russian JV TNK-BP - on the back of a shareholder agreement which states that new Russian projects by either partner must go through the JV.

A successful injunction against the deal suggest that BP knew full well that the tie-up with Rosneft would violate the shareholder agreement, but it presumed that the Russian government, with the powerful Sechin as point man, would protect it from the wrath of the oligarchs behind AAR. A second, indefinite extension of the injunction was granted on April 8.

It is still widely assumed that AAR is most likely simply causing as much trouble as it can in order to cash out at as high a price as possible, with the deal strategically important for the Kremlin and having been blessed personally by both Medvedev and Prime Minister Vladimir Putin - a staunch ally of Sechin.

Indeed, Vedomosti reports this morning that Rosneft and BP may acquire AARs share in TNK-BP for $30bn. Meanwhile, Kommersant reports AAR could sue BP for failing to offer TNK-BP a role in the tie-up, seeking damages of $5-10bn.

However, as the complications have mounted, Putin was the first to distance himself from the proposed tie-up, as he spoke in late March of his annoyance with BP for having claimed that there were no impediments to the deal when it was announced in January. The speed of Sechin's uncontested compliance with the order to leave the Rosneft board may hint at a similar wish to distance himself from the mess.

VTB Capital writes: Sechin's resignation sets in motion one of the central, and most prominent, of President Dmitry Medvedev's Magnitogorsk theses on the investment climate: the removal of officials from the BoDs of state-controlled companies. Thus, it is the first proof of the tangibility of the Kremlin's declared intentions and will, in our view, contribute to them becoming more credible in the eyes of (highly sceptical) observers.

We shall be watching further developments, both resignations and replacements, in the coming three months, as the key 17 replacements are to be implemented by 1 July (according to the President's directive). Kommersant mentions Sergey Shishin, a VTB Senior Vice President, as the likeliest successor to Igor Sechin's spot at Rosneft.

In separate news, First Deputy Prime Minister Viktor Zubkov, who is also Chairman of Gazproms BoD, said yesterday that the decision on the Gazprom chairman post would be made jointly by the President and the Prime Minister by 1 October.

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