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January 16th, 2009
Buzzwords: Gazprom

Erin Chapman

Photo: www.kremlin.ru

Today, we premiere a new feature on our Wide Angle site — Buzzwords will appear each Friday to break down the lingo, jargon, buzzwords and hot topics of the world’s headlines. Each post will present a short backgrounder on a term that’s been appearing in recent news. We hope you’ll keep an eye on this feature and make suggestions if there are things you’d like to be covered.

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Russia’s largest company, Gazprom is a hybrid on the global business scene. With a dash of publicly-traded corporation and a healthy serving of Soviet-style centralized industry the Russian government has utilized the entity as a policy tool cum profit maker in recent years. Gazprom holds the richest natural gas reserves in the world, owns the entire 158,000km of gas pipeline infrastructure in Russia (almost 4 times longer than the equator) and supplies gas not only to the domestic market, but also to Germany, Italy, France, Turkey, Hungary, Czech Republic, Slovakia, Poland, Austria, Finland, Belgium, Bulgaria, Romania, Serbia, Montenegro, Slovenia, [take a breath] Croatia, Greece, Switzerland, Netherlands, Bosnia and Herzegovina, Macedonia, Great Britain, Ukraine, Belarus, Moldova, Kazakhstan, Lithuania, Latvia, Estonia, Armenia, and Georgia. (Should you need a mnemonic device, perhaps you can create something to the tune of the Jarabe Tapatio as international affairs expert Yakko Warner did.) While Gazprom’s main business is gas exploration, processing, transport and sale, it also has holdings in financial institutions, media – including the former opposition television station NTV, hotels and farming as well as an airline, its own telecom network and ownership of the Zenit football club in St. Petersburg. The team’s original name? The Stalinets.

Gazprom was formed in 1989 from the remnants of the Soviet Oil & Gas Ministry with Viktor Chernomyrdin (later prime minister) at its head. In 1993, the company was reorganized into RAO Gazprom and a partial privatization left 40 percent in the hands of the Russian Federation. While the company searched for its bearings in post-Soviet Russia, an economics student named Vladimir Putin was working on his (allegedly plagiarized) doctoral thesis advocating the renationalisation of natural resources. Soon after Putin’s election to the presidency in 2000, his close ally Dmitri Medvedev replaced Chernomyrdin as chairman of the board and in 2005, the Russian state acquired a controlling stake of Gazprom. Leading the company now are Putin’s Deputy Prime Minister Viktor Zubkov and CEO Alexey Miller.

Arguably, state policy for Russia is operational policy for Gazprom. The government regularly wields power through fuel supplies – providing natural gas at little or no charge to friendly satellites like South Ossetia or Transdniestria and occasionally halting flow to contentious countries like Georgia, Belarus and Ukraine. Foreign policy and corporate profits have been at odds of late, however. Domestic price caps hold Gazprom to little more than breaking even on the Russian market, even though those sales account for 2/3 of production. Shareholders ultimately make their money from export–the foreign market is willing to pay 4-5 times as much for the gas. While cutting off supply through Ukraine may bolster Russia’s clout in the region, it doesn’t do much for investors.

When oil prices were on the rise in 2007, so was Gazprom, but the global economic downturn has hit the company hard. Putin’s focus on renationalizing oil fields and associated private industries diverted moneys from much needed investments in exploration and drilling. What was one of the world’s three largest companies in mid-2008 saw its stock plummit 76% by December 2008 (a far greater loss than its international competitors) and is now looking for bailout funds from the government. The state is heavily reliant on the company for income – Gazprom pays taxes equal to about 20% of Russia’s budget.

(Sources: Gazprom; New York Times; NPR; Novaya Gazeta; Stratfor)

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