April 8, 2004
GAZPROM CHAIRMAN SETS OUT HIS AGENDA: MORE OF THE SAME
Gazprom, Russia's state-backed gas monopoly, plans to expand into electricity generation and liquefied natural gas in order to create one of the world's largest vertically integrated energy groups, according to Alexei Miller, the chairman of Gazprom's board.
In an interview with the Financial Times in Gazprom's heavily guarded Moscow headquarters, Mr Miller said: "We see ourselves as an integrated, diversified energy - I stress energy - company and one of the top in the world."
Gazprom is believed to have a 10 per cent stake in UES, Russia's electricity monopoly, and has nominated eight affiliated representatives to the board. Mr Miller simply smiled when asked about the exact size of the stake but cited approvingly a similar combination of the German groups Rurhgas and Eon as a precedent for the Russian energy group.
Mr Miller said Gazprom was also planning to move into the liquefied gas market, which would give it access to the US market.
He ruled out the break-up or privatisation of Gazprom, which many analysts consider a precondition for Russia's transition to a fully free market economy.
"There is no discussion about it," he said. "Gazprom was created as a single complex that spans the exploration, production and transportation of gas. Only Gazprom with its size and investment programmes can explore Russia's major gas reserves."
He refused to comment on the stake the state should hold in Gazprom, but said it should be increased from the current 38 per cent. "The role of the state should grow." He said keeping Gazprom together was important if Russia were to compete with leading foreign players. "Everything we do is aimed at strengthening our competitive position on international markets."
On the domestic market, which accounts for two-thirds of the company's gas sales but only one third of revenues, he said Gazprom was hoping to increase gas prices in two years from $28 per thousand cubic metres to $40. That would significantly push heavily subsidised prices towards market levels, providing the company with additional profits.
Mr Miller said it was important to increase compe tition between different types of fuel, including crude oil and coal. But he said the full liberalisation of the Russian gas market was not imminent. "Russia has an obvious competitive advantage - huge gas reserves - and domestic prices will always be below international market prices."
Some observers argue that gas price liberalisation and structural reform is inevitable, given the growing importance of independent gas producers such as the oil group Lukoil in the domestic market. Russia's president Vladimir Putin has pledged to give fair access by independent gas producers to the state-controlled pipeline.
Mr Miller said that, if independent producers were willing to participate in the reconstruction, upgrading and building of the new transportation system, they would be welcome. "We should move away from the practice when independent gas producers think their only responsibility is to explore and produce gas.
"These are significant volumes of gas, and we should resolve problems of transportation jointly. Why should we simply free up capacity for their gas in our pipeline?"
Asked about concerns over the opaque contract for the delivery of Turkmen gas via Gazprom to Ukraine, he said the situation should be clarified within three years. "We are doing everything to change the situation for the better."
During his first three years as chief executive, Mr Miller said he had succeeded in creating a team of like-minded managers focused on stabilising and increasing production volumes.
After several years of falling production, Gazprom had increased its volumes from 519bcm in 2001 to 540bcm in 2004.
Over the next three years the company should focus on improving its financial indicators, and selling non-core assets. Gazprom last month announced an internal structural reform aimed at increasing transparency.
Mr Miller said the company was also looking forward to the liberalisation of Gazprom shares. At present foreign investors can only buy Gazprom shares listed as American Depositary Receipts, but are barred from buying domestic shares.
The removal of the restrictions will increase Gazprom's weighting in leading emerging markets indices, which would in turn boost market capitalisation.
German Gref, the minister for economic development and trade, promised the liberalisation of Gazprom shares this year.
"The Financial Times"