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2. The Gas Industry

Alexey Miller

A. Miller, the head of Gazprom


Gazprom building in Moscow.

The main gas company in Russia is "Gazprom". The company can be called "the heart of the energy industry in Russia". Its profits in 2007 was 93 billion dollars, which is 7% of the Russian GDP. "Gazprom" accounts for 12% of the national industrial production. "Gazprom" owns 43% of the raw energy carriers in Russia. The supplies of "Gazprom" provide 40% of the national electrical energy.

"Gazprom" is the former Soviet Ministry of Gas Industry, which was renamed in the period of perestroika (1989) into a state company "Gazprom", and in 1993 became a joint-stock company "Gazprom". Its first head was Victor Chernomyrdin, later a prime-minister of Yeltsin.

In 1998 Yeltsin fired Chernomyrdin, and the state charged "Gazprom" with not paying billions of dollars in taxes. After the tax police started confiscating the property of "Gazprom", the company started paying its taxes.

Till the summer of 1992, "Gazprom" was 100% state-owned company. Then, the stock of the company was sold at various stock exchanges. By early 2004, the Russian Federation owned 37.5% of the stock of the company and had a majority on the board of its directors (check the Wikipedia article). In 2004, the state bought additional stock of the company, and now owns 50% of the stock.

WWW.ROSPRES.COM has published an article based on the materials from Wikileaks about "Gazprom". The article says that the American diplomats think that "Gazprom" belongs to the state, and the company will act in accordance with Russia's political interests, not its own economic interests. One of the managers of "Gazprom" has called the company "a socialist corrupted monopoly".

In a capitalist company, the main criteria according to which a CEO is chosen is profitability. For example, Carol Bartz was fired from the post of a CEO at "Yahoo!" because she didn't manage to bring profitability back to the company. Meanwhile, the main criteria for chosing the head of "Gazprom" is that the man should be the right-hand man of the acting president. Thus, Chernomyrdin was the head of the company under Yeltsin, and Miller under Putin. The reason is that personal connections allow the top bureaucracy to pump money from federal companies into personal bank accounts. Hence, we're dealing with theft of state resources, rather than "profit", as the main moving force.

Here is one example concerning "Gazprom", from an article in Business Week: 

"It was one of Viktor S. Chernomyrdin's last deeds as Prime Minister of Russia. In February, 1998, he signed a decree handing a federal contract worth millions of dollars to Moscow-based 'Stroytransgaz' to lay gas pipelines in Russia's regions. It was an interesting selection. The Prime Minister's son, Vitaly, was a first vice-president of the enterprise as well as holder of a 6% stake. And 'Stroytransgaz' itself was a satellite of 'Gazprom', Russia's huge gas conglomerate. Chernomyrdin the elder presided over 'Gazprom' before entering the government in 1992. And he went back to 'Gazprom' as chairman shortly after approving that contract".

The article continues:

"Gazprom executives transferred assets and shares at below-market prices to relatives and other insiders and awarded sweetheart contracts to Gazprom-connected companies"

Basically, we see how the top management of "Gasprom" transfered the money from the federal budget into their own pockets.

According to an another article, lack of transparency of contracts, presence of "middle men" and complex mechanisms for setting the price allow to transfer billions of dollars from the budget of "Gazprom" into the pockets of men around V. Putin, leading to this rich company accumulating a huge debt. Thus, the pipes for "Gazprom" are supplied by the brothers Rotenberg, one of whom is a former coach of Putin in martial arts.

Hence, we see that in Russia we don't have a "capitalist" system, but rather a system of theft of state resources. However, most of the "leftists" continue to call Russia "a capitalist system", without caring to understand the details.

A precise diagnosis of a sickness is a matter of the greatest importance. One kind of diagnosis leads to one kind of treatment, and another kind of diagnosis leads to another treatment. We believe that in the case of the states like Russia, the correct diagnosis is given above, and hence the treatment consists in combatting theft by developing the skills of self-management among the people. If the people don't care to organize themselves, bureaucracy is necessary.

Next: The Oil Industry in Russia

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