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CNBC Transcript: Interview with Russian Finance Minister, Anton Siluanov

Following are excerpts from an exclusive CNBC interview with Julia Chatterley and Russian Finance Minister, Anton Siluanov.


So in the last couple of months, we've seen a slight improvement in the data, the outflows from the economy have seemed to slow, is the worst over for the Russian economy?

Well, it is true, we see that growth rates of the economy are improving; there was the slowdown of the last year to -3.7%, in 2015. And this year we are expecting just -0.3%. And we expect the restoration of the growth rates at the end of the current year.

And what is important is that the structure of the economy is changing. So -called tradable sectors which were depressed during the period of the high oil prices and strong ruble rate are now growing, while the so-called non-tradable sectors are today in a worse situation and this structural shift hopefully will help us to get rid of the so-called Dutch disease and to stimulate the growth of those sectors that bring added values to our economy which will not be dependent on the commodities sector, but will be more dependent on technology and high technology sectors.

When we talk about the economy we always seem to come back to the impact of sanctions. Do you have any hope of a removal at some point in the near future of sanctions or are you sick of being asked the question?

To tell you the truth, I get asked this question a lot. We base our projections on the assumption the sanctions stay in place. I want to say that the economy as a whole has adapted both to the new external economic conditions and to the conditions of those capital and goods inflow restrictions. Of course, any sanction is a bad thing but in any case one has to continue working and the economy, like I said, is adapting. And our task now is to make our budget obligations aligned with the new economic conditions.

What does the return of Mr Kudrin mean for the Russian government and the focus. Does it mean that the reformist part of the government now is back in the driving seat?

Alexei Kudrin is a highly qualified professional. He was awarded the best minister award many times. That is why we think that the participation of Alexei Kudrin in the work on the economy, finances, will no doubt, help improve the situation in Russia. In terms of fiscal policy, I share the same attitude towards the budget. That is why the involvement of Alexei Kudrin in the new format of the economic council, in my view, will bring additional benefits to the budget policy. Together we will be able to solve more effectively the issues which had been put back earlier and which need resolving now. That is why I hope and I am sure that the involvement of Mr Kudrin in the resolution of the economic issues will be for the benefit for the Russian economy.

Let's move on and talk about oil because there are going to be crucial talks this weekend. How confident are you that we get a firm commitment to an oil price freeze?

We are still dependent on the oil price but we don't expect any significant changes in the price policy despite the on–going negotiation process with the oil-extracting countries and we base our plans assuming the current price levels - about $40/barrel. We see that global economy is slowing down and there is a greater stock of oil inventories in different countries. In this case, we do not see any fundamental reasons for oil prices to go up and we think it will be around $40 per barrel in the medium term, but for Russia I think this a good thing because the oil prices would not let us have the imbalances in the way of more profitability in raw materials that we used to have.

I mentioned earlier that because of the high oil price we didn't develop the non-commodity related sectors, but given the current oil price projections, this sector will be able to grow. It used to be like that that we sold expensive oil and imported technology from abroad but given the current projections we will have to develop the technological sectors and we will have to develop the sectors previously depressed because of the high oil price. We plan to work in the current price categories, and it is quite acceptable and correct for Russia.

The oil prices rallied 10% in March alone on expectation on expectations around this meeting . I think the fear is we get some weak, wishy-washy agreement that isn't firm and precise to free supply, and then the oil price weakens again how high is that risk? Particularly given Iran?

Like I said earlier, we don't see any ground for fundamental increase in the oil price. Indeed the negotiations are underway with the oil-extracting countries ,we try to agree to freeze the production levels and fix them at the level which was achieved at the beginning of this year. You are correct in saying that this affected the oil price and it hiked by 10% but the oil price increase was caused also by the overly optimist forecasts of growth rates in major global economies like the US economy, Chinese economy. There are a lot of factors in play here. Production volume, demand, associated with the growth of world economy, big reserves. All these factors should be taken into consideration. Addressing your other question, whether these self-imposed restrictions will be complied with, I think yes if there are such agreements otherwise why would we have to commit to these restrictions.

You mentioned Iran – it's true. Iran is re-entering the market and it will be increasing its production levels in order to restore its market share, which was before the sanctions. But I think the agreement should concern all major oil-exporting countries, otherwise this agreement would not be effective. So if we achieve this agreement, I think this would help stabilise the oil price at the current quite high level.

President Putin today suggested that the government is looking to sell an additional 19% stake in Russneft - which I believe would take the government stake to just above 50% - can you confirm that's the case?

It's true, we have certain privatisation plans for this year. On the one hand we need money help finance the budget deficit, on the other it's a long term strategy that we should decrease the share of the state in the economy. So we hope to finish this deal in the second half of this year

President Putin also said he was looking for a non-greedy investor. Was that a reference to BP and Bob Dudley?

We see that share prices of Russneft have risen and are currently going up. So in this case, a greedy investor would not be able to participate in the privatisation

So you're looking for an investor, but I guess you could argue that any listed company is going to struggle in that sense to invest. Are you therefor looking at a more preferable candidate in a state owned company I guess Saudi Aramco would be an obvious choice?

You know Russneft is a big package, 19.5%. Our current estimate of this stock is roughly 650 billion rubles. Strategic investor would be one option as a buyer but we are open to offers from all sides and we will consider them all. The process has just begun, we will see what kind of interest we receive and a bit later we get back to this issue.

Has energy minister Novak been speaking about the possibility of an investment here?

Come to Moscow and ask him.

Can I just confirm them, just to go back to the point about greedy investors and BP shares. This is in no way suggesting that BP should sell their stake in Russneft. You're still happy with BP as partner?

There are different views here – concerning not to allow that one company holds a big package , a block-package. We heard such statements from the management of Russneft , and that is why we are ready now to consider different proposals . When there is a list of investors who would wish to hold this package then the decision will be taken with the consideration of various criteria. Probably it is early now to talk about how important will be the presence of this or that investor.

I want to say that foreign investors are important to us, and, on the contrary, we shall be glad if foreign investors will purchase the packages of the privatized companies- be it Russneft, Bashneft, Amrosa. What is important to us is a quality investor who would be able not just become a participant but would introduce new technologies , new knowledge, new management know-how. That is why we shall consider the whole list of those who want to buy the packages of privatized companies and correspondingly exclusively a strategic investor will be selected once a decision to sell will be taken.

So the overriding message here isn't that Russia is opening up because it's being forced to, because it's desperate. But also that you are welcoming foreign expertise?

You know – we did not shut ourselves. Those restrictions, sanctions were not introduced by Russia & that is why I think that investors know about the policy of the state in this direction. And on the contrary, those restrictions that exist now unfortunately, I have to repeat myself, was not our decision. And it is a fact that Russia was and remains to be open.