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Head of Bashkiria considers Bashneft privatization amid oil prices volatility risky

Earlier this week, Prime Minister Dmitry Medvedev postponed the privatization of Bashneft for a later term

UFA, August 19. /TASS/. Head of Russia’s Bashkiria republic Rustem Khamitov finds it risky to privatize the Bashneft oil company amid volatility of oil prices and the ruble’s rate.

"Selling the company in conditions of high volatility of oil prices and the ruble rate is risky from the economic point of view. Successful sale requires stable conditions for planning and this is not the case now," he said in an interview with TASS.

At the same time Khamitov said he is confident that the economic situation will be improving and this will remove the need to immediately sell the company.

Earlier this week, Prime Minister Dmitry Medvedev postponed the privatization of Bashneft for a later term. In particular this was done following the letter by Khamitov.

Khamitov approached the Kremlin with the request to postpone privatization of the company so that Bashneft could continue meeting social commitments to the region.

The head of the republic said it was necessary "for protection of the republic’s interests."

"There were no guarantees that after the privatization everything will stay the same for the republic in terms of dividends, taxes and charity support. Considering that no one assured us that financial flows (for the republic) will be unchanged, the government of the republic stood its ground: it is risky for the local budget to privatize the company without such agreements," he said.

Khamitov said that privatization of the company should not be a goal in itself and public opinion and reaction of the company’s employees should be taken in consideration.

"Besides that we should understand that there are issues which concern further reliable operation of the company - the issues of technical and environmental nature. All this should be considered and clarified before the sale of the stake. But such consultations were not held," he added.

New projects to enhance capitalization

According to Khamitov, Bashneft implements new projects that will increase the company's capitalization.

In particular, disposal works for 6 bln rubles ($93.85 mln) will be constructed, investment projects in the petrochemical industry for 100 bln rubles ($1.56 bln) are planned. The company will be engaged in the search for new deposits.

"Bashneft completes construction of disposal works - modern, truly effective to replace those that have already completed their operation cycle. Financing volume exceeds 6 bln rubles ($93.85 mln). In the coming years delayed coker unit will be in the works, which will further increase oil refining efficiency," he said.

Investment program for Ufaorgsintez (petrochemical products, part of Bashneft) exceeds 100 bln rubles ($1.56 bln), there will be new production facilities, Khamitov told TASS. "I can say that all these measures will increase the reliability of the company and increase its capitalization. In addition the company will be engaged in the search for new deposits and, quite possibly, will not give up the purchase of new deposits," Head of the republic said.

"Bashneft now becomes the center of a cluster of petrochemical, chemical production in the republic. More and more companies of the republic interact with Bashneft," Khamitov said. "Due to the supply of raw materials of Bashneft, Sibur will increase the volume of production on its polyester complex. Bashneft interacts with "Bashkir Soda Company" in terms of ethylene supplies, there is already some progress," he added.

The company purchases a significant amount of production of Bashkir companies, this applies to construction materials, equipment and components, catalysts and even working clothes, protective equipment, the head of the republic said.

Earlier, First Deputy Prime Minister Igor Shuvalov said that the price of the stake of Bashneft (50.08%) was preliminary estimated at 297-315 bln rubles ($4.6-4.9 bln). Nine companies showed interest in the deal. There are no foreign companies or state companies among them.

Bashneft oil company operates in more than 20 regions of Russia and abroad. The Federal Property Management Agency owns 50 plus 1 share in the company’s share capital; the republic of Bashkortostan holds 25% plus one share. Bashneft’s shares are traded on the Moscow Exchange.