Quentin Peel: Politics and Business in Russia

Interesting column today from Quentin Peel in the Financial Times:

In Russia, politics means business By Quentin Peel All politics is business in Russia today, and all business is acutely political. There is no dividing line between the two. Gazprom, the giant state-controlled gas monopoly, is the perfect example. Take its dramatic announcement on Tuesday, warning gas customers in the European Union that a dispute over unpaid debts with Ukraine might force it to start reducing gas supplies to that country – the main transit route for Russian gas to central and western Europe. The statement came just as the counting of election votes seemed to indicate that the next Ukrainian government would be a pro-western coalition, to replace the outgoing Russia-friendly regime. “We are not dealing on behalf of the [Russian] government,” a spokesman said. “This is a purely commercial issue. Gazprom is a commercially driven company.” Another official admitted the company held off making any announcement during the election campaign for fear of being accused of political interference. Its very silence was political. If Gazprom wanted to be seen to be totally even-handed, it should have announced that Ukraine owed it more than $1bn (€710m, £490m) in unpaid gas bills at the same time it accused neighbouring Belarus of owing $456m, says Christopher Granville, Russia analyst at Trusted Sources. That was at the end of July. Alexander Lukashenko, the Belarus president, rapidly paid up. But the timing might have been embarrassing for Viktor Yanukovich, the outgoing Ukrainian prime minister, two months before the poll. So Gazprom said nothing. Yet it is hard to fathom what purely political purpose is served by landing an incoming government in Kiev with such a hot potato. If anything, it seems likely to get anti-Moscow forces to close ranks. Given the bitter relations between Viktor Yushchenko, the president, and Yulia Tymoshenko, his erstwhile ally in the Orange Revolution, that would be no mean achievement. Let us assume for a moment that Gazprom was driven entirely by commercial motives. Any company would naturally want to collect a debt running at $1.3bn, by Gazprom’s account. But who allowed it to reach such a huge amount, and why? The behaviour of the Russian supplier reminds one of the detested “gombeen man” in colonial Ireland, a sort of rural loan shark who allowed his customers to run up big debts at usurious interest rates, which could be paid off only by selling him their land. Gazprom has been trying to gain control of the pipelines through Belarus and Ukraine to western Europe. It has succeeded in taking 50 per cent ownership of the line through Belarus but has failed in Ukraine. Could that be the motive in allowing the debts to accumulate? The pipeline is on the books of Naftogaz Ukrainy, the state gas distributor whose financial plight is behind the non-payment of debt to its supplier Ukrgazenergo, which in turn owes RosUkrEnergo, which owes Gazprom. Naftogaz has to supply municipal heating and housing bodies that are themselves all but bankrupt, as well as individual consumers who are also unreliable in paying their bills. The Ukrainian parliament, however, passed a law last February forbidding the sale of the pipeline to any foreign buyer, precisely in order to prevent control passing to Gazprom. “They want to own the pipeline, but they know it is not going to happen,” says Jonathan Stern of the Oxford Institute of Energy Studies. Instead, they may be looking for stakes in other Ukrainian assets. Professor Stern admits Gazprom does not take any high-profile action “without the OK of the Kremlin” but also wonders if western Europe is not excessively suspicious of the company’s motives. “When you call in your credit is a business question,” he says. Some sort of deal seemed to have been reached yesterday, at least for the Ukrainian government to take responsibility for the debt. But the detail of any settlement is what matters. Gazprom’s aim may be commercial: to grab control of a bit more of the Ukrainian economy. And that, of course, would be supremely political. So watch the small print.