Tuesday, 28 February 2012

Gazprom under Putin´s rule: "more like an organized crime syndicate than a legal corporation"

The eminent Swedish economist Anders Åslund, who knows Russia extremely well, has written a damning account of how Vladimir Putin has misused and mismanaged Russia´s energy giant Gazprom:

Gazprom has been Prime Minister Vladimir Putin's main preoccupation since 2001, but it has been a spectacular failure. Gazprom possesses huge natural resources, however, it is extremely inefficient because of poor management and massive corruption. In addition, it pursues an aggressive foreign policy that harms both the company and Russia. In reality, Gazprom in many ways is more important in advancing the Kremlin's foreign policy than the Defense Ministry or the Foreign Ministry.

In short, the way Gazprom is run is an accurate model for how Putin rules Russia.
As a result of poor management and corruption, Gazprom's production has been stagnant for the last two decades, and its share of Russia's gas output has fallen to 76 percent. It enjoys a monopoly on gas exports, but its net exports have declined for the last decade. The company's strategy is problematic. Essentially, Gazprom just sits on its giant fields that comprise a quarter of global reserves of traditional gas, and it pipes this gas from western Siberia to Europe. It maintains its old strategy with remarkable conservatism and does not stand up to new opportunities or challenges.

Meanwhile, the gas industry is going through a revolution with a huge new supply of liquefied natural gas, or LNG, and shale gas, but Gazprom barely participates in this game. It gained some LNG production after it muscled in on Royal Dutch Shell's Sakhalin project, whereas it has largely ignored the shale gas market. Gas prices have fallen sharply in the United States and decoupled from high oil prices, while Gazprom insists on high prices linked to the oil price. It also persists with long-term contracts, trying to avoid spot markets. As a result, Gazprom's export volumes to Europe have fallen and are likely to decline further despite the gas bonanza.

Gazprom's largest preoccupation is to build pipelines that are not needed. It is building both Nord Stream (55 billion cubic meters) and South Stream (63 bcm). South Stream is likely to cost at least $30 billion, while Nord Stream may cost half as much. This capacity is not needed because the Ukrainian pipeline system can transit at least 120 bcm of natural gas to Europe and only needs limited repairs for $3.5 billion. Why throw away $45 billion? The reason is not cost efficiency. Gazprom's pipelines cost two to three times per kilometer more to build than similar projects.

the total amount of sheer waste and corruption may have amounted to $40 billion last year, almost equaling Gazprom's net profit of $44.7 billion. That sounds more like an organized crime syndicate than a legal corporation. If Gazprom were one-tenth as large, due diligence would prevent major international financial corporations from dealing with it.

Read the entire article here


Russia is a country with enormous natural resources, which - well used - could help make life for ordinary Russians much better. But it will not happen as long as Vladimir Putin is in charge. Fortunately, though, more and more Russians have become aware of the true state of affairs in their country and are demanding an end to the disastrous Putin regime.

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