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OAO Gazprom ( Otkrytoye aktsionernoye obshchestvo "Gazprom") is the largest extractor of natural gas in the world and the largest Russian company.
Total gas production in Russia in 2007 was 23.1 Trillion cubic feet, of which 85 percent (19.4 Tcf) was produced by Gazprom; with reserves of , 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 and 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.
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Encyclopedia
OAO Gazprom ( Otkrytoye aktsionernoye obshchestvo "Gazprom") is the largest extractor of natural gas in the world and the largest Russian company.
Total gas production in Russia in 2007 was 23.1 Trillion cubic feet, of which 85 percent (19.4 Tcf) was produced by Gazprom; with reserves of , 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 and 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.
Gazprom is publicly traded as OTC:OGZPY.
As measured by its market capitalization (US$348 billion), Gazprom was the world's third largest corporation. At that time, Gazprom Deputy Chairman Alexander Medvedev projected that the company's market capitalization could reach one trillion dollars by 2017, and that this would make it the world's biggest corporation. However, by December, 2008, it was reported in The New York Times that he was reported to have, in light of the subsequent collapse in the market value (down some 76% to $85 billion; from 3rd in the world to 35th), attributed the fall in value to the condition of the Moscow stock market (see Russian Trading System and Moscow Interbank Currency Exchange) and to the global financial crisis.
History
1989-1992: Inception
A separate Soviet gas industry was created in 1943. Large natural gas reserves discovered in Siberia and the Ural and Volga regions in the 1970s and 1980s enabled the Soviet Union to become 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.
The plan, however, was abandoned by June 1992, 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. In contrast, the oil monopoly was initially broken up into three separate companies before privatization. Gazprom was privatized in 1994, with the state holding 40 percent of shares. 15 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, with the company determining who could attend the auctions. Viktor Chernomyrdin and Nikolay Tsvyk 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 5, 1992 and the Resolution of the Council of Ministers of the Russian Federation of February 17, 1993, 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 by Russia's Prime Minister by President Boris Yeltsin. At the same time, the Russian government suddenly started demanding billions of rubles 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 Stroytransgaz 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".
At 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.
At the fifth annual shareholders' meeting on June 30, 1998, Viktor Chernomyrdin became the Chairman of the Board of Directors.
At 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 increases that partially reflected the global increases in fuel prices.
During the night from January 3 to January 4, 2006, Naftogas of Ukraine and Gazprom negotiated a deal that temporarily 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 will 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 20, 2006, 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 1, 2007, 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.
Sakhalin-II
In December 2006, Gazprom signed an agreement with Royal Dutch Shell, Mitsui and Mitsubishi, taking over a half plus one share in Sakhalin Energy.
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 will 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 trillion cubic feet (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 continued and Belarus asked for more time to pay. Although the revived dispute was not expected to hit supplies to Europe, the European Commission is said to view the situation 'very seriously'.
2008 to 2009
In November 2008 Gazprom and Ukraine escalated their dispute. This resulted in both Gazprom and Ukraine cutting gas supplies to part of Europe in 2009.
Shareholders
As of 29 December 2006, Gazprom's main shareholders were:
- Russian Federal Agency for Federal Property Management (Rosimushchestvo) - 38.373 percent
- Gazprombank (nominee holder) - 41.235 percent (including 13.2 percent of ADR holders)
- Rosneftegaz - 10.74 percent
- Gerosgaz - 2.93 percent
- E.ON Ruhrgas - 2.5 percent
The Russian government controls 50.002 percent of shares in Gazprom through Rosimushchestvo, Rosneftegaz, and Rosgazifikatsiya.
Management
Board of Directors
Gazprom's Board of Directors as of August 2008:
- Viktor Zubkov (Chairman, First Deputy Prime Minister of Russia)
- Alexei Miller (Deputy Chairman and CEO)
- 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)
- Boris Fyodorov (Gazprom shareholder)
- Farit Gazizullin
- Elena Karpel (Head of the Department for Pricing and Economic Expert Analysis, member since June 25, 2004)
- Viktor Khristenko (Russian Minister for Industry and Energy)
- Elvira Nabiullina (Russian Minister for Economic Development and Trade)
- Mikhail Sereda
- 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 25, 2004)
- Dmitry Medvedev (President of Russia, Chairman 2000-2001 and again 2002-2008)
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 18, 2003)
- 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 8, 2003, - 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 5, 2005):
- 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.
See also
External links
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- Data
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- - 1992-2001 history of the company in Russian
- Articles
- , July 24, 2006
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- by Martha Brill Olcott, Rice University, October 2004 (.pdf).
- , Analytical Report of the Institute of Natural Monopolies Research, Moscow, March 2006 (in Russian, .pdf).
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