Groundhog Day in Moscow as Russia seizes another privatized oil company

A Russian court ruled to seize the shares of Bashneft, one of the country’s largest oil companies, effectively renationalizing it and overturning an allegedly fraudulent privatization whose results had stood for over 10 years.

The case has sent shivers through Russia’s business community, a fresh reminder that the ownership of the country’s biggest industrial assets still isn’t safe, nearly two decades after they were sold in frequently flawed or corrupt privatizations.

The case has been compared to the nationalization of Yukos in 2004 over alleged tax evasion and fraud by its owner, Mkihail Khodorkovsky. The politically ambitious Khodorkovsky, who was Russia’s richest man at the time, was subsequently jailed for 10 years, before being given a conditional release at the end of last year.

His company, meanwhile, was sold off, indirectly, to the then state-owned company OAO Rosneft for a song. Rosneft is now chaired by Igor Sechin, who had directed the campaign against Khodorkovsky from his position as deputy chief of staff at the Kremlin.

Bashneft is majority-owned by the London-listed conglomerate OAO AFK Sistema, whose billionaire head Vladimir Evtushenkov is currently under house arrest on charges of money laundering. He denies the charges and has said he will contest them.

Sistema had built a controlling stake in Bashneft with two acquisitions in 2005 and 2009. For $2.5 billion, it bought Bashneft and other energy companies with lucrative local monopolies from vehicles controlled by Ural Rakhimov, the son of the then-president of Bashkortostan, the company’s home region.

Rosneft says it’s not interested in buying Bashneft, but it would be an attractive source of cash for a company in Rosneft’s position. Rosneft is heavily indebted and is shut out of western markets by western sanctions. It has to repay $14 billion by February. Last week, it asked the Finance Ministry for $50 billion from Russia’s National Welfare Fund to help it with its debt repayments, but was rebuffed.

Although perceived as one of the most corrupt regions in the country, Rakhimov senior had been tolerated by President Vladimir Putin for years, even after scrapping elections for regional leaders and making them accountable only to him. Rakhimov ultimately resigned early from his third term in 2010.

Prosecutors allege that the sale of the state’s interest in Bashneft to Rakhimov junior’s companies had been illegal, a view endorsed ahead of the trial in a recent interview by a Rosneft spokesman.

The privatization had, however, received all the necessary state approvals at the time. Sistema had in turn also received the approval of federal regulators when buying the company.

Paradoxically, Sistema’s depositary receipts rose 14% in London on the news, mainly because the court didn’t immediately confiscate some $4.5 billion in dividends that Bashneft and the Bashkir energy companies had paid Sistema since 2009. They’re still down 74% year-to-date.

However, the news agency Interfax quoted an official as saying that the return of illegally seized assets “will go progressively and in stages.”

The case has been seen in Moscow as another sign of the ascendancy of policy ‘hawks’ such as Sechin over more liberal figures such as Prime Minister Dmitry Medvedev. Medvedev was quoted by ITAR-TASS as saying that: “Entrepreneurs definitely should not live in an atmosphere of fear…Businessmen of good faith must be under the protection of the law, they have to be protected and encouraged as much as possible.”

Sistema, whose biggest other asset is a stake in NYSE-listed mobile carrier OAO Mobile TeleSystems  MBT 5.95% ,said Thursday its individual units continue to operate as normal, but said the “ongoing litigation could have a significant negative impact” on its own financial condition and obligations.

It has a month to appeal the ruling.