Despite Russia's economic problems, Gazprom is flourishing.
The huge company has a third of the world's proven gas reserves and a near-monopoly on gas production, transportation, and sale in Russia.
Its prospects are so bright that when it recently offered 23.7 million shares of stock on the London exchange, they were five times oversubscribed, and the size of the offering was increased by 3.5 million shares. The stock was in the form of American depository shares, which unlike domestic stock, can be traded freely.
The stock sale increased foreign ownership in Gazprom to nearly 2%. Gazprom eventually wants to sell 9% of its stock on overseas exchanges.
Gazprom is using the proceeds of its overseas stock sales to help finance a $40 billion expansion of its pipeline network to western Europe by 2010.
It recently welded the first pipe in a ceremony near Slonim, Belarus, about 150 km southwest of Minsk. Construction of the Belarussian section is due for completion in 1998, enabling exports to Poland and Germany in 1999, and perhaps as far as Spain. Russia already supplies 60% of Europe's gas imports.
Gazprom said the entire Yamal system will have an initial capacity of 83 billion cubic m/year, including about 52 billion cu m/year to western Europe.
It is financing the non-Russian sections with help from European banks, but expects to use profits, credits, and share sales to build the Russian segments.
Links to government
Gazprom is a major power within Russia not only because of its size, but also because of its close links to the government. Prime Minister Viktor Chernomyrdin headed Gazprom before joining the government in 1992, and top central bank and energy ministry officials also came from the firm.
Its expanding clout within and without Russia worries some observers. They say Gazprom's steel tentacles into western Europe enable it to advance the political interests of the Russian government.
Of course, it's not unusual for governments to work hand-in-hand with their oil and gas firms in overseas ventures, but Russian cooperation is unusually close.
Questioning relationships
Critics say Russia and its newly privatized enterprises have not yet defined their relationships and continue to assume the firms should serve the interests of the state.
Russian firms such as Gazprom have used their economic muscle to influence policies in the former Soviet republics on a wide range of issues that have nothing to do with the economic activities of the firms themselves.
And critics say the Russian government has sometimes delayed or reneged on its debts to neighboring governments, putting the latter in a financial bind and thus pressuring them to sell assets to Russian firms to pay their own debts to the Kremlin.
Because western nations support the rise of privatized Russian firms, they have been reluctant to complain about their close links to the Russian government or the threat to the economic development and security of the former Soviet bloc states.
Copyright 1996 Oil & Gas Journal. All Rights Reserved.
