Everything about Gazprom totally explained
OJSC
Gazprom, (; long version: Открытое Aкционерное Oбщество Газпром; sometimes transcribed as Gasprom) is the largest
Russian company. Gazprom is publicly traded as ; . Gazprom is the largest extractor of
natural gas in the world. With sales of
US$31 billion in 2004, it accounts for about 93 percent of Russian natural gas production; with reserves of 28,800 km³, it controls 16 percent of the
world's gas reserves (as of 2004, including the
Shtokman field.) After acquisition of the oil company
Sibneft, Gazprom, with of reserves, ranks behind only
Saudi Arabia, with, and
Iran, with, as the world's biggest owner of oil and oil equivalent in natural gas.
By the end of 2004 Gazprom was the sole gas supplier to at least
Bosnia-Herzegovina,
Estonia,
Finland,
Republic of Macedonia,
Latvia,
Lithuania,
Moldova and
Slovakia, and provided 97 percent of
Bulgaria's gas, 89 percent of
Hungary's, 86 percent of
Poland's, nearly three-quarters of the
Czech Republic's, 67 percent of
Turkey's, 65 percent of
Austria's, about 40 percent of
Romania's, 36 percent of
Germany's, 27 percent of
Italy's, and 25 percent of
France's. The
European Union as a whole gets about 25 percent of its gas supplies from this company.
Apart from its gas reserves and the world's longest pipeline network (150,000 km), it also controls assets in banking, insurance, media, construction and agriculture.
As measured by its
market capitalization as of May 2008 (US$348 billion), Gazprom is the world's
third largest corporation following this measure. Former Gazprom chairman
Dmitry Medvedev hopes that the company's market capitalization will quadruple to reach one trillion dollars by 2017, and that this would make it the world's biggest corporation.
History
1989-1992: Inception
A separate Soviet gas industry was created in 1943. Due to large natural gas reserves discovered in
Siberia, in the
Urals and in the
Volga region in the 1970s and 1980s, the Soviet Union became a major gas producer. Gas exploration, development, and distribution were
centralized in a state ministry.
In July 1989 President
Mikhail Gorbachev merged the ministries for oil and gas as part of his economic reforms, into a single industry, the Ministry of the Oil and Gas Industry of the USSR. A separate Soviet gas industry was again created in the early 1990s, before the break up of the USSR. In September 1990 the Gazprom board discussed transforming Gazprom into a joint-stock company. In 1991-92 talks were held between
Russia,
Ukraine and
Belarus over creating a tripartite joint-stock company with all three states holding shares.
However by June 1992 this was abandoned and Gazprom in Russia became a state company. In November 1992 Gazprom became a
joint-stock company (Russian: OAO), and it was to be partly
privatized as a single unit. This contrasted with the Soviet oil monopoly which was initially broken up into three separate companies before
privatization. Gazprom was privatized in 1994, with the state holding 40 percent of all shares. Fifteen percent were to be sold to workers and management at preferential prices. The leadership of Gazprom was able to keep control over privatisation by ensuring that sales of shares took place at closed auctions, which meant that the company could determine who attended the auctions.
Viktor Chernomyrdin headed Gazprom.
1993-1997: Privatization
After the new Russian President
Boris Yeltsin appointed Chernomyrdin to be his Prime Minister in December 1992, the political influence of Gazprom increased markedly. On January 26, 1993,
Rem Viakhirev became the Chairman of both the Board of Director and Managing Committee.
As the new government was committed to economic reform, Gazprom began to be privatized, becoming a
joint-stock company according to the Decree of the President of the Russian Federation of
November 51992 and the Resolution of the Council of Ministers of the Russian Federation of
February 171993, and starting to distribute
shares under the
voucher method, where every Russian citizen received
vouchers to purchase shares of formerly state-owned companies. However, trading these shares was heavily regulated, and the by-laws of the company prohibited foreigners to own more than 9 percent of the shares.
Gazprom slowly established credibility in the
western capital markets with an offering of one percent of its equity to foreigners in October 1996 in the form of
Global Depository Receipts and a successful large
bond issue of US$2.5 billion in 1997.
On the second annual shareholders' meeting on May 31, 1996,
Alexander Kazakov, the chairman of
Russia's State Property Committee, was appointed the Chairman of the Board of Directors, as the Russian law on JSC required the Chairman of the Board of Director and the Chairman of the Managing Committee positions to be occupied by different persons.
1998-2000: Scandals
In 1998 Chernomyrdin was fired from his position of Russia's Prime Minister by President Boris Yeltsin. At the same time, the
Russian government suddenly started demanding billions of dollars in back
taxes from Gazprom. When tax prosecutors started to
seize assets of Gazprom, the company gave in and paid. The company's records started showing a loss for the first time. The reasons are unclear and were explained either by an aging
pipeline transport network,
corruption, or pre-existing losses that appeared because of more transparent
accounting policies.
Gazprom conducted dubious transactions with the gas-trading company
Itera and a Gazprom/Itera joint-venture,
Purgaz, in the late 1990s, which allegedly benefited various management members and their relatives. Additionally, large-scale asset-stripping of Gazprom was going on by corrupt management and board members through various transactions involving the Gazprom daughter
Stroitransgaz and the regional gas company
Sibneftegaz. The Gazprom auditor
PwC apparently had signed off and covered these transactions.
The
investment fund Hermitage Capital Management, a minority
shareholder of Gazprom, reported on the scandals in October 2000:
"Investors are valuing this company as if 99 percent of its assets have been stolen. The real figure is around 10 percent so that's good news".
On the fourth annual shareholders' meeting on June 26, 1998,
Farit Gazizullin, the new Chairman of Russia's State Property Committee, was elected Chairman of the Board of Directors.
On the fifth annual shareholders' meeting on June 30, 1998,
Viktor Chernomyrdin became the Chairman of the Board of Directors.
On the seventh shareholders' meeting on June 30, 2000 (the sixth took place on August 26, 1999), Deputy Head of
Russia's Presidential Administration Dmitry Medvedev occupied this position.
2001-2003: Reform years
Russian President
Vladimir Putin was actively pursuing reforms in the management of the company in the years following the scandals. This was aided by shareholder activism by Hermitage CEO
William Browder and former Russian finance minister
Boris Fyodorov.
On May 30, 2001, the Board of Directors replaced
Rem Vyakhirev, whose contract had expired, with
Alexei Miller as the new CEO to guide the reforms; Rem Viakhirev was moved to the position of Chairman of the Board at the 8th shareholders' meeting on June 29, 2001, temporarily replacing
Dmitry Medvedev who became his deputy.
In April 2001 Gazprom took over
NTV, Russia's only nationwide state-independent television station held by
Vladimir Gusinsky's Media-Most holding, which caused major changes in its editorial policy. On
November 8,
2001 by the decision of a
Moscow court of
May 4,
2001, a block of shares comprising 25 percent of stock capital of the Media-Most holdings was transferred to
Gazprom Media, a media holding founded in 1998 and owned by Gazprom. In July 2002 Gazprom Media acquired all Gusinsky's shares in media companies of the holding, which resulted in dramatic changes of their editorial policy and closure of some publications. In June 2005 Gazprom Media purchased the influential Russian newspaper
Izvestia.
Until 2004, the Russian government held a 38.37 percent stake in the company, and had a majority on the company’s
board of directors. Gazprom provides 25 percent of all Russian tax revenues (averaging over US$4 billion annually between 1993-2003) and accounts for 8 percent of the nation's
gross domestic product. Non-Russian investors may legally buy Gazprom shares only through Depositary Shares, which cost more than locally-traded shares.
In 2004, Putin announced that Gazprom was to acquire the state-owned oil-company
Rosneft and that this will "eventually lead to the lifting of foreign ownership restrictions on Gazprom shares," as the stake of the Russian government in Gazprom will rise from 38.37 percent to a controlling position.
However, Gazprom was foiled both in its attempt to acquire Rosneft, and its earlier attempt to buy the core asset of
Yukos, when Yukos filed for bankruptcy in Houston. Fearing that it might fall foul of US law, Gazprom backed away from buying Yukos' main asset when the
Russian government auctioned it in December 2004, leaving the more gung-ho Rosneft to buy it. After Rosneft had appropriated such a large and controversial asset, the technicalities of merging it into Gazprom became too complicated. Instead, Rosneft remained independent, to the delight of its own management. The state increased its stake in Gazprom to over 50 percent instead by paying cash for a 10.4% stake, thus fulfilling the main pre-condition for the abolition of restrictions on foreign ownership of Gazprom shares.
On
July 26,
2004, Gazprom sold 49.979% out of its 100 percent share of the SOGAZ insurance group to an unnamed purchaser for 1.69 billion
Russian rubles, and 26 percent more of SOGAZ in August 2004 for 879.3 million rubles. In January 2005 it turned out that ABRos, a subsidiary of
Russia Bank, held a 49.97 percent share of SOGAZ.
2005-2006
Russian Government control
In June 2005,
Gazprombank, Gazpromivest Holding,
Gazfond and Gazprom Finance B. V., subisidiaries of Gazprom, agreed to sell a 10.7399% share to the state-owned company
Rosneftegaz for $7 bn, which was considered by some western analysts as an understated price. The sale was to be completed by
December 25, which combined with the 38% share of the State Property Committee, gave the Russian Government control of the company.
In September 2005, Gazprom bought 72.633% of the oil company
Sibneft (now Gazprom Neft) for $13.01 billion, aided by a $12 billion loan, which consolidated Gazprom's position as a global energy giant and Russia's biggest company. On the day of the deal the company was worth
£69.7 billion/US$123.2 billion, equivalent at the time to the
gross domestic product of Ireland.
Gazprom City
On
November 15 2005, Gazprom CEO
Alexei Miller and
Saint Petersburg Governor
Valentina Matviyenko announced that
Sibneft is going to build the
Gazprom City business center including a 300 meter high skyscraper with its headquarters on the right bank of the
Neva River in front of the
Smolny Cathedral in Saint Petersburg, despite current regulations forbidding construction of a building of more than 48 meters high.
Russia-Ukraine gas dispute
On
January 1 2006, at 10:00 (Moscow time), Gazprom ceased the supply of gas to the
Ukrainian market, calling on Ukraine's government to pay increased fees that partially reflected the globally increased fuel prices.
During the night of
January 3 -
January 4 2006,
Naftohaz Ukrainy and Gazprom negotiated a deal that temporary resolved the long-standing gas price conflict between Russia and Ukraine.
On
March 13,
2008, Gazprom agreed to supply Ukraine with gas for the rest of the year in a deal that will cut out intermediary companies, a move it hopes will end payment disputes. Ukraine will pay $315 (£115) per 1,000 cubic metres of gas supplied in January and February this year, then between March and December it'll pay $179.50 per 1,000 cubic metres. This came after a three day crisis the week before when gas supplies to Ukraine were halved.
Foreign investment
As the Russian state had acquired a controlling share of Gazprom earlier in the year, the 20% restriction on foreign investment in Gazprom was lifted and the company became fully open to foreign investors.
In April 2006, Gazprom's market capitalization was US$ 270 billion.
Exclusive export right
On
July 202006, the
Federal Law "
On Gas Export" granting Gazprom exclusive right to export natural gas was published, and hence came into force. It was almost unanimously approved by the
State Duma on
July 5, by the
upper house, the
Federation Council on
July 7 and signed by
President Vladimir Putin on
July 18.
Russia-Belarus energy dispute
On
April 3 2006, Gazprom indicated it would triple the price of natural gas sold to
Belarus after
December 31 2006. In December 2006 Gazprom threatened a cut-off of supplies to
Belarus at 10 a.m. Moscow time on
January 12007, unless it agrees to raise the price it pays for the gas from $47 to $200 per 1,000 cubic metres or to cede control over its distribution network. Some analysts suggested Moscow was penalising
Alexander Lukashenko, the President of Belarus, for not delivering on pledges of
closer integration with Russia, while others noted that other friendly countries like Armenia were paying as much for their gas as Belarus would with the new price levels.
Later Gazprom requested a price of $105, yet Belarus still refusing the agreement. It responded that if supplies were cut, it would deny Gazprom access to its pipelines, which would hurt gas transportation to Europe. However, on
January 1 2007, just a few hours before the deadline, Belarus and Gazprom signed a last-minute agreement. Under the agreement, Belarus undertook to pay $100 per 1,000 cubic metre in 2007. The agreement also allowed Gazprom to purchase 50% of the shares in
Beltransgaz, the Belarusian pipeline network. Immediately following the signing of this agreement Belarus declared a $42/ton transportation tax on Russian oil travelling through the Gazprom pipelines crossing its territory.
2007
On
July 4 2007 the
State Duma passed a bill giving Gazprom and
Transneft the authority to create their own security forces with greater powers than other
private security firms.
Gennady Gudkov, a deputy in the State Duma who opposed the bill, raised concerns by calling it a “Pandora’s box... This law envisages the creation of corporate armies. If we pass this law, we'll all become servants of Gazprom and Transneft.”
Deputy
chief executive Alexander Medvedev announced the company would aim to achieve a market capitalization of $1 trillion dollars "in a period of seven to ten years." He added: "we'd like to be the most-valued and most-capitalised company in the world."
In June 2007,
TNK-BP, a subsidiary of
BP plc agreed to sell its stake in
Kovykta field in Siberia to Gazprom after the Russian authorities questioned BP's right to export the gas to markets outside Russia. On
June 23,
2007, the governments of Russia and
Italy signed a
memorandum of understanding to cooperate on a joint venture between Gazprom and
Eni SpA to construct a 558-mile (900 km) long gas pipeline to carry 1.05 Tcf (30 billion cubic meters) of gas per year from Russia to Europe. The
South Stream pipeline would extend under the
Black Sea to
Bulgaria with a south fork extending to Italy and a north fork to
Hungary.
Following the alleged violation of previous agreements and the failure of negotiations, on
August 1,
2007 Gazprom announced that it would cut gas supplies to
Belarus by 45% from
August 3 over a $456 million debt. Talks are continuing and Belarus has asked for more time to pay. Although the revived dispute isn't expected to hit supplies to Europe, the
European Commission is said to view the situation 'very seriously'. They will continue to operate the Sakhalin-2 project; future decisions will be made by a board representing all shareholders. Whoever ends up running this project must do all they can to protect the last remaining Western Pacific gray whales.They have been campaigning on the Sakhalin issue for more than five years because of concerns about the fate of the very endangered whales. Construction of an off-shore pipeline near to the feeding ground was completed and monitoring of the whales using photo-identification techniques revealed a number of the whales have become skinny since construction work began, creating fears that their feeding habits are being disrupted. They will continue to monitor the Western Pacific gray whale population in its only feeding ground off the North-Eastern coast of Sakhalin, as well as the industrial activity in this region. We will further insist that all decisions taken by SEIC, including any new shareholders, will be made with respect to the environment, the whales and the Russian legislation,” said IFAW Russia director Maria Vorontsova, responding to latest reports on the Gazprom-Shell deal.Russia’s Ministry of Natural Resources announced that it was going to revoke its environmental certification of the second phase of Sakhalin 2, a $20 billion off-shore oil exploration project, citing numerous infractions of environmental requirements. Since the activity of SEIC was put under strict control of the Russian environmental watchdog, Rosprirodnadzor, which IFAW and other world renowned NGOs have been insisting on for the last six years. Fuel industry rumours have suggested the move to revoke environmental certification was financially motivated. Examples of damage shown to international media and representatives of IFAW and other NGOs in September included damage to the sea bed near a liquefied natural gas plant at Aniva Bay, as well as destruction of forests, river crossings and salmon spawning grounds resulting from the pipe lines used for oil and gas.
Shareholders
As of
29 December 2006, Gazprom's main shareholders were:
The Russian government controls 50.002 percent of shares in Gazprom through Rosimushchestvo, Rosneftegaz, and Rosgazifikatsiya.
Dmitry Medvedev (Chairman, President of the Russian Federation),
Alexei Miller (Deputy Chairman)
Alexander Ananenkov (Deputy Chairman)
Burckhard Bergmann (Chairman of the Executive Board of E.ON Ruhrgas AG, member of the Executive Board of E.ON AG)
Farit Gazizullin
German Gref (Russian Minister for Economic Development and Trade)
Elena Karpel (Head of the Department for Pricing and Economic Expert Analysis, member since June 25 2004)
Mikhail Sereda
Boris Fyodorov (Gazprom shareholder)
Viktor Khristenko (Russian Minister for Industry and Energy)
Igor Yusufov (Special Envoy of the Russian President for International Energy Cooperation and Ambassador at Large of the Russian Ministry of Foreign Affairs)
Former members of the Board:
Alexandra Levitskaya (until June 252004)
Management Committee
Gazprom's Management Committee as of December 2006:
Alexei Miller (Chairman, member since 2001)
Alexander Ananenkov (Deputy Chairman, member since December 17 2001)
Valery Golubev (Deputy Chairman, member since April 18 2003)
Alexander Kozlov (Deputy Chairman, member since March 18 2005)
Andrey Kruglov (Deputy Chairman, Head of the Department for Finance and Economics, member since 2002)
Alexander Medvedev (Deputy Chairman, member since 2002, Director-General of Gazexport)
Mikhail Sereda (Deputy Chairman, Head of Administration, member since September 28 2004)
Sergei Ushakov (Deputy Chairman, member since April 182003)
Elena Vasilyeva (Deputy Chairman, Chief Accountant, member since 2001)
Bogdan Budzulyak (Head of the Department of Gas Transportation, Underground Storage and Utilization, member since 1989)
Konstantin Chuichenko (Head of Legal Department, member since 2002)
Viktor Ilyushin (Head of the Department of Relationships with Regional Authorities of the Russian Federation, member since 1997)
Olga Pavlova (Head of the Department of Asset Management and Corporate Relations, member since 2004)
Vasiliy Podyuk (Head of the Department of Gas, Gas Condensate and Oil Production, member since 1997)
Vlada Rusakova (Head of the Department of Strategic Development, member since September 5 2003)
Kirill Seleznyov (Head of the Department of Marketing and Processing of Gas and Liquid Hydrocarbons, member since September 27 2002, Director-General of Mezhregiongaz)
Former members of the Management Committee:
Nikolai Guslisty (1997 - March 18 2005)
Yury Komarov (August 82003, - May 12 2005)
Alexander Ryazanov (2001 - November 15 2006)
Mikhail Akselrod (until March 18 2005)
Boris Yurlov (until April 16 2004)
Nikolai Gornovsky (until April 18 2003)
Vladimir Leviev (until April 18 2003)
Sergey Lukash (until April 18 2003)
Vladimir Rezunenko (until June 26 2003)
Alexander Krasnenkov (until August 8 2003)
Shareholdings
Shares of the members of the Board of Directors and Management Committee (as of September 52005):
Alexander Ananenkov - 0.00709654%
Alexander Ryazanov - 0.00513865%
Bogdan Budzulyak - 0.00443534%
Vasily Podyuk - 0.00131962 %
Elena Karpel - 0.00086595%
Vlada Rusakova - 0.00019009 %
Andrey Kruglov - 0,00006336 %
Boris Fyodorov - 0.00000422%
Alexei Miller - 0.00000027%
Others have no share.
VNIIGAZ
Scientific research institute of the Russian gas giant GAZPROM. Scientific and technological solutions to research, development and project issues.
Main purpose is to find and make use of new oil/gas wells.
Sports sponsorships
Gazprom is the sponsor of Russian Premier League football club FC Zenit Saint Petersburg.
On January 1, 2007 Gazprom also became the sponsor of the German Bundesliga club FC Schalke 04 paying up to €25 million a year for the privilege.
Further Information
Get more info on 'Gazprom'.
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