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The Private Fiefdom of Gazprom

Today a Bloomberg analyst published an extensive article on Gazprom, highlighting the company’s flat production, its inability to promote its own shareholders’ interests, dependence on Central Asian gas, and nearly everything else going on with the company. The reporter also reminds us of the Royal Dutch Shell – Sakhalin heist, and how the Kremlin was actually able to steal from Shell and while at the same time making them say “thank you.” It is truly incredible what some firms will do to maintain proximity to power.

Gazprom May Thwart Putin Drive for Russian Energy Dominance By Lucian Kim June 4 (Bloomberg) — Four corporate heavyweights are arrayed before Russian President Vladimir Putin in his Kremlin office. Sitting across a white oval table from Putin are Shoei Utsuda and Yorihiko Kojima, chief executive officers of Japan’s largest trading companies, Mitsui & Co. and Mitsubishi Corp.; Jeroen van der Veer, head of Royal Dutch Shell Plc, Europe’s biggest oil producer; and Putin’s old friend, OAO Gazprom CEO Alexei Miller. The purpose of the Dec. 21, 2006, confab: to seal a deal made earlier that day in which Gazprom, the giant state-run gas company, will take control of Sakhalin-2, a $22 billion oil and gas project on Sakhalin Island in the Russian Far East. Van der Veer and the Japanese executives make a show of endorsing Gazprom’s participation in Sakhalin-2, until now the biggest totally foreign-owned energy venture in Russia. “Thank you very much for your support on this historic day,” van der Veer says to Putin in remarks captured on camera and posted on the Kremlin’s Web site. “Gazprom is very welcome as a partner in our project.” Gazprom, with Putin standing behind it, is reasserting Kremlin control over an energy industry that has become critical to Russia’s prosperity and global prestige. “Gazprom is emerging as the most important Russian enterprise, both as a driver of economic growth and international influence,” says Chris Weafer, chief strategist at Alfa Bank in Moscow. Yet Gazprom’s demonstration of its political clout in December obscures an enterprise that some investors say is flawed by a lack of transparency, flat production, money-losing domestic sales and an increasingly competitive market for the gas it depends on from Central Asia. Output Down Last year, Gazprom, of which the government owns just over 50 percent, pumped 556 billion cubic meters (19.6 trillion cubic feet) of gas, slightly less than it produced 10 years before. Mikhail Korchemkin, who heads Malvern, Pennsylvania-based consulting firm East European Gas Analysis, blames Gazprom’s marriage with the Kremlin for its underperformance. “It’s mismanaged but knows where it’s going,” Korchemkin says. “It’s a cash cow for the state. Does anybody care about the midterm strategy? I don’t think anybody thinks they’ll be there so long.” The Kremlin meeting cementing the takeover of Sakhalin-2 shows why Gazprom is a poorly managed company, says Kim Iskyan, co-head of research at investment firm UralSib Financial Corp. in Moscow. “What business does the president of a country have being there?” he asks. “It’s absurd he was even involved. At Gazprom, the interests of management are aligned with the government, not the shareholders, as in other global companies. It’s run like a private fiefdom, like a branch of the Kremlin.”

Full article here.