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Russia: Moscow Shows No Signs of Reforming Gazprom

Russian President Vladimir Putin reportedly has postponed a plan to reform the country's gas sector after a lobbying effort by the powerful monopoly Gazprom. Despite personnel changes, the world's largest company still sees government plans for restructuring as a threat, even though it would continue to own all new subsidiaries.

Boston, 17 January 2003 (RFE/RL) -- The Russian government has shown new signs that it is backing away from a plan to restructure gas monopoly Gazprom.

This week, the business daily "Vedomosti" reported that President Putin agreed to postpone consideration of a reform plan for the gas giant at the urging of Gazprom chief executive Aleksei Miller in December.

Miller argued in a letter that the plan devised by Economic Development and Trade Minister German Gref would discourage investors, the paper said. "The Moscow Times" quoted it as saying, "We are convinced that it is vital to keep a unified system of gas supplies under a centralized production complex because this is the basis for maintaining the reliability of energy supplies in the country."

Putin reportedly agreed and removed the plan from the cabinet's agenda on 26 December. At the time, the official RIA-Novosti news agency attributed the delay to a "lack of coordination" among ministries and agencies. The government may now take up the issue in February or postpone it again. The December consideration had been planned for six months.

Analysts have voiced concerns because Gref's plan was hardly radical enough to prompt such avoidance. According to the reports, no privatization or loss of power over the world's largest gas empire was proposed.

The latest version of the Gref plan reportedly bears only a vague resemblance to the proposed restructuring of power monopoly Unified Energy Systems (EES). It would separate gas production from transportation and distribution units, but all the new subsidiaries would remain under Gazprom's ownership and control.

Even this much restructuring has apparently proven too much for Miller, who was appointed by Putin in May 2001 after years of intransigence by previous management. Citing "Vedomosti," the Prime-TASS news agency said, "However, Miller did not agree with transferring transportation and dispatch functions away from Gazprom -- even to fully-owned subsidiaries." The monopoly is 38 percent state-owned.

The issue is a problem because Gazprom's huge size has not led to matching increases in output. In 2002, production edged up 2.3 percent thanks to the addition of a costly new Siberian gas field, but it was still 5.4 percent lower than in 1998. In the meantime, independent Russian oil companies are still struggling to find markets for their gas and eager to export. Although Europe relies on Russia for one-fourth of its gas supplies, Gazprom seems to have no intention of letting the independents use its export pipelines.

Gref's plan seeks to create a liberalized gas market within Russia in three stages over a decade, leading gradually to market prices. The proposal could give investors, including Gazprom, the kind of incentives and returns they need to develop new fields. Gref would also experiment with a gas exchange to allow market pricing for a small portion of Russia's gas. But Gref has had to reassure Gazprom repeatedly that he means it no harm.

In December 2000, he told the monopoly, "Radical measures are not required for the reform of Gazprom as they are for other natural monopolies like the Unified Energy Systems and the Railways Ministry." Two years later, Gazprom's new management seems to be just as worried about the plans as the old management.

This week, Gazprom offered its own vision of how the market should change, but the effect is far from clear. In a statement following a meeting in Moscow, the monopoly announced that it would bypass its own domestic sales subsidiary Mezhregiongaz starting next year, so that Gazprom could make direct sales to consumers. Industrial and regional users would be required to pay in advance, improving collections and eliminating barter deals.

Gazprom would also set up regional gas providers in areas where none exist now. ITAR-TASS quoted Gazprom Deputy Chairman Aleksandr Ryazanov as saying that the new rules would "liberalize" the gas market. Ryazanov said, "Instead of one gas provider in Russia, there will be several dozen gas dealers. This pattern will allow costs to be reduced and payment discipline to be enhanced." But all of the entities would still belong to Gazprom.

The Dow Jones news service pointed to problems with Mezhregiongaz, saying, "Its monopoly position has allegedly led to widespread corruption and inefficiency." Others were less sure that the house-cleaning maneuvers would mark any progress at all.

In a research note this week, the Moscow-based investment bank Troika Dialog said, "Gazprom is lobbying for the creation of a domestic gas market without any changes to the monopoly's structure."

The bank added, "It is admittedly difficult to envisage how true reform could take place outside of a company which accounts for 88 percent of national gas production; it would be limited to the creation of a gas exchange which would only be functional during shortages on the regulated market. In fact, real changes to the industry are unlikely to begin until after the presidential elections in 2004."

But Putin may have to face a more entrenched problem even after the elections. In the case of Gazprom and other monopolies, the effect of long-sought personnel changes seems to wear off. Appointees like Miller, who are first hailed as reformers, soon become weighed down with the same institutional interests as their predecessors. The result seems to be little change with the passage of years.