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Russia: Putin Raises Questions About Gazprom Profits
By Michael Lelyveld

Questions about Russia's Gazprom and poor profits have again drawn the attention of President Vladimir Putin. But it is unclear whether he is seeking only a further expansion of operations into Europe or a broad effort to stop profiteering at the gas monopoly.

Boston, 30 November 2001 (RFE/RL) -- Russian President Vladimir Putin has called for another crackdown on lost profits at the gas monopoly Gazprom, but so far, there have been few signs of activity.

During a meeting at the arctic gas center of Novye Urengoi on 20 November, Putin surprised Gazprom officials with questions about revenues and profiteering at the giant company, which is 38 percent state-owned.

The "Petroleum Argus" newsletter quoted Putin as saying, "In some European countries, Russian gas is sold at prices two or three times higher than our export prices."

Putin added: "So it seems delivering gas from the border to consumers is twice as expensive as both its production and transport through Russian territory. Why is Gazprom selling so cheaply? And who has the margin?"

It appeared that Putin's comments were aimed at unidentified gas traders and intermediaries in Europe. The investment bank Troika Dialogue said Putin was only endorsing a recommendation by Gazprom's chief executive Alexei Miller that the company should invest in Eastern European networks.

But "Petroleum Argus" also cited a source in the presidential administration, who said that sales to CIS countries and the Russian market through the gas trader Itera and Gazprom's subsidiary Mezhregiongaz are also under scrutiny. Many trading firms that sell Russian gas in Europe are affiliated with Gazprom, raising questions about where the profits go.

One week later, it is unclear whether Putin meant to put a stop to the markups or just to keep the middlemen on edge.

Gazprom has been probed for the past year by the State Duma's Audit Chamber and its own accounting firm, which found numerous cases of wasted revenues, cheap asset sales, and lavish loan guarantees. But there have been few moves toward restructuring the world's biggest gas company, despite Putin's appointment of Miller to replace Rem Vyakhirev last May.

Vyakhirev is believed to have set up the Gazprom affiliates, some of which have been traced to the families of company executives. Yet, six months after the management switch, none have been put out of business. Although some of Gazprom's top officials have changed, procrastination has been the order of the day.

This week, Gazprom's board decided again to put off consideration of an attempt to recover shares in the production subsidiary Purgaz, which it sold to Itera in 1999 for 32,000 rubles, then worth about $1,100. Gazprom has only until the end of the year to make its claim.

Some of the delay seems to come from Putin himself. While criticizing Gazprom's trade deals, the president also signaled a go-slow approach, saying the company should be restructured "persistently, consistently, and without any haste," according to the Interfax news agency. The statement may mean there will be little Kremlin pressure for rapid change.

Putin has also been cautious about plans to raise domestic gas tariffs, which were postponed during the second half of this year due to inflation concerns.

This week, Interfax reported that the Federal Energy Commission has recommended an increase of 35 to 40 percent in gas tariffs for next year. But Putin told officials in Novye Urengoi that there should be no hikes during the winter.

The combined freeze in rates during 2001 and 2002 means that highly subsidized tariffs will remain unchanged for nearly a year. But domestic prices, which are about one-eighth of export charges, are seen as a key to investment in the gas sector. Gazprom's plight was underscored this week as it reported that net profits in the first half of the year fell 60 percent according to international accounting standards, while sales rose 5 percent.

The purpose of Putin's statement remains a mystery, although he often seems to enjoy throwing a scare into the more comfortable corners of the energy sector while showing a command over details of the policy.

At a similar public meeting in March 2000 in the Siberian town of Surgut, while he was still acting president, Putin startled then-Fuel and Energy Minister Viktor Kalyuzhny by asking why oil companies without production licenses were allowed to export, depriving the state of revenue.

The Reuters news agency reported that Kalyuzhny became flustered, saying he was unsure if he understood the question. Putin snapped back, "Oh, you understood it correctly all right -- hence the reaction of the hall." Weeks later, Putin sacked Kalyuzhny, only to rehire him as a deputy foreign minister and Caspian envoy.

Given that experience, it is hard to predict whether Putin's latest questions on energy show the kind of impatience that will lead to change.

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