New Internationalist

Gazprom

Issue 416

Microsoft? General Motors? ExxonMobil? Which is the world’s biggest corporation anyway? Few would think to pick the Russian natural gas giant Gazprom, but that is exactly the position that this energy powerhouse expects to occupy by 2014, according to former Gazprom chair, Dimitri Medvedev. Vladimir Putin plucked Medvedev from the corporation to be his replacement as President when term limitations forced him to shift jobs to Prime Minister. With energy prices rocketing out of control and Gazprom controlling vast fields of natural gas, 17 major underground pipelines and enjoying a monopoly in the export of billions of dollars’ worth of the stuff to points West, there are few business journalists who would dare disagree. The company employs 432,000 workers and provides 20 per cent of the Russian budget through taxes on its activities. Gazprom also controls a good hunk of Russia’s massive oil reserves (third only to the Saudis and Iran) thanks to its acquisition of the oil company Sibneft.

Gazprom is an odd beast. In some ways it recalls an old Soviet-style centralized industry – it is 51-per-cent controlled by the Russian state. In others it resembles a sophisticated publicly traded corporation, with model labour relations and increasing international clout. From its palatial headquarters on the outskirts of Moscow, Gazprom is wheeling and dealing outside Russian borders, lining up gas and oil supply in Algeria and Libya and signing gas contracts anywhere from Sweden to Turkey. Like any major corporate player, it worries about its image, especially after having to throw its weight around with those reluctant to pay escalating energy prices. So it has hired a phalanx of Western PR companies, including the venerable Hill and Knowlton, led by former British Nuclear Fuels PR chief, Philip Dewhurst.

Meteoric is the only word to describe Gazprom’s rise since its formation in 1992. True, there were birth pangs. The first rush of privatizations under the Government of Boris Yeltsin saw a number of major thefts, in what might be termed the robber-baron phase of the ‘dash for capitalism’. The former Russian Prime Minister Victor Chernomyrdin, who created it as a largely private company, and his deputy Rem Vyakhirev, who took over when Chernomyrdin entered politics, are widely believed to have enriched themselves dramatically. Both men are sitting on billion-dollar fortunes that came from this period. In those days, Gazprom used shadowy companies such as the Itera Group (run by former champion cyclist Igor Marakov) that made billions brokering gas sales to Ukraine and other former Soviet states. Shadowy intermediary suppliers or brokers remain part of the Gazprom operation to this day.

Enter Vladimir Putin, launching a crusade to rein in the oligarchs who had come to dominate Russian life. Putin saw fossil fuels in general and Gazprom in particular as the key lever for rebuilding Russian economic and political might. The old élite is now being replaced by the new élite of an energy-industrial complex at the heart of the Russian Federation. Gazprom has moved from being a largely private company to one close to the levers of power, controlled by the Russian state.

There is every reason for a country to want to control its own energy resources. But, as the case of companies like PEMEX in Mexico shows, nationalized industry can be a mixed blessing. Bureaucratic energy empires are prone to throwing around their political weight, treating their customers badly, enriching a well-placed few, and bullying environmental and other critics. Both Ukraine and Belarus have been threatened with gas cutbacks or freezes over pricing issues. This makes European customers very nervous. Germany has made a separate deal with Gazprom for gas from the giant Shtokman field in the Barents Sea. Gazprom is interested in forming a natural gas version of OPEC, with partners such as Iran and Algeria.

In contemporary Russia the right to criticize is shaky at best. Gazprom, in particular, is off-limits. So open media discussion of energy policy is a tricky business. It tends to be replaced with the patriotic glorification of Russia’s energy giant as a means to recover superpower status. Environmental critics have been given short shrift. Greenpeace reports that the number of environmental violations – such as the release of toxic waste from gas and oil plants – has grown from 14,500 a year in 2000 to 39,000 now. In the same period, the number of inspectors assigned to the State Committee for the Environment has been slashed from 5,000 to 800.

Gazprom Fact File
Name
Gazprom
Job
Russia’s publicly controlled energy monopoly.
Reputation
Jewel of the Russian economy; power-centre of the Government of Vladimir Putin; major player on world energy scene.
Sense of humour
When Gazprom head Alexei Miller addressed an oil industry conference in Amsterdam in 2006 he began with: ‘This speech will be in Russian.’ Scores of surprised energy executives tripped over each other to get translation headphones.
Low cunning
The Russian Government used environmental criticism of the Shell-operated Sakhalin II natural gas project off the country’s Pacific coast to lever Gazprom into a controlling position in the project. It then proceeded to ignore the destruction of the habitat of the endangered Pacific Grey whale and other species.
Sources
Sources: ‘Energy Czar’, www.forbes.com Wikepedia; www.newsweek.com; ‘Russia’s energy policy: politics or economics?’ www.opendemocracy.orgwww.spinwatch.org; www.russianprofle.org; ‘Why Russians love Gasprom’, Business Week, 26 July 2006; www.iht.com

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