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. Analysis: Putin to head Gazprom?

The sky's the limit for Putin at Gazprom.
by John C.K. Daly
Washington (UPI) Feb 4, 2008
As the world's attention increasingly focuses on Russia's March 2 presidential election, speculation is rising about what President Vladimir Putin will do in the aftermath.

While it's a foregone conclusion in Russia that First Vice Prime Minister Dmitry Medvedev will most likely replace Putin, various theories have been floated, several of which seem to have Putin's support -- that he would take the post of prime minister under a Medvedev presidency, or continue discreetly to exercise power behind the scenes. Now the newspaper Pravda has put forth an intriguing scenario -- that Putin would replace Medvedev as chairman of the board of directors of Russia's natural gas giant Gazprom.

The idea has a certain elegant simplicity. Gazprom, founded in 1989, is now Russia's largest company and the world's biggest natural gas provider, with 432,000 employees. Gazprom ranked sixth on the 2007 Financial Times global 500 list, with a market value of $245 billion.

Its majority shareholder is the Russian government, with 50.01 percent of its stock. According to Gazprom's Web site, in 2006 the company earned $66 billion, with a 31.72 percent operating profit from sales. Since June 2007, Gazprom shares increased 12 percent, leading Russian analysts with few exceptions to identify Gazprom as their top stock pick for 2008. Ever the capitalists, Russian analysts expect higher profits as the company recently won government approval to increase domestic tariffs for industrial users.

As for Gazprom's future, the sky's the limit. Russia has the world's largest natural gas reserves, with 1.68 trillion cubic feet, nearly twice Iran's reserves, the world's second largest. Gazprom produces nearly 90 percent of the Russian Federation's natural gas and operates the country's natural gas pipeline network. Gazprom is Russia's largest earner of hard currency and pays more than $40 million in taxes each day, accounting for around 25 percent of the Russian Federation's federal tax revenues.

Gazprom's revenue stream could be far higher if the company were not constrained by domestic regulation, which compels it to supply the domestic market at government-regulated prices, approximately $28 per 1,000 cubic meters. In contrast, Gazprom's exports to Europe now cost more than $270 per 1,000 cu. m. Gazprom's Russian ventures are not limited to natural gas, however; and in the best spirit of capitalism, Gazprom, which produces 90 percent of the country's sulfur, announced that later this year it will introduce price increases of more than 700 percent, severely affecting production costs for Russia's fertilizer producers.

If Putin is seriously interested in heading the natural gas giant, observers will not have long to wait, as Gazprom's administration will have to approve the new list of candidates to its board of directors on Feb. 4, prior to the June 27 annual Gazprom shareholders meeting. There are 42 candidates, according to the Gazprom spokesman.

European governments, already concerned about Putin's growing centralization of government power in Moscow, will be anxiously waiting to see if he does, in fact, throw his hat into the ring for chairmanship of Gazprom. The truth is European governments are increasingly reliant on Russian energy imports. Over the last several years, Gazprom has strengthened its presence in the EU market and now accounts for approximately 25 percent of its natural gas imports. Gazprom is the sole gas supplier to Bosnia-Herzegovina, Estonia, Finland, Macedonia, Latvia, Lithuania, Moldova and Slovakia, as well as providing Bulgaria (97 percent), Hungary (89 percent), Poland (86 percent), the Czech Republic (75 percent), Turkey (67 percent), Austria (65 percent), Romania (40 percent), Germany (36 percent), Italy (27 percent) and France (25 percent.) Not that Gazprom has finished its infiltration of European energy markets; Gazprom recently secured a license to enter Ireland's $2.96 billion natural gas market and intends to begin initial shipments by the end of the year.

In an interesting political precedent, when German Chancellor Gerhard Schroeder left office in September 2005 he almost immediately accepted Gazprom's nomination to head the Nord Stream shareholders' committee, a pipeline project design to bring Russian Gazprom natural gas directly to Germany via an undersea Baltic pipeline.

While Putin apparently remains committed to retaining political power, even if exercising it behind the scenes, in the end, the allure of Gazprom might prove too much to resist, especially as his handpicked successor, Medvedev, recently commented that Gazprom's market capitalization could quadruple in a decade to reach $1 trillion, which would make it the world's biggest corporation.

Putin is spoiled for choice, unlike Gazprom's hapless customers, who will be nervously waiting to see if he does accept the chairmanship, and whether he will use the same hardball tactics that he used to resurrect Russian political power in Western energy markets. In the end, the opportunity to humble competitors ExxonMobil, General Electric, Microsoft, Citigroup and AT&T, No. 1 through 5 on the global 500 list, may prove too hard to resist, especially as they are all American companies. In observing from afar the carnage in Western capitalist markets, Putin is doubtless contemplating Gazprom's slogan, "Mechty sbvaiutsia!" ("Dreams come true.")

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Japan, China to settle gas row by splitting profit: report
Tokyo (AFP) Feb 4, 2008
Japan and China are considering settling their long-standing dispute over gas fields by evenly splitting profits from joint development in the East China Sea, a Japanese newspaper said Monday.

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