#23 - JRL 8370 - JRL Home
Moscow Times
September 16, 2004
Editorial
Gazprom-Rosneft to the Rescue

When President Vladimir Putin went on television Tuesday to bless a share swap between Gazprom and state-owned Rosneft, he unleashed a wave of euphoria among investors. Gazprom stock shot up 15 percent by the end of the day -- and for now, all of Russia's woes have been forgotten.

Once completed, perhaps by early 2005, the merger will give the state a majority stake in Gazprom, fulfilling the prerequisite for the government to allow foreign ownership of local shares in the gas monopoly. The new oil-and-gas leviathan, which already sits on one-fifth of the world's gas reserves and aims to control up to one-fifth of the country's oil production, will be a mighty flagship for Putin's Russia, Inc.

But the decision also gives reason for pause. The timing and motives behind the announcement are unashamedly transparent. Having just called for scrapping popular elections for governors -- the latest move in his relentless consolidation of power -- Putin decided to conjure up a bit of good news for a change. An "out-of-the-blue" decision on liberalizing the trade of Gazprom's local stock, which investors have been anticipating for years, did the trick. As one fund manager bluntly put it, the president is buying the loyalty of investors.

The creation of a new energy giant also coincides with the imminent endgame in the authorities' year-long legal assault on Yukos. If, as seems likely, choice pieces of Mikhail Khodorkovsky's oil empire go on the block, the state-controlled supermajor would be well positioned to gobble them up.

Who needs Yukos when there's Gazprom-Rosneft? Putin is probably hoping foreign investors will forget the embarrassing dismemberment of Yukos as they rush to stake their claim on a company immune from arbitrary multibillion-dollar tax claims.

Of course, by opening the floodgates for foreign investment Putin is also showing the seriousness of his commitment to Russia's integration into the global economy. It will be impossible for investors in emerging markets to ignore Gazprom stock -- and once they are in, they will inevitably demand all the things the gas giant has not been famous for: transparency, efficiency and good corporate governance.

For now the market promises handsome gains. But sooner or later foreigners are bound to come into conflict with a majority shareholder less interested in Gazprom's bottom line than in using the company for domestic and foreign policy purposes, as has always been the case.

Foreigners will always be minority shareholders. And that will remain the government's trump card.