The Gazprom Diplomacy
The mask is off. Vladimir Putin did it by his presidential decree. Gazprom cannot pretend any more it is a commercial entity that cares for interests of its shareholders. The Russian leader has stated unequivocally that his government makes decisions for the company. It explains the difference in gas prices Gazprom charges in various countries—from $180 per thousand cubic meters in friendly Armenia to almost $500 in not so friendly Lithuania.
Moreover, Putin seems to be sincerely convinced that joint ventures of Gazprom beyond the Russian borders must enjoy the same kind of exterritorial immunity as diplomatic missions. They represent the Russian government, don’t they? Therefore, according to the presidential decree, they cannot be controlled and regulated by European rules even though they are engaged in commercial activities in European countries.
If you are unhappy about a contract you signed with Gazprom, the company will send you to the government in Moscow to complain. At least this is what Putin has ordered Gazprom to do.
Gazprom refuses to respect its contracts? Nobody is to blame—it is a political decision of the government. Gazprom wastes billions of shareholders’ money on redundant and unprofitable projects? The decision is made by the government and the rationale appears to be political (although some old friends of Mr. Putin get richer by getting a couple of contracts.) The company continues supplying gas to insolvent customers but closes the taps on a pipeline to a paying client? Go tell it to the government.
Russia’s Federal Antimonopoly Service says it cannot control Gazprom even though its management acts inefficiently. ‘It’s a state within a state,’ the head of the service declared ruefully. Government ministers admit that investment programs of Gazprom are wasteful.
Foreign analysts and officials of international energy companies who spoke to RusEnergy off the record after Putin’s decree was published called the document ‘absurd’ and, in a mild rendering of another expression, ‘unwise.’ ‘The Russian president believes he can order the European Commission and buyers of Russian gas to treat Gazprom and its offices as diplomats,’ an analyst said. ‘That’s not going to be effective. It damages the reputation of both Gazprom and Russia.’
Industry watchers suspect that 2011 saw the peak of Gazprom’s financial records and now the gas giant is heading for a long and steep decline. Some, such as Mikhail Korchemkin from East European Gas Analysis, give the company three to four years before it goes bankrupt. Putin’s decree sends a definite signal to investors: the key manager of Gazprom is quite desperate and makes weird decisions.
Are you still planning to buy some Gazprom shares?
Published with the kind permission of RusEnergy. RusEnergy is an independent privately-run company established in 2000 by a group of Russian experts with a long experience in consulting and publishing business. Based in Moscow, it specializes in monitoring, analysis and consulting on oil and gas industry of Russia, Central Asia, Azerbaijan and Ukraine.