Gazprom challenges endurance of its shareholders
June 30, 2011
The annual Shareholders Meeting is actually the most important event of the year. Preparations for it begin in the dead of winter – in January the Management Committee starts reviewing the Meeting agenda which is subsequently submitted to the Board of Directors for consideration.
The reception of guests at Gazprom's headquarters (Nametkina Street) is also arranged in advance – hundreds of shareholders arrive here from different parts of the country and from abroad.
This year for the first time in many years the Meeting has been held on Thursday June 30 instead of the last Friday of the month. That was motivated by the need to propose new nominees for the Board of Directors to replace government officials – the relevant assignment had been issued by Russian President Dmitry Medvedev. All of Gazprom's corporate procedures should fully comply with the Company's Articles of Association, therefore, this year it has been required to hold two Meetings (annual and extraordinary) on one day.
However, holding of the Meeting amid a week was not an obstacle for shareholders – as usual, long queues formed near the Company's entrance in Nametkina Street since early morning.
It was rather crowded near registration tables in the office as well. Employees from the tabulation commission know many shareholders by sight and shareholders know tabulation commission employees as well. A shareholder says, “When I came to check in for the Meeting I was a little surprised. Instead of the brunette lady I saw a blonde one sitting by the monitor. Pretty soon my doubts faded away – it was the same tabulation commission employee as in the previous years of my attendance at the Meeting. She just changed her hair color.”
On the one hand, tabulation commission employees are professional lawyers who take a lead pencil and scrupulously study proxy forms and statutory documents of a legal entity. On the other hand, one can't help feeling the warmth and care they show to everybody, either a prominent investor holding the package of shares worth millions of dollars or a pensioner with just a few shares.
By the beginning of the Meeting the big Conference Hall is completely full as usual. The Presidium is chaired by Viktor Zubkov, First Deputy Prime Minister of the Russian Federation, Chairman of the Company's Management Committee and Alexey Miller, Head of the Management Committee. The opening speech is traditionally delivered by Alexey Miller.
The Management Committee Chairman dwelled on the issue of new horizons opening up for Gazprom. He noted that in the previous year Gazprom had demonstrated once again that it had not only been a reliable energy supplier, but also an important structure ensuring market stability and predictability.
Revision of nuclear power generation programs, decline of European gas production, re-estimation of the political risks associated with individual suppliers, reduction of subsidies for energy alternatives in the European Union, intensified growth of energy demand in Asia and domestic markets in gas exporting countries – all these factors had helped enhance Gazprom's standing in international markets.
Gazprom's head told the shareholders that in the previous year the Company had secured the advanced increment of natural gas reserves versus the extraction rates, took great efforts to advance the geological exploration system and invested substantial funds in gas exploration and production as well as in the transmission system to ensure safe gas supplies to Russian and foreign consumers.
Much attention was given to developing new gas producing provinces – Yamal and the Arctic shelf. “Gazprom is a long-term business and we have a long-term strategy. Actually, we are currently creating yet another and new Gazprom!” stated the Management Committee Chairman. According to Alexey Miller, creation of a new gas production center in Yamal and the Arctic shelf was comparable to the Soviet-era development of the giant Urengoy, Medvezhye and Yamburg fields...
Gazprom's rising sales in the European market were driven by a faster than expected post-crisis recovery of gas demand. In 2010 an upward trend was observed in global markets of oil, gas condensate, refined products, gas chemicals and oil chemicals. As a result, export prices for some groups of goods reached the pre-crisis level.
All these positive factors enabled Gazprom to raise its dividend amount to RUB 3.85 per share hitting a record level in the entire corporate history. Compared to the 2009 level, dividends rose by 61 per cent. Thus, the shareholders who had complained of low dividends last year, made sure that Gazprom kept its promises.
Gas is good!
This is a saying from the Wall Street movie that Bob Foresman, President of Barclays Capital (one of Gazprom's GDR holders), quoted in his Meeting speech. He explains it firstly by the long-term upward trend in demand for this energy carrier – in the next 20 years the market share of gas will grow twice as fast as the shares of oil and coal. Secondly, natural gas is an environmentally-friendly fuel. Carbon dioxide emissions associated with natural gas use are 44 per cent lower as compared to oil and coal. The third reason is globalization. “Gas markets become more interrelated due to construction of gas pipelines and increase in liquefied natural gas output. Consumers will take a more active part in gas marketing that will also stimulate the final product demand,” pointed out Bob Foresman.
He noted that Gazprom was incontestably the world's gas leader. In terms of reserves, the Company has left its global competitors far behind. For instance, Gazprom's 2P reserves were 4 times larger and production was almost twofold higher than those of ExxonMobil, its nearest competitor.
Over the last few years Gazprom had successfully resisted all external risks and demonstrated considerable production growth and operating costs reduction, continued head of Barclays Capital. That considerably increased EBITDA and reduced the Company's debt load. In the current year Gazprom had brought its dividend amount to the level matching the policies of many similar Russian and international companies.
Mr. Foresman quoted opinions by a number of investors highlighting that the leading position and access to abundant resources secured a strong position and market value growth opportunities for Gazprom. One of the investors described Gazprom's shares as “the 'must buy' stock for the next five years”. “If natural gas is our future, then Gazprom embodies this future,” he concluded.
After Bob Foresman the audience could hear top managers from Gazprom's subsidiaries who spoke about the last-year achievements and plans for the future. Later on, the floor was given to Gazprom's shareholders.
Questions and answers
As we know, this year the Company has introduced some changes covering the divided distribution procedure. While previously Gazprom had a half-year period for that, nowadays the period is limited to 60 days. That is, all shareholders should receive their dividends before August 29, 2011. In this context many shareholders were anxious to know: will Gazprom cope with that within the prescribed deadline? Andrey Kruglov, Head of the Department for Finance and Economics assured the shareholders that all things would be done in full compliance with the legislation. At that, he called for the shareholders to be vigilant – up to 5 per cent of dividends remain in the depository due to incorrectly written entries.
Shareholders were also interested in the problem of defaulted gas payments and the measures taken by the Company to reduce costs. Andrey Kruglov emphasized that Gazprom was taking permanent measures aimed at the prime cost reduction – thus, in the previous year the prime cost of gas transmission and production had grown by less than 1 per cent and 4 per cent respectively which was below the inflation level. Gazprom also constantly monitored the prices for the purchased products. For example, it cost Gazprom less to purchase pipes in comparison with other oil and gas companies.
By the way, this year shareholders seem to be less concerned about the divided amount than usual. The traditional question “Why are Gazprom's dividends so small?” has not been raised by the audience. Nevertheless, no one ever learned what shareholder Konstantin Baskin wanted the Gazprom management to tell him. He made statements from the hall saying that he had been trying to ask his questions for three years then, but with no success. In response, First Deputy Prime Minister Viktor Zubkov quoted the Law on Joint Stock Companies containing the rules for addressing questions to speakers. Alexey Miller, on his part, reminded the shareholder that last year he had been ready to talk to him personally and even had waited for him during half an hour. He also suggested that they meet outside the Shareholders Meeting venue, but the shareholder didn't respond to this proposal. “Mr. Baskin, I beg your pardon, you had a chance to talk to me during the year and I am ready to do that if you have any questions,” added Alexey Miller. However, at the close of the meeting when Viktor Zubkov proposed Konstantin Baskin to stay, he was absent from the Hall.
“I came here to make sure once again that everything goes right, shareholder Vladimir Sidorenko explained his presence at the Meeting. He has attended Shareholders Meetings since Gazprom's privatization and fully supports the Company's policy. I am very concerned about the progress of this great company and want to contribute to its progress,” he says. Responding to the question on whether he is satisfied with the divided amount he noted, “One can never get enough, but shareholders of such a company are not allowed to think of the immediate profit as Gazprom is a significant driver of the Russian economy.”
Shareholder Vladimir Voynov is having his picture taken near a voting box. He says that he supported all the decision made by the Meeting. Gazprom is a home company for him, because he was responsible for building the Company's office at Nametkina Street as he worked for Mosstroysertifikatsiya in 1995. That is, putting it in his own words, “he began building Gazprom from a scratch”.
He said that the office was erected rapidly, but everything was done to high standards. He also shared some interesting details with us. For instance, the tower's roof was graveled – this unconventional construction technique was implemented to provide additional protection of the building.
Mr. Voynov was very pleased with the dividends. “I also hold shares of other companies and they pay negligible dividends to their shareholders,” he notes. “This issue should be approached reasonably as funds are also needed to sustain development of the company that supports not only us but the entire Russia,” thinks the shareholder. By the way, in 2011 Gazprom will earmark investments exceeding RUB 1 trillion according to Alexey Miller.
The decision on withdrawal of government officials from Gazprom's Board of Directors was supported by all respondent shareholders as well. For instance, Vladimir Voynov expressed an opinion that this would make Gazprom more independent. The new Members of the Board of Directors, Timur Kulibaev, head of Kazakh Samruk-Kazyna National Welfare Fund and Vladimir Mau, Rector of the Academy of National Economy and Public Administration, were elected to the Board according to the results of the second, extraordinary Shareholders Meeting that was adjourned at 7 pm. By the way, the Meeting participants say that Viktor Zubkov promised to increase the dividends of the most enduring people, those who will stay at the Meeting till the end. If some of them took this joke seriously, there may be more questions about the dividend amount at the next Meeting.