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Russia: Pressure Increasing On Gazprom About Gas Deals With Itera

Former Russian Finance Minister Boris Fedorov is pressing his inquiries into Gazprom and its ties to gas trading company Itera. But after months of questions, the government of President Vladimir Putin has remained curiously silent in the face of growing doubts about profits from gas deals. Our correspondent Michael Lelyveld reports:

Boston, 10 November 2000 (RFE/RL) -- Pressure has intensified on Russia's Gazprom to disclose details of its dealings with the gas-trading firm Itera as former Finance Minister Boris Fedorov demands answers from the country's biggest monopoly.

The Financial Times reported Wednesday that Fedorov, a Gazprom board member, has sent a letter to the company's management, asking pointed questions about links to Itera, which reportedly made a profit of $3 billion last year by selling gas, most of which came from Gazprom.

Executives of Itera, a private firm with offices in the U.S. southern state of Florida, have repeatedly refused to provide information about its ownership, although the company has denied that officials of Gazprom or the Russian government have secret shares. Many industry analysts and foreign investors have voiced doubts.

In his letter, Fedorov asked, "Why is Gazprom selling gas to Itera, when its own production is falling and it has to buy gas from Turkmenistan to fulfil its own obligations?"

Fedorov noted that Itera has grown rapidly from a trading firm into a production company, developing former Gazprom fields which are expected to yield 20,000 million cubic meters of gas this year, 12 times more than it produced two years ago. After taking its first steps in the gas business in 1994, Itera has grown astronomically. The company says it has some 120 subsidiaries in 24 countries.

Fedorov asked, "Why does Gazprom transfer its reserves to Itera?" and he added, "As a member of Gazprom's board and a shareholder, I ask you to give me official answers to the posed questions."

There is little new in the issues raised by Fedorov, but his apparent attempt to pursue them through the foreign press may be a sign of growing frustration with the government's failure to deal with them.

The questions are critical for the government because it is Gazprom's biggest shareholder, with a 38 percent ownership interest. The monopoly is also the country's largest taxpayer, as well as the world's biggest gas company. But at a time when Gazprom is raising tariffs on domestic consumers and negotiating a deal to double its exports to Europe, there is little public information about the company's use of its income or assets.

In the first nine months of this year, Gazprom's production fell by over 5 percent, a situation it blamed on cash shortages and lack of investment. But the company's operating profits rose nearly five times, as world energy prices climbed. Both Fedorov and industry analysts suspect that Gazprom's assets are being shifted to Itera.

It is also unclear why Gazprom continually turns to Itera to sell its gas to other CIS countries. In most of these cases, there is no competition. The interstate deals usually involve a monopoly buyer and a monopoly seller. Any profit could presumably be retained by Gazprom, if it chose to conduct the sale itself. Itera has estimated that it will handle sales of 74 billion cubic meters of gas within the CIS and the Baltics this year.

The State Duma's Audit Chamber has opened an examination of Gazprom with results due sometime next month. But as time passes, the government's silence on a matter of such economic importance has raised doubts about its overall reform plans.

More than four months have passed since the government of President Vladimir Putin forced the ouster of former Prime Minister Viktor Chernomyrdin as chairman of Gazprom, replacing him in late June with the deputy head of the presidential administration, Dmitri Medvedev. With the move, the government took control of five seats on Gazprom's 11-member board. Two other seats are held by Fedorov, as an independent shareholder, and a representative of Germany's gas company Ruhrgas. A combination of these seats would seem to be enough to push through reforms with a majority, if the government were truly interested. Instead, there has been little sign of any move to lift the veil over the secrecy surrounding Itera and Gazprom.

While new developments could come at a Gazprom board meeting later this month, it is notable that Putin has chosen to deal with the Gazprom issue in a very different way from his confrontations with Russian oligarchs, such as Vladimir Gusinsky and Boris Berezovsky. In those cases, Putin moved quickly to stage showdowns with powerful interests and to demand payments of taxes and debts under threat of prosecution and imprisonment.

No similar action has been taken on Gazprom, although its dealings may have a far larger impact on Russia's economy and consumers. If Fedorov is unable to get answers, the results may be more questions about the limits of government power and reform.