Gazprom: Shareholder Interest vs. Political Expedience

Today energy reporter Shawn McCarthy of the Globe and Mail has an extensive report on Gazprom. A rendering of the new proposed “Gazprom City” headquarters to be built in St. Petersburg. According to e-Architect, “the tower will change color up to 10 times per day, depending on the position of the sun, 300m tall twisting glass tower over 75 floors already nicknamed ‘corn on the cob.'” Excerpts:

The iconic new headquarters in St. Petersburg would be a fitting corporate palace for the strongman president – dwarfing those of the former monarchs. In a news conference last month, Mr. Putin gave his tacit support for its construction, although Gazprom itself insists that no final decisions have been taken. Despite its ties to the Kremlin, the world’s largest natural gas producer insists it is essentially a commercial enterprise eager to pump up revenues by adding new production to replace declining old gas fields and by taking ownership stakes in foreign marketing and distribution assets closer to consumers. Presidential spokesman Dimitry Peskov argues that the Kremlin maintains a controlling stake in Gazprom for reasons of “strategic security” but that the company is mandated to act in the commercial interests of its owners, including public shareholders who hold 49.08 per cent of the company. “It is acting as an independent corporation, in the interest of its shareholders, including foreign investors, pursuing the goal of enlarging its revenues,” Mr. Peskov said in an interview. But the company’s reputation in the West has been battered over the past few years and critics argue it is Mr. Putin’s political aims, rather than shareholders’ interests, that drive its strategy. Gazprom has been accused of not investing sufficiently in natural gas production to meet all its future commitments, of being used as a tool of the Kremlin in disputes with former Soviet states such as Ukraine and Belarus, and of using the naked power of the state to gain government control of promising projects. Gazprom late last year bought a controlling interest in Royal Dutch Shell PLC’s Sakhalin 2 project after the Anglo-Dutch company was hounded into the deal by regulatory hassles. Gazprom had previously walked away from a deal on Sakhalin, after Shell announced a doubling of the project’s cost just weeks after concluding an asset-swap deal with the Russian company. Now, Britain’s BP PLC is facing similar pressure over its Russian joint venture, TNK-BP and its eastern Siberia gas project, Kovykta. BP chairman, John Browne, was in Moscow last week, meeting with officials over the deal that could lead to Gazprom replacing the current Russian partners in the project. Fyodor Lukyanov, editor-in-chief at the journal Russia in Global Affairs, said there is little to distinguish between the commercial interests of the biggest government-controlled companies, nicknamed Kremlin Inc., and those of the state itself. “Is Gazprom a global company that is trying to extend its interests . . . or is Gazprom an instrument for Russian rebirth as international superpower? The answer is both,” Mr. Lukyanov said.

Complete article here.