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Russia: Gazprom's Relations With Itera To Be Audited

Russia's giant gas monopoly Gazprom has agreed to allow an auditing firm to look into its murky relations with gas-trading company Itera. The move was apparently intended to boost the confidence of investors who are concerned with Gazprom's lack of transparency. At the same time, a report by the state Audit Chamber says that in 1999 and 2000 Gazprom handed out hundreds of millions of dollars in interest-free loans while borrowing more that 1,000 million dollars at interest rates up to 15 percent.

Moscow, 29 January 2001 (RFE/RL) -- A one-man crusade by a Gazprom board member finally resulted last week in a decision to investigate the ambiguous relations between Gazprom, Russia's largest gas company, and the gas-trading company Itera.

On Tuesday (23 January), a majority of Gazprom's board of directors -- which includes five members from the government, the company's largest stockholder, and four representing Gazprom itself -- voted in favor of an inquiry first publicly urged by board member Boris Fyodorov, a liberal politician and businessman. The investigation is to be carried out by the international firm Price Waterhouse Coopers, or PWC, which regularly audits Gazprom's books.

Many energy experts suspect Gazprom is secretly transferring revenue and assets to the Florida-based Itera company, suspected of being a creation of Gazprom's management. If that is true, shareholders and investors are being cheated out of benefits that should be legally theirs.

Both Gazprom and Itera deny any link between them, but Itera has never revealed its ownership.

Although board member Fyodorov crusaded for the audit, he strongly opposed turning over the investigation to PWC. For more than a year on the board, Fyodorov has represented minority shareholders who possess about 10 percent of Gazprom stock.

Fyodorov says appointing PWC is "useless." He says that it creates a conflict of interest because it would not be in the auditor's interest to compromise its client:

"To appoint the same consultant which has already audited [Gazprom] for several years and has [never] raised any questions -- that is, that didn't notice anything suspicious -- that's just not serious." Fyodorov says he will push for minority shareholders to finance their own independent audit. He says that last week's vote, supported by all of the state's representatives on Gazprom's board, proves that the government does not plan a serious inquiry. He says:

"Why does the government not want to reveal the truth about what happened with Itera and other scandalous stories? Well, I think they don't want to fight. There's simply no political will to try to figure out what's happening in a company in which the state is the main shareholder."

But analyst Andrey Gaydamaka of Morgan Stanley argues that Gazprom investors will see last week's decision as a move toward transparency.

"The choice of Price Waterhouse can be perceived as a conflict of interest. But I think in the eyes of investors it is going to be perceived as a positive move because having Price Waterhouse as auditor it is better than not having anyone at all."

Meanwhile, a five-month investigation by Russia's Audit Chamber -- a body appointed by the State Duma that holds advisory status with the government -- has revealed significant other abuses by Gazprom. According to the English-language "Moscow Times," the chamber's report says that in 1999 and 2000 Gazprom handed out hundreds of millions of dollars in interest-free loans while borrowing more that 1,000 million dollars at interest rates of up to 15 percent. The chamber criticized Gazprom for not addressing the interests of the state as well as depriving the state of legitimate tax revenues.

The report, released Friday (26 January), did not reveal anything about Gazprom's relations with Itera. But the same day the chamber's president, Sergey Stepashin, promised that it would continue to investigate relations between Gazprom and Itera during the course of the current year.

Analysts speculate on why the government is only lukewarm about an investigation that could reveal hidden resources in what is Russia's biggest taxpayer -- and also suspected to be the country's biggest tax dodger? One hypothesis is that Itera may have at least indirectly served some of Russia's foreign-policy interests by shutting off gas deliveries to debtors nations such as Ukraine and Georgia, moves seen by some as attempts to pressure both countries into greater compliance with Moscow's views.

Another theory is based on Gazprom's close links with previous Russian governments -- particularly with former Prime Minister Viktor Chernomyrdin, who headed the gas sector back in Soviet times. This notion suggests the authorities may now fear an inquiry into Itera could reveal other compromising Gazprom affiliations.

But Erik Liegertz, an energy analyst with Brunswick-Warburg in Moscow, says the explanation may be a lot simpler. Liegertz says that it is not in the state's interest to let a potential bomb like Itera explode just as months of its efforts to gain more control over Gazprom may be rewarded by the ousting of Rem Vyakhirev, Gazprom's chief executive, at a shareholders' meeting in the spring.

The Kremlin reportedly has tried to replace Vyakhirev for more than a year. Backed by the huge Gazprom empire, Vyakhirev apparently showed himself to be too independent politically and too secretive financially to run a state-controlled company.

Liberal Gazprom board member Fyordorov says that in any case an audit of Gazprom -- no matter who conducts it -- may not answer the key question of Itera's ownership. Only the Russian government, he says, could launch a productive investigation into Itera's ownership -- a step that it is clearly still not willing to take