Gazprom don't exactly look at the oil bidness like we state-siders do
SPIEGEL ONLINE
01/05/2011 05:58 PM
The Gazprom Cables
'Not a Competitive Global Company'
By Gregor Peter Schmitz
Gas giant Gazprom was meant to catapult Russia back into its role as a global superpower. Executives dreamed of the "most valuable company in the world." But secret cables from the US Embassy in Moscow provide a different picture: The Americans consider the mega firm to be chaotically organized and corrupt.
High-ranking representatives of Russian gas giant Gazprom are hard to pin down for appointments. So when American diplomats finally got the chance, they cut right to the chase: What are the giant energy company's actual business aims? The Gazprom man was candid. The first priority, he said according to US diplomatic cables obtained by WikiLeaks and shared with SPIEGEL and other partners, is to provide reliable and affordable gas to the domestic population. The second, he said is to "fulfill its social obligations," including charitable projects all across Russia. The American envoys persisted in their questioning. Was it not also the goal of the company to maximize its shareholder value and its market share? Yes, of course. The cable cites the official also adding a third priority to his company's goal: to maximize "control over global energy resources." A "Gazprom official describes the company as a socialist rent-seeking monopolist," the US envoys reported after a September 2008 meeting in a dispatch cabled to Washington. 'Huge Wealth, but Inefficient' That's the tenor of a number of secret US Embassy reports about the model Russian company, cables that are filled with critical American assessments about a bureaucracy that has gone overboard and a mafia-like political system in Russia. But the assessments are particularly pointed when it comes to Gazprom, the company the Russians themselves most like to celebrate and to deploy in their battle to regain lost power in the world. Even as recently as May 2008, Chairman Alexei Miller was pledging that Gazprom would soon be "the most valuable company in the world," with market capitalization that would reach $1 trillion in the near future. But around one year later, in the midst of the global economic and financial crisis, the company's market capitalization had dropped to $75 billion. "Gazprom is," the Americans summed up in one cable, "what one would expect of a state-owned monopoly sitting atop huge wealth -- inefficient, politically driven, and corrupt." The American diplomats also painstakingly detailed the sectors in which the energy giant is engaged in and in which falling gas prices are creating problems for it. Falling Demand for Gas Their results are sobering. One 2009 cable states: "Far from reaching its ambitions of becoming 'the most valuable company in the world,' Gazprom's fortunes have reversed dramatically this year. The company's market value, production, and sales have all plummeted since the onset of the economic crisis." With dramatically reduced cash-flow, the cable reads, the company has been forced to cut back on capital expenditures and its ambitions, despite political rhetoric to the contrary. The US diplomats described Gazprom's problems as likely being "longer term," and not just a by-product of the crisis. That's because demand for gas in Germany and Europe is in decline because industrial production there and across Europe has become more efficient. At the same time, a cable noted, few new markets are opening up in the former Soviet states. Ukraine, for example, indicated it was considering halving its gas purchases. Gazprom Chairman Miller has for some time now been longing to establish a new market in the US but, as a cable states, the country is "looking more and more saturated every day with ever larger estimates for domestic production." According to the assessment by the US diplomats, Gazprom's greatest problem is the company's own Byzantine structures. "Gazprom is not a competitive global company," the assessment reads, despite sitting on the world's largest gas reserves. "Gazprom is the legacy of the old Soviet Ministry of Gas and still operates much the same way." A Top Executive with a Love for Hockey There were many indications that this was the case. The Americans learned from an informant that a senior partner in an international accountancy firm needed two years just to unravel Gazprom's holdings. The empire included one of Russia's largest banks, an important Russian media company and a major construction firm. Experts estimated that the company had to also spend between $5 billion and $8 billion on keeping its aging infrastructure in good working order -- costs that will only increase in the future. A prominent Western oil executive told the US diplomats that while drilling a borehole in Canada only took 10 days in Russia it took twice as long. A meeting with top Gazprom executives, such as Deputy CEO Alexander Medvedev, were also sobering. In a discussion with US diplomats, the hockey fan complained that there was still no cooperation between the Russian and American hockey leagues -- and fulminated against Ukraine, which he claimed had orchestrated the gas dispute with Russia. The Americans' conclusion is devastating: "Gazprom's legacy and the government's ownership of the company … mean that it must act in the interests of its political masters, even at the expense of sound economic decision-making." The company had made funds available for many "private bank accounts and dirty deals," one cable wrote, though it lacked any concrete proof for this claim. Gazprom itself has consistently defended itself against accusations of corruption. In any case, the Gazprom money was not flowing as much as previously, the US diplomats wrote. "Unfortunately for Gazprom and for the Russian government, the massive revenues and profits that the company produced in 2008 are unlikely to return anytime soon," one cable reported. Although Gazprom would remain a major company, its economic contribution was likely to be diminished, the US diplomats concluded.
