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Russia: Gazprom Shake-Up Signals Kremlin Desire For Greater Control Of Gas Giant

After months of speculation, Gazprom boss Rem Vyahkirev yesterday was removed from his post and replaced by a man reportedly close to Russian President Vladimir Putin. The change came just weeks after the Kremlin had reiterated its intention to reform the gas giant, which has been criticized for its lack of transparency and alleged mismanagement. RFE/RL's Moscow correspondent Sophie Lambroschini reports.

Moscow, 31 May 2001 (RFE/RL) -- Just hours after a meeting at the Kremlin with Russian President Vladimir Putin, the board of directors of the giant gas monopoly Gazprom voted unanimously to oust the company's chief executive, Rem Vyakhirev. He will be replaced by Alexei Miller, a deputy energy minister and reportedly a close Putin ally.

News of the ouster sent Gazprom shares soaring over 5 percent on the Moscow stock exchange to peak at levels not seen since 1997. The announcement also sent shockwaves through the business community. It brought an end to days of speculation that Vyakhirev's powers would be extended for at least another month until a key shareholders' meeting is scheduled (29 June) to re-elect Gazprom's board of directors.

The change was seen as a clear sign that the Kremlin intends to extend its control of the giant gas monopoly, which is only partially state-owned. Putin said as much last night in televised remarks at a meeting in his Kremlin office with new Gazprom chief Miller:

"The role of the state in the company -- and in the sector as a whole -- will be not only maintained, but increased. At the same [time] it will, of course, protect the rights of shareholders." Opposition Duma deputy Sergey Ivanenko, a member of the liberal Yabloko faction, called the move another sign of what he sees as the state's gradual takeover of key economic sectors. He said: "This step is a logical one, considering the government's complete silence, and media that are almost totally loyal to the president."

Miller is a relative newcomer to big national politics, having joined the government only a year ago after Putin's election. But there is no doubt that his new post came courtesy of the Kremlin. NTV news reported that Miller was nominated by the president's deputy chief of staff Dmitry Medvedev, who also serves on the Gazprom board as a representative of the state. Little-known to the general public, Miller is a member of what analysts call Putin's "Saint Petersburg team." The term refers to a handful of government appointees -- usually economists or security officials -- who originally worked with Putin in Saint Petersburg, his home town.

In the mid-1990s, Putin was employed by the Saint Petersburg mayor's office as head of the city's external relations. It was at that time that he met Miller. Miller then went on to manage the Saint Petersburg port before going on to head Russia's Baltic oil and gas pipeline systems.

Valery Nesterov is an oil and gas analyst for the Russian investment brokerage Troika-Dialog. He says there are good and bad sides to Miller's appointment, and adds that the move comes as a sure sign that the company is ready to change its style:

"There are still doubts about how competent [Miller] will be. His experience is more that of a bureaucrat than of a market-economy man. But what is good, in any case, is that now that the czar [Vyakhirev] has been ousted, it sends out a message that it is possible that from now on Gazprom managers can be regularly changed, if necessary. Together, [former gas monopoly head Viktor] Chernomyrdin and Vyakhirev held [the gas business] for decades. They have their merits, but they're managers of the old school. Modern managers who think in a Western way will now be able to enter the company, I think, and that will give it a new impulse for development."

Investors for months have expected the replacement of Vyakhirev as a sign that the government was finally willing to get tough about reforming the notoriously renegade company. Gazprom has long been criticized for its lack of transparency, alleged shareholders' rights abuses, and possible mismanagement.

Vyakhirev's five-year contract expires today, but for months there has been speculation that the government was hoping to oust the overly influential gas chief.

The Kremlin's latest direct criticism of Gazprom came just last month when, during a regular government meeting, Putin ordered the company to take steps to enhance its transparency to make itself more attractive to foreign investors.

Putin also appointed a special government commission to look into how to break Gazprom's double-shares system, which prohibits foreigners from buying shares on the Russian stock market, forcing them instead to buy more expensive shares on foreign markets. The system was created by a Boris Yeltsin-era decree, which was reportedly strongly backed by Gazprom and other large industries to keep foreigners out of the market. Currently, foreign ownership in the company is around 15 percent, with the largest chunk belonging to the Germany gas company Ruhrgas.

But despite being Gazprom's number-one shareholder -- with 38 percent -- the state has had little control of the company since its creation in 1992. Over the years, it has developed into a many-tentacled company whose revenue and assets were impenetrable to all but Vyakhirev's team.

At times, Gazprom has been described as a useful tool for the government. When the company took over large chunks of the private Media-MOST holding company as payment for outstanding debts, the move was widely seen as an opportunity for the government to clear away the opposition press, with the gas monopoly acting as an economic lever.

But in fact, relations have always been rocky between the gas giant and the government. In the Kremlin's view, Gazprom has not always served the best interests of the state.

In August 1999, the Kremlin was suspected of being behind an initial attempt to oust Vyakhirev. The move was seen as punishment for allegedly supporting rivals of former President Yeltsin ahead of parliamentary elections.

Since Putin's election -- amid promises of economic reform and cleaning up Russia's energy sector -- Gazprom has been the target of largely negative publicity. The gas giant has been labeled as a major violator of the principles of corporate governance that ensure shareholders' rights.

Former Russian Finance Minister Boris Fyodorov, who last year was elected by a group of minority shareholders to represent their interests, has done much to publicize what he sees as suspicious dealings at Gazprom. Nearly every month, Fyodorov and foreign analysts were quoted in the media charging possible asset-stripping at the company.

Several journalistic investigations have also turned up instances where Gazprom management removed revenues from the company and kept them in bank accounts maintained by family members.

Gazprom's activities have had a negative effect on the government as well. A Duma audit chamber study indicated that among its other possible misdealings, the gas giant is also suspected of being Russia's biggest tax evader. And according to a recent study by PriceWaterhouseCoopers, Russia loses close to $10 billion annually in foreign investment because of transparency difficulties typified by Gazprom.

At the same time, however, Gazprom is still Russia's largest taxpayer, filling up to a quarter of the state's coffers annually. Its production also represents 8 percent of Russia's total gross domestic product, or GDP.

Given the complex nature of the state's relationship with Gazprom, some observers say that Vyakhirev's removal must be handled carefully to avoid devastating consequences.

Investment bank analysts have warned for weeks that while a change in management would be welcome, insufficient preparation for the move could unsettle Russia's entire gas sector.

Speaking yesterday before the results of the board meeting were clear, a gas specialist at a leading investment bank told RFE/RL: "If Vyakhirev gets kicked out just like that, severe asset-stripping could be the result. His people are the only ones who really know the workings of the company, and by the time a new manager figures it out, the company would be reduced to a shell."

Troika-Dialog's Nesterov agrees that the Kremlin has to proceed carefully:

"The government and the president have nothing to gain from upheaval. They're interested in a stable company that functions better. And the whole 'ideology' of its [policy toward Gazprom] should be oriented accordingly. This includes a management structure that would necessarily have a bad effect on the company's activity, at least for a few months. And this would be intolerable, considering that it's a giant company, a system in and of itself."

Perhaps with this in mind, the government and Vyakhirev may negotiate a compromise ensuring the ousted chief what Nesterov calls a "dignified pension." During yesterday's board meeting, deputy chief of staff Medvedev made clear that Vyakhirev would not lose all contact with Gazprom, suggesting that he could be elected head of the board of directors in the 29 June shareholders' meeting.

The shareholders' choice of 11 board members will further reveal how much input the state will have in Gazprom's affairs. Analysts say the state, which currently has just five representatives on the board, is expected to increase its influence through the election of more Kremlin-picked nominees.