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Russia: Government To Consider Reforms At Gazprom

The Russian government has announced that it will start planning for the reform of gas monopoly Gazprom in December. But despite personnel shake-ups and repeated promises, little progress has been made on restructuring the industry since the initial planning began more than two years ago.

Boston, 29 July 2002 (RFE/RL) -- Russian Prime Minister Mikhail Kasyanov said last week that the government will be ready, or will begin to get ready, to consider reforms to gas monopoly Gazprom by the end of the year.

Kasyanov's statement on Gazprom at a 25 July cabinet meeting seems to continue the procrastination that has marked all attempts at restructuring the giant firm, which is 38 percent state-owned.

The official RIA-Novosti news agency quoted the prime minister as saying that the government will "get down to a program of reforming the country's gas industry" in December, more than two years after reforms were first proposed.

Comments carried by Russian television and the Associated Press sounded even more cautious. Kasyanov said the government would "begin drafting" a reform plan before year-end, adding that, "We should deal with the gas-industry reform program in earnest." There has been little dealing with it so far.

Although the government has backed sweeping personnel changes at Gazprom, there have been few steps to implement reform measures that were outlined even before Aleksei Miller was installed as chief executive 14 months ago.

Kasyanov's previous statements on the issue have been less than encouraging. In June 2001, he said, "We cannot be in a hurry to reform the gas industry, the most sensitive of all our monopolies." Before that, Kasyanov warned in December 2000 against reform plans for Gazprom, saying that they "may lead to groundless disturbances."

Kasyanov feared for disruption of the country's largest taxpayer, which controls one-fourth of the world's known gas reserves. Instead, the company's monopoly status has remained almost completely protected and unchanged since the Soviet period, despite the government's bold moves in other areas such as taxation and land ownership.

The latest word that the government will start to draft a plan for Gazprom seems to ignore all the planning that has already been done. Officials started charting reforms in May 2000, barely two months after President Vladimir Putin took office more than two years ago.

The following December, the government received the first Gazprom reform plan from the Economics Ministry, the Antimonopoly Ministry, and the Federal Energy Commission.

The three-stage program called for allowing independent producers to compete with Gazprom by giving them equal transport tariffs. The monopoly was to be reorganized into consolidated transport and production subsidiaries.

The second stage would have eased control over wholesale prices and deregulated some sales through a natural-gas exchange. A third stage would have ended all regulation except for transport and given independent producers access to foreign markets.

The changes were seen as crucial to Russia's energy and economic development because of Gazprom's stagnant output and the need to give independent oil companies an outlet for their gas.

But the blueprint already represented a step back from proposals to break up the monopoly. Within months, the early reform zeal faded as fights erupted over asset stripping at Gazprom and control of the company's board.

In April 2001, Finance Minister Aleksei Kudrin signaled a slowdown, telling reporters, "You should realize that restructuring monopolies is a long process, and it has to be a planned process." The comment seemed to dismiss the planning of the previous 11 months.

Reformers and investors again took heart when Putin replaced longtime chief executive Rem Vyakhirev with Miller in May 2001. But less than two weeks later, Kasyanov announced that the reforms would be put off until the first half of 2002. One month later, the prime minister switched course again, pledging that Gazprom's production arms would be separated from its transport units. He did not say when.

Since then, Kasyanov has said that implementation would depend on establishing "clarity" at Gazprom. While Miller has increased transparency, he has also assumed many of the protective traits of his predecessor, calling restructuring "theoretical."

This year, nearly all the changes at the company have focused on recovery of lost assets and the question of tariffs, which have been too low to support investment. But tariff increases have been limited by Russia's battle with inflation. The campaign to recover assets also seems to have ended after early successes.

Earlier this month, the industry newsletter "Petroleum Argus" reported that Gazprom has signed a deal with the mysterious gas trader Itera to settle its debts for $60 million, despite claims that it owed the monopoly $500 million. Argus said both companies declined comment on how the debt was reduced. Last year, Putin criticized the asset giveaways at Gazprom, saying, "We know that enormous sums have been misspent."

Russia's recognition of the problems at Gazprom has been matched only by its reluctance to address them. Time after time, the government has considered reforms, only to reconsider and postpone them again. Officials may be planning to start over in December, but they are likely to find many of the same problems they faced two years ago.