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Oil test for Putin’s regime


The fizz surrounding the auction of Slavneft, one of only two big oil companies still owned by the Russian state, turned into a froth as nearly all of Russia's oil majors have scratched together the $2 billion Slavneft is expected to fetch when it is sold this month.

The auction is the first real test of president Vladimir Putin's government's ability to privatize in a fair and transparent manner. It is also an opportunity for Russia's oil companies to rationalize their structures, with a string of side deals agreed ahead of the auction.

The state decided to sell Slavneft because it is short of money. Sovereign debts suspended for five years during the financial crisis in 1998 come due next year. It had hoped to raise cash by selling off 5.9% of LUKoil this summer. The sale was expected to raise about $800 million but was cancelled at the last minute because of the weak state of the London stock market.

Cash aplenty at home

Instead, it was decided to put 74.95% of Slavneft under the hammer at home. Rocketing oil production and sustained high international oil prices for most of the last year mean that Russia's blue-chip oil producers are cash-rich and keen to extend their reach.

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