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Russia: Gazprom Seeks Help, Refuses To Share

  • Michael Lelyveld

Russia's natural-gas monopoly Gazprom is seeking aid from independent oil producers to save its enormous pipeline network from decay and collapse. But the company remains reluctant to grant those companies access to its export markets, giving them little incentive to respond to the appeal.

Boston, 6 September 2002 (RFE/RL) -- Russia's Gazprom is trying to take up a collection from the country's oil companies to repair its aging pipelines, although the firms have been barred from exporting through the monopoly's crumbling network.

In a statement last month, the Russian gas giant said that independent Russian oil companies could make a "direct investment or help pay off loans taken out by Gazprom" for its pipeline projects, Platts Global Energy news service reported.

Gazprom is struggling to upgrade its 154,900-kilometer trunkline system. The lines are an average of nearly 22 years old, with 14 percent older than 33 years, Platts said. The current reconstruction program calls for rebuilding only 5,000 kilometers, less than one-fourth of the oldest sections. Although it is the world's largest gas company, Gazprom is hard-pressed to afford even that.

Last month, Gazprom board member Bogdan Budzulyak said 80 percent of Russia's gas-transport facilities are on the verge of breakdown, Prime-TASS reported.

Officials have been making plans for a series of bond sales and loans to cover a huge budget gap for this year. The pipelines serve not only the Russian market but also one-fourth of Europe's gas needs.

But it is far from clear what the independent oil companies would get for their investment. Gazprom has fought plans to give them access to the export pipelines for years. In the past, many companies have simply flared, or burned off, the gas they produce in their operations because it is too costly to sell it on the domestic market at regulated prices while paying for Gazprom's transit costs. Platts estimates that gas currently sells in Russia for one-fifth of the export price.

Two years ago, the government unveiled an ambitious plan to reform the gas sector in three stages. The independent producers were supposed to gain access to the export pipelines, but only in the third stage, perhaps after 2008. Gazprom grumbled about it, even though the government made clear that independent exports would take place only under the powerful monopoly's supervision.

In August 2001, Deputy Prime Minister Viktor Khristenko vowed, in a statement that came close to a government pledge of allegiance to Gazprom, that "Gazprom's position on the external market represents the consolidated position of the whole country." The comment seemed to leave little hope that the goal of competition would be achieved.

Last month, Energy Minister Igor Yusufov said his ministry was going to introduce "a concept of reforming the gas industry" by the end of this year, RBC reported. The remark suggests that all previous reform plans have already been scrapped.

Gazprom's attitude toward competition and access to export pipelines has been hostile. In August 2001, the company's current deputy chairman, Yurii Komarov, charged that independent oil companies were interested only in exports rather than the subsidized domestic market. Komarov said, "Anyone who wants to provide gas for export can take part in the financing of these pipelines. However, oil companies are not satisfied with such a way of cooperation." Gazprom's latest plea does not say the companies will get export access in exchange.

But Gazprom now appears to be in a tight spot because of the government's caution in raising domestic tariffs. President Vladimir Putin has expressed more concern with the effect on inflation than with Gazprom's finances or the demands of the European Union for equal gas prices as a condition for entry to the World Trade Organization.

The government has set a 20 percent limit on gas-tariff hikes for next year, compared with Gazprom's demands for 35 percent.

Last week, the investment bank Troika Dialog called the decision "disappointing." It said that "the increase in gas tariffs would reduce Gazprom's losses on the domestic market, but still not generate the cash needed by the company to invest in sustaining its current level of gas production."

The Economy Ministry went further this week in indicating that the annual rises will remain the same for 2004 and 2005. Gazprom may see only modest net gains once inflation is taken into account.

The government already appears to be planning for a prolonged period of the same energy problems that have long troubled Russia, including heavily subsidized domestic tariffs, a failing infrastructure, and debt. In addition, it seems resigned to the preservation of power at Gazprom and the restraint of competition, even though the monopoly looks incapable of helping itself.