A move to reclaim assets from the Russian gas trader Itera could spell the end of a special and murky relationship with giant Gazprom. Auditors have said that the Russian gas monopoly lost hundreds of millions of dollars through preferential deals, but the crackdown may still not end the long wait for reform.
Boston, 26 October 2001 (RFE/RL) -- One of Russia's most mysterious business ties seems to be coming under strain as gas monopoly Gazprom tries to take back resources from gas trader Itera.
The links between state-controlled Gazprom and the private gas firm have been under scrutiny for over two years. So far, official and private audits have found nothing illegal, a point that Itera executives have repeatedly stressed.
But the findings have not stopped Gazprom's minority shareholders and reporters from digging into the strange relations with Itera, a company registered in the southern U.S. state of Florida. The group has grown from its founding in 1992 into a $3-billion business with operations in 24 countries, thanks largely to favors from Gazprom, which is 38 percent state-owned. Itera now handles nearly all of Gazprom's exports to CIS countries, although it has never been clear why, since Gazprom has an export arm of its own. While Gazprom has stifled gas output at independent oil firms by barring access to its pipelines, Itera has become Russia's second-biggest gas producer after Gazprom.
In the past year, both the State Duma Audit Chamber and Gazprom's own accounting firm, Pricewaterhouse Coopers, have found that the monopoly lost hundreds of millions of dollars through generous deals with Itera. But now, the connection may be broken over Gazprom's pending decision to take back a rich arctic gas property which it granted to Itera for the equivalent of about $1,300.
In 1998, Gazprom turned over 49 percent of its Purgaz subsidiary to Itera with a license to develop its idle Gubkinskoye gas field in the Yamal-Nenetsk Autonomous Region. One year later, Gazprom sold Itera another 32 percent of the venture for the nominal sum of 32,000 rubles. Last year, the Gubkinskoye field yielded 78 percent of the gas that Itera produced, according to "The Moscow Times." The field is estimated to hold nearly 350,000 million cubic meters of gas.
But after the urging of auditors and an apparent push from the government, Gazprom's management has proposed that the company exercise its option to buy back the 32 percent stake in Purgaz by the end of 2001. Gazprom would have to pay the original sale price plus about $200 million that Itera has invested in the field. The Concise Energy news service said, "Itera has every reason to fight Gazprom's attempted buyback and it is likely to seek a high price."
Purgaz is not the only holding that Gazprom turned over to Itera for a pittance. Gazprom sold its interest in the Rospan gas company to Itera for the equivalent of $286, although the company valued it at $104 million, "The Washington Post" reported in 2000. According to board member Boris Fyodorov, Gazprom also guaranteed $472 million in credits for Itera between 1997 and 2000.
But in the past week, there have been several signs that relations have changed, perhaps thanks to President Vladimir Putin's appointment of former Deputy Energy Minister Alexei Miller as Gazprom's chief executive last May. While reform at Gazprom has been slow, Itera has taken steps to raise cash, suggesting that its days of easy credit from Gazprom have come to an end. On 22 October, Itera announced a cooperation agreement with ESN, an investment and management firm. The business newspaper "Vedomosti" reported that the deal includes a short-term loan of $50 million to Itera, using the same 32 percent share in Purgaz as collateral.
The deal could set the stage for a struggle with Gazprom. "Vedomosti" has quoted Mikhail Beskhmeltsyn of the Audit Chamber as saying that Itera owes $250 million in pipeline tariffs to Gazprom for the past two years. The paper suggested that the debt is the reason that Itera put up its Moscow headquarters as collateral for a $40-million loan from the Bank of Moscow. Itera denied that the loan was to pay off Gazprom. But earlier in October, the company also threatened to cut gas deliveries to Georgia and Armenia, citing their unpaid bills. Itera President Valery Otchertsov also complained at a conference in Paris about Gazprom's limits on access to export pipelines, according to the Reuters news agency. Otchertsov said, "For transportation, we have contracts with Gazprom to use its pipelines, but we have to pay tariffs established by the government that are higher than what Gazprom uses for its internal companies. If we sell all our gas at the Russian price, we will have no profit." The statement seems to suggest that Itera no longer enjoys preferential treatment. It did not explain how Itera has been making a profit until now.
While reformers may welcome tougher terms for Itera, there seem to be few other meaningful moves at Gazprom under Miller's management. "The Moscow Times" recently said that "reform of the monopoly is a question that has been taken off the agenda."