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Gazprom as a Stakhanovite Corporation

stakhanov_time_cover.jpgVladimir Putin is certainly not the first Russian to nab the cover of Time Magazine. In addition to Yeltsin, Gorbachev, Sakharov, Brezhnev and many others, if we go all the way back to Dec. 16, 1935, the cover was graced by the legendary Alexei Stakhanov – the iconic Soviet worker of the Stalin era. Stakhanov, as I’m sure many of you are aware, was a miner who became an international celebrity after extracting 14 times his quota of coal single handedly in under six hours, and later set a new record by mining 227 tons of coal in a single shift. His extraordinary feats inspired the Shakhanovite movement which sought to improve productivity and bolster national pride and unity – a name synonymous with Joseph Stalin’s ambitious five-year plans. (Although a largely irrelevant detail now, in 1985 the New York Times reporter Serge Schmemann, now an editor at the International Herald Tribune, first broke the story that Stakhanov’s achievement was a propaganda ploy, as he was helped by numerous other workers to break the record.) If we were to look for the Stakhanov reincarnation in today’s Russia, symbolizing in larger than life terms Russia’s resurgence, strength, confidence, and national unity, we would look no further than Gazprom – an impossibly overachieving corporate behemoth that is not only the central instrument for the Kremlin to leverage its power abroad, but also a Titan-like national symbol of the new reality of Putinist Russia. But like the superhuman Ukrainian miner, are Gazprom’s achievements over-emphasized to serve this purpose?

Part of Gazprom’s image as a spectacularly overachieving corporation that “always wins” is its emphasis in recent years on aggressive acquisitions in new markets, and its encircling of its principal customers in Europe. Just to point out a few recent moves, we have the hostile offer to take over Serbia’s state energy monopoly, a $2 billion investment in Bolivia, new deals in Libya, Algeria, and Venezuela, and much talked-about discussions with Nigeria to invest several billion. All this in addition to major “gas distribution hubs” in Hungary and Austria, snapping up any and all midstream and upstream assets that aren’t nailed down in Europe, as well as major multi-billion dollar pipeline projects such as Nord Stream, South Stream, and the Caspian littoral pipeline.Indeed Gazprom looks like the big spender about town, reaching into its deep pockets with little hesitation to buy assets far abroad that do not seem central to any conceivable core business strategy. Meanwhile, while all this cash is directed outwards, the company’s surging value is largely based on unmobilized gas assets in Russia which will require enormous amounts of capital in order for Gazprom to reach domestic demand and supply obligations. Dmitri Medvedev told Vedomosti that they plan to invest $420 billion in exploration and new gas-production facilities through the year 2030 to avert the coming gas shortage crisis. The company has a long running dispute with officials from the International Energy Agency who are desperately pleading that they invest more in production rather than snap up further acquisitions abroad.Like Stakhanov, Gazprom’s achievements are exaggerated for many reasons, perhaps the most important being that it is not actually a company, corporation, or purely commercial entity in the traditional sense of the term. Neither is Gazprom a government, but rather the lines are so blurred between the two, as many OECD reports have noted, that it is often difficult to tell which is the horse and which is carriage.Being at least partly driven the political whims of the Kremlin leadership, the corporatsiya is not purely pursuing commercial objectives, which makes its conduct and decision-making often difficult to anticipate for many governments and competitors who still just don’t get it. When we see highly activist deal making by Gazprom in countries such as Turkmenistan, Kazakhstan, Iran, Libya, Algeria, Venezuela, and Bolivia, often accompanied by major arms deals, debt forgiveness, and other advances for strategic partners related to the Russian government, there is much more going on than just simple profit-seeking acquisitions and partnerships.We have written numerous times on this blog about Gazprom’s habit of carrying out “premature contractualization” – a practice by which they announce deals, agreements, and discussions far ahead of time, even before negotiations have concluded, in order to produce the desired outcomes among other parties.Like the Stakhanovites, it doesn’t matter how many people helped out to break the coal production record, it only mattered that the feat was held in awe, intimidating some while inspiring others to action. And who could blame them? Gazprom has seen premature contractualization to be quite effective in cowering both BP and ENI into favorable conduct, so why not continue to do it? The bottom line is that what Gazprom often says prematurely, it fails to achieve in actuality. What they don’t talk about is often the most interesting story of all, in terms of its hidden political power and influence, and less than transparent use of middle-men to corrupt politicians-turned-pitchmen, is where the real interesting news on this subject may well be made.As the Kremlin pushes forth past the historical conservationists to build what will be known as a national cathedral of Gazprom in a historic quarter of St. Petersburg, towering high above any other skyscraper in Europe, we see a clear effort to remake the great gas giant as the modern Stakhanov, permanently fusing the company with national identity. It remains to be seen whether Gazprom will reach a tipping point in facing the daunting challenges of inflation, under-investment, and the considerable shake-up within the management during the succession period, and if this symbolic skyscraper project will go the way of the Palace of the Soviets. Such irony is not unprecedented in Russian history.