UPDATE 2-Russia creates wealth fund, lacks long-term strategy

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By Gleb Bryanski

MOSCOW, Jan 31 (Reuters) - Russia split its $157 billion oil stabilisation fund into reserve and growth sub-funds on Thursday but officials are still at odds over how to invest the windfall, the fund's supervisor sits in jail and legal risks remain.

The Finance Ministry said it had split the fund into a $125 billion Reserve Fund, which will cushion the budget from a fall in international oil prices, and a growth-oriented $32 billion National Wealth Fund.

"The Finance Ministry has completed the transformation of the oil stabilisation fund," Pyotr Kazakevich, deputy head of the ministry's debt department, who oversees day-to-day management of the fund, told a briefing.

Kazakevich's former boss Deputy Finance Minister Sergei Storchak was arrested last year and charged with an attempt to embezzle public funds. He denied the charges. The arrest is seen as a part of struggle for control over the vast cash hoard.

The split is part of Russia's budget reform, under which all of Russia's energy revenues will from now be collected in the new Oil and Gas Fund that will then send some of the money back to cover any budget deficit.

The reform's architect Finance Minister Alexei Kudrin said the new mechanism will help illustrate Russia's dependency on energy sectors. The new funds will not grow until the transfer of funds back to the budget is completed.

The revenues will then flow into the Reserve Fund, which will cushion the budget from a possible fall in international prices for oil, Russia's main export commodity, playing the same role as the stabilisation fund.