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. Last Updated: 07/27/2016

Zhukov Says Sibneft Sale Should Cheer Investors

World Economic ForumZhukov said there is nothing wrong with Gazprom strengthening its position.
The strengthening of the state's grip over the oil sector via state-controlled Gazprom's takeover of Sibneft is not a cause for concern and should send a positive signal to investors, Deputy Prime Minister Alexander Zhukov told a World Economic Forum meeting in Moscow on Monday.

Following a speech in which he pitched the Russian government's program to ensure long-term growth via such measures as health and education reforms and accession to the World Trade Organization, he said he did not agree with the view that the state was taking a dominant position in the energy sector.

"There are certain acquisitions, and there is nothing wrong with that, just as there is nothing wrong with the fact that Gazprom has acquired Sibneft and is strengthening its position," he said.

He insisted that Gazprom's move into the oil sector "sends a positive signal to investors."

"This is especially important given the forthcoming liberalization of Gazprom's shares," he said.

Zhukov's comments appeared to clash with concerns raised by Economic Development and Trade Minister German Gref and Finance Minister Alexei Kudrin, who just days after Gazprom announced the deal expressed concern about the state's growing role in the economy. Gref called moves to increase the state's role "neanderthal," and Kudrin also said he was concerned.

The state made its first move into the sector when state-owned Rosneft effectively renationalized Yukos' main production unit following a controversial auction last year. Since then, the oil sector's double-digit growth rates of recent years have slowed. Many predict overall output growth will slow to 3 percent this year. There is growing concern that rate could fall further as the sector increasingly comes under the management of less efficient state hands. The Gazprom deal will put nearly 30 percent of output under state control.

Zhukov, however, brushed aside investor concerns.

"I don't agree that we have stagnation in the oil sector. Of course, the rates of growth we've seen in the last few years cannot continue endlessly," he said. "Now the pace of oil production in the country has fallen somewhat. But after the new law on mineral resources is passed, the state program for increasing funding for exploration is implemented and a number of companies' programs are put into effect, we will succeed in increasing oil production."

Zhukov did acknowledge that the economy was facing a huge threat from the continued influx of windfall gains from high oil prices. The inflow of dollars is strengthening the ruble and putting the government under growing pressure to spend more of its savings on social programs to lessen the gap between rich and poor, a move that could, however, lead to debilitating inflation.

"This is one of the most complicated problems we face," he said. "It is extremely hard to explain to the people that spending more will not lead to anything good: to inflation and the further strengthening of the ruble. It will take away any chance of ensuring economic growth."

 IT and Communications Minister Leonid Reiman told the forum that his ministry and the Economic Development and Trade Ministry had submitted to the government a plan for selling the state's 75 percent stake in Svyazinvest, the national fixed-line phone company.

He said the ministries were recommending selling the entire stake, which the Economic Development and Trade Ministry has said might raise $2.5 billion to $4 billion.