After the clear-out, Gazprom gropes towards a strategy

by Simon Pirani

Gazprom ceo Aleksei Miller may have purged senior management of his predecessor Rem Vyakhirev’s associates, but on key policy issues such as market liberalisation and tariff reform he is sending out mixed messages.

The clear-out has been thorough enough. Of Miller’s eight deputies, five are new appointments from outside Gazprom and one, Yury Komarov, was promoted to take responsibility for exports from Aleksandr Pushkin. Two Vyakhirev-era deputies remain: Vyacheslav Sheremet, who is awaiting trial on “abuse of authority” charges arising from the Sibur scandal, and Nikolai Guslisty, whose procurement portfolio has been handed to Sergei Lukash, a federal security service veteran unknown in business and gas industry circles.

Miller has put a premium on people he trusts. The new chief accountant, Yelena Vasilieva, worked previously in two much smaller companies … alongside Miller. The new deputy chairman (finance) (Vasily Savelev), and the new heads of investments and construction (Mikhail Akselrod), property management (Aleksandr Krasnenkov) and information policy (Aleksandr Dybal), also hail from St Petersburg, as do Miller and president Vladimir Putin. (Full list of management changes, see box.)

But while the door of Gazprom’s skyscraper headquarters has been revolving at record speed, policy formulation – whether on gas market reform, finance and investment or corporate issues – has creaked along more slowly.

Gas market reform

While the new management team has indicated its support for liberalisation of the domestic gas market, and for eventual export pipeline access for independent producers, there is no unified stance on how changes will be implemented.

At parliamentary hearings on gas market reform on 11 February, Gazprom’s deputy chairman (marketing and processing), Aleksandr Ryazanov, said Gazprom understands that “the time will come” when independent producers would have access to export pipelines – but this would not be granted until “conditions on the domestic market had equalised” and the differential between Gazprom prices and the independents’ sales prices removed. (More on independent producers, see separate article.)

A Gazprom spokesman said the company would accept, as a first step on liberalisation, the independents’ proposal that a small proportion of Gazprom production would be sold at free market prices. He added that Gazprom favours a tiered price structure, with Russian companies earning export revenues at world prices (e.g. oil and metals exporters) at one end paying world gas prices and disadvantaged household consumers at the other end.

But Aleksandr Anenkov, deputy chairman (production), was far less accomodating to the independents recently. “If any independent producer thinks that he will receive a licence, develop a deposit, and then go to Gazprom and say ‘here I have such-and-such a quantity of gas’, and that Gazprom will then be obliged to transport that quantity, he is very much mistaken,” Anenkov told the business newspaper Vedomosti. “What if the transport system is fully committed at that moment? Then of course we won’t be able to transport his gas.” Gazprom has “concrete proposals to the independent producers” regarding the expansion of the transport system, he said, implying that they would be required to invest in it.

Yury Komarov, deputy chairman (export policy) – who is regarded, along with finance chief Vitaly Savelev, as one of Miller’s most influential deputies – takes a more positive pro-reform stance. In a newspaper interview he said: “It is worth considering giving the independent producers a choice: to sell gas to domestic consumers under a domestic price formation system, or to Gazprom at weighted prices that would reflect both domestic and export prices.”

An industry source close to Gazprom said: “It is Komarov who is really in charge of the negotiations with the authorities on market liberalisation and tariffs. He wants to encourage independents with weighted average prices between export prices and domestic prices. Komarov will determine the outlines of market strategy, and consequently also determine the relationship with key partners and the investment priorities.”

In practice, Gazprom is apparently negotiating piecemeal with its strongest and most dangerous competitors, the oil companies. Russian newspapers reported this month [March] that oil companies are supplying gas directly to power companies – TNK to Samaraenergo, and Lukoil to Permenergo and Volgogradenergo. Sibneft, which is controlled by the Millhouse group of Roman Abramovich that also owns half of Russian Aluminium, the world’s second biggest aluminium compnay, is reported to be in talks on a gas supply contract with the profitable Moscow power company Mosenergo.

Finance and investment

Although Gazprom last year received a record $14.5 billion in non-CIS export proceeds – which comprise 60% of its turnover – it expects these to fall to $11-$11.5 billion in 2002. Proceeds of sales to non-Russian CIS customers have fallen as Itera’s market share rose, and domestic revenues are constrained by the government’s decision that tariffs will rise by a maximum of 35% this year.

All this implies considerable borrowing to finance capital expenditure – to which is added an even larger requirement, to refinance expensive ruble debt (largely promissory notes) that the new finance team under Vitaly Savelev is anxious to leave behind. A total figure of $5.8 billion to balance this year’s budget has appeared in the Russian press.

Where will the loans come from? A research report issued last month by Deutsche Bank, a key lender to Gazprom, estimated that more than 85% of hard-currency revenues are already used as collateral for existing debt. Two secured hard-currency loans taken out earlier this month ($150 million syndicated by Deutsche and $200 million syndicated by HypoVereinsbank) increase that figure further. So extra foreign borrowing will likely have to be mainly unsecured, and this month the Gazprom board approved issue of a $500 million eurobond that was first discussed last year and postponed at the Russian government’s insistence, and is now expected to go ahead in May or June. 

But Gazprom has also received substantial loans from Russia’s state-owned banks that are interpreted as a confirmation of the government’s strong support for Miller and his new team. In December last year the Central Bank lent Vneshtorgbank, Russia’s second largest state-controlled bank, $800 million; Vneshtorgbank in turn extended an enormous $670 million loan to Gazprom. To finance the bumper loan, the Central Bank went on a dollar buying spree that alarmed the money markets until they learned the cause; the transaction was so big that Vneshtorgbank was taken to its legal limit for loans to a single customer.

A financier who works closely with Gazprom said: “Previously Gazprom’s negotiations with government about financial strategy were like discussions between equal partners. Now the government has a majority on the board and is clearly deciding strategy. In October last year the government asked Gazprom to hold back its eurobond issue [until 2002], and promised to come up with alternative sources of funding. The Vneshtorgbank loan did this, and also signalled support for the positive changes in management.”

The government’s approval this month of Gazprom’s investment programme for this year – which was set at 140 million rubles, and pruned far less than those of the railways ministry and power company United Energy Systems – could be regarded as a similar gesture of support.

Corporate issues

Perhaps the most tangible progress made by the Miller team is with its corporate clean-up. In answer to president Putin’s now famous question “where’s the money?” – asked at a ceremony in November last year at Novy Urengoy to mark 10 trillion cubic metres of production from Yamal – a report on Gazeksport revenues has been internally circulated and leaked to journalists.

Management is still planning to exercise its option to take back control of Purgaz, Itera’s main production asset, and has put a stop to attempts to alienate assets from Sibur, the petrochemicals subsidiary, and Zapsibgazprom, a production unit. Stephen O’Sullivan, analyst at United Financial Group, said: “The trend is all in the right direction. Eventually the company will get around to dealing with fundamental issues such as stabilising production and coping with the effects of market liberalisation.”

At a board meeting last month, Gazprom adopted a corporate governance charter that provides for two-thirds of board members to be “independent”, i.e. not management. The current board, with six government representatives, one from Ruhrgas, one independent and three managers, would comfortably qualify.

The make-up of the board is unlikely to change drastically this year. The state’s list of candidates is similar, with the notable addition of Miller. The management has also nominated Miller, along with Savelev, Ryazanov, Gazprombank president Yury Lvov, head of property management Aleksandr Krasnenkov, head of administration Mikhail Sereda, and Rem Vyakhirev.

Burkhard Bergman of Ruhrgas is nominated again. But a split among minority portfolio investors means that a list headed by former deputy prime minister Boris Fyodorov, currently minority shareholders’ representative on the board, is being opposed by William Browder, head of Hermitage Capital Management investment fund.

The competition has already generated a disproportionate volume of publicity. In the wake of the Enron scandal, Browder, who is nominated for the board seat by holders of 3.13% of Gazprom shares, returned to the issue of PricewaterhouseCoopers’ relationship with Gazprom, accusing Fyodorov and others of having let the accountancy firm off the hook too easily. Browder was widely quoted by American journalists who obtained extra documentation on PwC’s dual accountancy/consultancy role.

Fyodorov is nominated for the board by holders of 2.5% of Gazprom. But United Financial Group, of which he is one of the owners, is believed to manage up to 6% of the shares. According to the Financial Times, up to half of this amount comprises a holding by Richard and Christopher Chandler, the Monaco-based brothers who have specialised in buying into Russian companies, campaigning to improve corporate governance, and exiting at a profit.

Fyodorov, in the past the most vocal critic of the Vyakhirev management, is an enthusiastic supporter of Miller. His assertions about company policy, often a source of information for journalists frustrated by Gazprom’s past opacity, have sometimes mistakenly been reported as official statements.




Members of the management board appointed since May 2001

Aleksei Miller

Chairman of the management board (equivalent to ceo). Worked in the department of foreign economic relations of the St Petersburg mayor’s office (1991-96) alongside Vladimir Putin, in senior management positions at the St Petersburg port and Baltic Pipeline System, and as deputy energy minister (2000-01)

Vitaly Savelev

Deputy chairman (finance). A Miller appointment from St Petersburg; replaces Sergei Dubinin. Worked as ceo of Menatep-St Petersburg bank, of which Gazprom is a key client

Aleksandr Ryazanov

Deputy chairman (gas marketing and processing). A Miller appointment; replaces Aleksandr Pushkin. Worked as deputy general director (1988-94) and general director (1996-99) of the Surgut gas processing plant, in the US representing the atomic energy ministry and as a parliamentary deputy (1999-2001)

Sergei Lukash

Deputy chairman (procurement). A Miller appointment; took on Guslisty’s responsibilities. Unknown to the Moscow business world. Graduated from the Russian Presidential Academy of State Service and worked in the federal security service

Aleksandr Anenkov 

Deputy chairman (production). A Miller appointment; replaces Pyotr Rodionov. Worked in gas industry since 1969, latterly as deputy general director (1989-97) and general director (1997-2001) of  Yamburggazdobycha, a key Gazprom production subsidiary

Yelena Vasilieva

Deputy chairman and chief accountant. A Miller appointment from St Petersburg; replaces Irina Bogatyrova. Worked alongside Miller as chief accountant at the St Petersburg port and Baltic Pipeline system

Mikhail Akselrod

Head of investments and construction. A Miller appointment from St Petersburg; replaces Yuri Goryainov. Worked as ceo of the St Petersburg power grid

Aleksandr Krasnenkov

Head of property management. A Miller appointment from St Petersburg; replaces Aleksandr Kazakov. Has studied at Cornell University (USA); rose from interpreter to general manager of the Astoria hotel


Members of the current management board who served on it under Rem Vyakhirev

Vyacheslav Sheremet

First deputy chairman. Arrested in January and charged with abuse of authority in connection with scandal at Sibur, of which he is chairman. Once considered Vyakhirev’s likely successor.

Yury Komarov

Deputy chairman (export policy). Promoted by Miller to deputy chairmanship; took responsibility for exports from Aleksandr Pushkin. Worked as Gazprom’s deputy head of foreign economic relations (1991-92) and general director of Gazeksport (1996-98)

Nikolai Guslisty

Deputy chairman. Left without substantial responsibilities by the appointment of Lukash. Apart from Sheremet, the only close Vyakhirev associate to remain in a senior position

Aleksandr Semenyaka

Head of securities and long-term credit. Prominent in Gazprom’s dealings with western financiers

Bogdan Budzulyak

Head of transport, underground storage and deployment of gas

Boris Nikitin

Head of drilling and offshore development; chairman of Rosshelf

Vasily Fadeev

Head of gas, oil, condensate and processed products marketing

Viktor Ilyushin

Head of relations with Russian regions

Vladimir Rezunenko

Head of department for development perspectives

Mikhail Dokuchaev

Head of finance department


Former management board members who have departed since May 2001

Aleksandr Pushkin

Former deputy chairman and close Vyakhirev ally.

Pyotr Rodionov 

Former first deputy chairman and chief financial officer. Promoted by Miller to replace Sheremet as first deputy chairman, but resigned in November last year.

Irina Bogatyrova

Former deputy chairman and chief accountant.

Sergei Dubinin

Former deputy chairman (finance). Moved to a senior post at United Electricity Systems.

Goryainov, Yuri

Former head of investments and construction.

Aleksandr Kazakov

Former head of property management.


Some senior managers, not members of the Gazprom management board, appointed since May 2001

Yuri Lvov

Ceo of Gazprombank. From St Petersburg; replaces Viktor Tarasov

Oleg Sienko

General director of Gazeksport; replaces Yuri Vyakhirev

Stanislav Tsygankov

Head of department for foreign relations; appointed in February 2002 to fill a job left vacant by Komarov’s promotion. Has worked in Chukhotka regional administration

Nikolai Gornovskii

General director of Mezhregiongaz, Gazprom’s domestic distribution subsidiary

Aleksandr Dybal 

Head of information policy department. From St Petersburg

Source: Gazprom, independent research

 A version of this article was published in Gas Matters, March 2002
Posted April 2002; © 2001 Simon Pirani

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