The economist's advice was not to buy, the assets were bought and, as it turned out, they caused the country (Rosneft's owners are all citizens of Russia) damage in the tens of billions of dollars

Economic commentators are often reproached for the fact that, while criticizing the decisions being made, they do not give specific advice. However, the problem is rather that advice is not listened to. The story of the nationalization of TNK-BP, bought by Rosneft in 2013 for $55 billion, is an example. Now the whole of Rosneft is worth $40-50 billion, which means losses in the tens of billions. Of course, circumstances are partly to blame for this - world oil prices have fallen, but if the mistake - the purchase of TNK-BP - had not been made, the losses would have been much smaller.

Three years ago, my arguments against this deal were very simple. In order to buy any assets, even such valuable ones as TNK-BP, at a market price, the buyer must be able to make them more profitable than the seller can. Selling at a market price means that what the seller gets is no less than what he could get from the company himself. Of course, additional value that could justify the purchase could arise if the new management team was more effective than the old one. However, in this case, everything was the other way around: Rosneft was headed by Igor Sechin, who had minimal management experience and zero business experience, while before that the assets were managed either by top managers of one of the leading companies in the world for decades (BP), or by the most successful entrepreneurs of the last two decades in Russia (the owners of the AAR concern).

Another reason why the combined company might be worth more than the parts separately (only in this case would the purchase be justified) is greater “market power” – the ability of the company to influence the price of its products. What prices could the enlarged Rosneft influence? Not global prices – as was clear in 2013, even Saudi Arabia (and possibly the entire OPEC) cannot influence them. Domestic prices – partly (they are strongly tied to global prices), but what good would it do the country if consumer losses increased?

A third possible reason for nationalization was that it was easier to collect taxes from a state-owned company than from a private one. This argument explained many nationalizations in the 20th century, but nationalization instead of establishing normal tax collection is not the path to economic development.

Economic arguments were presented – the nationalization of TNK-BP is unjustified. Perhaps some political arguments were found, but this does not change the essence of the matter. The economist's advice was "don't buy", the assets were bought and, as it turned out, caused the country (all citizens of Russia are the owners of Rosneft) damage amounting to tens of billions of dollars.

It should also be added that this money – more than $20 billion – is already lost forever. If Rosneft’s capitalization returns to $100 billion from the current $40 billion, this will not mean that the lost $20 billion has returned. A company that did not have $20 billion in debt would be worth at least $120 billion under the same developments. That is, the lost 20 billion will never return. Of course, they were lost by 140 million Russians, i.e. the loss per person is small, but it cannot be said that it is completely insignificant. However, perhaps this money was paid for a lesson – we should listen to the words of economists.

The author is a professor at the University of Chicago and the National Research University Higher School of Economics.

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