Son of FSB director Patrushev to be advisor to chairman of oil giant Rosneft

Andrei Patrushev, son of FSB director Nikolai, takes avisory role at Rosneft.

Publish date: September 14, 2006

Written by: Charles Digges

Russia’s Federal Security Service (FSB) director Nikolai Patrushev's 25-year-old son Andrei has been named as an adviser to Rosneft chairman Igor Sechin in what many see as an effort by the Kremlin to scuttle the oil giant’s long-discussed privatisation plans.

Patrushev, Jr. is coming to Rosneft from a post as deputy director of the FSB’s so-called division “P,” the department responsible for observing industrial – particularly oil industry – activities, the newspaper said, citing an unidentified Rosneft official. So concerned with oil is division “P,” say insiders, that it is simply know as the “oil division” at the FSB headquarters of Lubyanka in Moscow.

Although reports in Russia’s daily Kommersant on Thursday indicated that Patrushev the elder’s head may be on the chopping block in a wide- scale purge over a mishandled contraband case at Lubyanka, his son Andrei is an FSB man in his own right, having attended the FSB academy with the son of Russian Prime Minister Nikolai Fradkov, who now runs the department of structural financing at Vneshekonombank.

Indeed, analysts noted that Andrei Patrushev’s promotion was taking place against a background of potential new shuffles within the administration of President Vladimir Putin – and in the new wave of nepotism in which Andrei Patrushev’s appointment occurred, it so far seems that the sins of father are not being visited on the son.

Appointment unconfirmed, but Patrushev, Jr.’s business cards are on the way
Rosneft and the FSB on Wednesday would neither confirm or deny the appointment, leaving unclear precisely what Patrushev the younger’s role will be at the oil major. According to one Rosneft source, Patrushev “has still not made an appearance, however business cards for the new advisor have been ordered.”

But Russian media speculation indicated Patrushev, Jr.’s appointment is an effort at solidifying control of Rosneft by the so-called siloviki, the hawkish group of security and military officials close to Putin.This is an especially important portfolio as drilling in the Russian Arctic gets closer to becoming a reality.

Rosneft, along with Gazprom, form a consortium called Sevmorneftgaz, which holds licensing rights to Russia’s Arctic Shtokman and Prirazlomnoe oil and gas fields – a project that, when ready to go forward, will be one of the world’s largest oil and gas drilling undertakings.

The drilling of Shtokman is expected to bring a cash bonanza to Russian government coffers, and involved officials have called the field on of the most oil and gas rich spots on earth.

A step in exploiting Shtokman’s resources came Wednesday as a Gazprom-commissioned environmental impact study, performed by the Kola Science Centre in Murmansk, was handed to Gazprom’s scientific divison of Gidrospetsgaz, giving a glowing assessment about how little the gargantuan drilling and transport effort would effect the fragile underwater Arctic environment where the Shtokman field is located.

“The development of the Shtokman project can not harm environment on the Kola Peninsula,” the study’s research leader Anatoly Vinogradov said, according to the Barents Observer website.

Vinogradov did admit that drilling Shtokman would take specially built technology for complex terrain, but concluded by saying that he did “not see any special problems in this.”

Gold-rush mentality
There exists among western oil majors a gold-rush mentality about the Shtokman field, but the situation for them remains unclear as Russia develops new legislation on the use of natural resources contained deep underground that could exclude invitations to foreign firms once it is passed, the rationale being that the field is of too much strategic importance to the Russian state.

The Barents Sea contains some 27 trillion cubic metres of recoverable gas and the Pechora Sea holds some 2.3 trillion cubic metres, according to a 2004 study by Russian Ministry of Natural Resources. Just one Shtokman field, according to the same study, contains 3.2 billion cubic metres of gas and 31 billion of condensate.

“Geological exploration primarily off the coast of northwest Russia will open up a new resource base for the gas industry and regional base for the supply of gas to Russian and foreign gas consumers,” said Gazprom vice president Alexander Ananenkov in an interview with Norway’s PETROmagasinet last may.

Sechin’s role in killing Yukos
Sechin, deputy head of Putin’s Kremlin staff and a former KGB official believed to have played a leading role in the legal assault on oil giant Yukos, was appointed to lead Rosneft’s board in July 2004, despite having no experience at all in oil.

Rosneft is now Russia’s second largest oil producer, after its purchase of Yuganskneftegaz, formerly Yukos’ largest production unit.

The company raised $10.4 billion from its initial public offering (IPO) in July. The IPO was widely criticized, and several investors and fund managers accused Rosneft of telling investors that they could buy the shares as a means of currying favor with the Kremlin, The Moscow Times reported.

Nearly 50 percent of the shares up for the taking were bought up by BP, Malaysia’s Petronas, the China National Petroleum Corporation and a fourth unidentified buyer. BP has acknowledged that its purchase was largely driven by a desire to cultivate better relations with the Russian state, rather than to strengthen its portfolio.

The IPO became the country’s largest as well as a symbol of the Kremlin’s campaign to reassert state control over the strategic oil and gas sector, The Moscow Times said.

Nepotism facilitating the government’s needs
Andrei Patrushev is not alone as the child of a powerful official joining the top ranks of Russian business.

Defense Minister Sergei Ivanov’s 25-year-old son was appointed vice president of Gazprombank last year.

The 30-year-old son of St. Petersburg Governor Valentina Matviyenko works as a senior vice president in state-owned banking giant Vneshtorgbank.

Another employee of Vneshtorgbank is Dmitry Patrushev, Andrei’s older brother, who oversees loans to oil companies, Kommersant reported.