Table of contents
NUCLEAR ......................................................................................................................... 5
Rumyantsev says Russia ready to build nuclear power plant in North Korea......................... 5
Russian official optimistic about nuclear power cooperation with Japan ............................... 5
Russian minister sets out atomic industry strategy for 21st century ....................................... 6
Minister Says China Russia's Strategic Nuclear Industry Partner ........................................... 7
Russia: Highlights from the Nuclear Industry - 19 December 2002 ....................................... 8
Association Established to Restructure and Integrate Minatom Nuclear Fuel Cycle
Enterprises ............................................................................................................................. 11
Environmentalists claim Russia's Minatom plans floating nuclear power plant ................... 12
Alfa-Bank's Fridman Interprets Results of Struggle with MDM-Bank Over Konversbank,
Minatom Accounts ................................................................................................................ 13
Russian Gas and Power Industries React to Minatom Representative Bulat Nigmatulin's
Claim Nuclear To Account for More Generation by 2005 .................................................... 15
Russian Minatom, British Nuclear Fuels plan cooperation ................................................... 16
Russia: Shubin Interview on Cooperation of Minatom, Regions .......................................... 17
Web Reference -- Find Report: Minatom's 'Miscellaneous Resources' Page ........................ 22
Web Reference -- Find Report: Minatom's 'Information Resources' Page ............................ 25
Minatom's TVEL Nuclear Fuel Production Holding Corporation Considers New Economic
Strategy .................................................................................................................................. 31
GAZPROM ............................................................................................................................... 37
Russia's domestic gas market seen as first step in gas industry reform ................................. 37
Moscow Daily: Gazprom Head Miller's Telegram Indicates Possible Gas Shortages .......... 38
Miller's Role in Gazprom Seen; No Reform Expected Until Putin's Second Term .............. 41
Gazprom Embezzlement Eyed, Liberalization Seen Likely, Set To Cause Inflation ............ 43
Existing Gazprom Debts Twice as High as 2003 Borrowing Plans, Moscow Daily Says .... 48
Russian Audit Chamber dismisses reports of Gazprom bankruptcy ..................................... 49
Russia: Gazprom Document Suggests Bankruptcy 'Approaching Inexorably'...................... 49
Russia: Government to decide on Gazprom investment programme .................................... 51
Alfa Group Seen Attempting To Use Press To Drive Wedge Between Gazprom, Itera ....... 51
Russia's Gazprom gas company may sell $8 billion of non-core assets ................................ 54
Russia's Gazprom To Increase Investment by 50 Percent in 2003 ........................................ 54
Gazprom plans to raise gas prices in 2003 ............................................................................ 55
Russia: Gazprom Selling Gas Through Middlemen, Exceeding Price Limits Set By Federal
Energy Commission .............................................................................................................. 55
Russia: Gazprom Deputy CEO Ryazanov Comments on Proposed Reform of Gas Market 57
Russia: Appointment of Seleznev's Son as Gazprom Manager Seen as Political ................. 64
Gazprom to spend $5.7 billion on Northern European pipeline ............................................ 65
Russia: Gazprom cuts Itera gas exports to Ukraine by 65 percent ........................................ 65
Duma Speaker Says Government Unlikely to Adopt Gazprom Reform at 19 Dec Session.. 66
Russia: Gazprom's net profit down 55.8% Jan-Sep to R34.224 billion................................. 67
Russia: Gazprom Board Meeting Addresses Problem of Drop in Prices on Russian Gas;
Plans North European Pipeline .............................................................................................. 68
Russian government may buy up Gazprom shares ................................................................ 69
Russia: Gazprom calls for 40 percent increase in domestic gas prices in 2003 .................... 70
Russia: Gazprom calls for 40 percent increase in domestic gas prices in 2003 .................... 70
Gazprom Deputy CEO Ryazanov on Plans to Develop Electricity Enterprises .................... 71
Russia's Gazprom sets out plans for 2003 ............................................................................. 73
1
Liberalization of Russian gas market first step to liberalizing Gazprom market .................. 74
Miller's Role in Gazprom Seen; No Reform Expected Until Putin's Second Term .............. 74
Russia: Gazprom says aiming to increase long-term exports by 20 percent ......................... 77
Russia's Gazprom considering 7 percent production cut over pricing issue ......................... 78
Russia trade minister: Liberalization of Gazprom share market 'question of time' ............... 78
Russia's Gazprom to liberalize share trade ............................................................................ 79
Russia: Consumer Accounting With Gazprom By Non-Monetary Means Increasing .......... 80
Russian Far East Energy Development, Gazprom Promissory Note Market Eyed ............... 81
Russian Article Concludes: 'Putin and Gazprom Still Need' Kuchma .................................. 82
Gazprom plans 50 percent rise in gas prices in 2003 to boost investment ............................ 83
Russia: Latest Gazprom Projects Seen as Part of Plan To Break It Up ................................. 84
'Oligarch' Involvement, Kremlin Interest in Gazprom Breakup Rumored ............................ 85
NTV Chief Yordan, Eurofinance President Cited On Gazprom-Media Stock Sale Deal ..... 87
Gazprom Management Reorganization Viewed.................................................................... 89
Russia's Gazprom Introduces Regulations to Raise Investment Transparency ..................... 91
Russia: Gazprom to double capitalization in two-three years ............................................... 92
Russia: Gazprom needs increasing investments to sustain gas production ........................... 92
Russian government not planning to sell Gazprom, UES shares in 2003 ............................. 93
Yusufov Statement on UK Gas Reform Could Signal Demonopolization of Gazprom ....... 94
Gazprom Meets With Auditors Over Concerns .................................................................... 95
Russia: Gazprom Seeking Money To Repay $7 Billion in Outstanding Loans .................... 96
Russia: Gazprom CEO Miller Outlines Company's Short-Term Plans ................................. 98
Russian economy minister comments on forthcoming Gazprom reform .............................. 99
Polish Gas Monopoly Privatization May Interest Gazprom ................................................ 100
Russia: Gazprom Board Member Fedorov on Personnel Changes in Company, Status of
CEO Miller .......................................................................................................................... 101
Doubling of Gazprom Capitalization 'Founded on Myth' ................................................... 104
Russia: Gazprom executive says reshuffling in Gazexport due to restructuring ................. 106
Kommersant: Putin, Gazprom CEO 'Probably' Discussed Personnel ................................. 107
Russia: Gazprom chief, US Energy Secretary discuss cooperation .................................... 108
Intelligence Online Details Gazprom's 'Robust Performance,' Russia's Oil Strategy.......... 109
Russia: Gazprom's profits to fall in 2002 ............................................................................ 111
Russian shares drop sharply, Gazprom down over 11 percent ............................................ 111
Russia: Gazprom CEO Miller Dismisses 'Last' Vyakhirev Team Player Sheremet ............ 112
Russia: Plans to liberalize trade in Gazprom shares submitted for review .......................... 113
Russian Deputy Economic Minister Sharonov Cites Ministry Proposals on Gas Market
Reform ................................................................................................................................. 114
Russia: Fedorov says liberalization remains major problem for Gazprom ......................... 115
Russia: Aleksey Miller to remain CEO of Gazprom ........................................................... 116
Russia: Gazprom ready to dispose of all non-core assets .................................................... 117
Russia: Gazprom seeks larger share for independent gas producers ................................... 117
Russia: Gazprom plans to increase gas supplies to Europe 5-10 percent in 2003 ............... 118
Gazprom Share Price Up 276% After CEO Miller's First Year, Gas Prices to Rise ........... 119
Russian gas giant Gazprom to adopt new approach to CIS, Baltic markets ........................ 120
Russia: Gazprom Head Reports Changes in Company Leadership..................................... 120
Implications of Boris Yurlov Appointment as Gazprom?s Head of Finance Viewed......... 121
Russian Economic Ministry Favors Gazprom Price Increase ............................................. 122
Russia: Gazprom, US Secretary of Commerce discuss cooperation on gas ........................ 124
Russia: Aleksey Miller's First Year as Gazprom Head Assessed ........................................ 125
Russia: Murder of Gazprom Insurance Executive Petukhov Arouses Speculation ............. 128
Russia: Gazprom announces proven gas reserves worth $40 billion .................................. 129
2
Russia: Gazprom expects long-term transit agreement to be signed with Ukraine ............. 129
Russia: Gazprom Operates at Odds with State Economic Policy........................................ 130
Russia's Gazprom prepared to accept gas from independent producers .............................. 131
Moscow Daily: Importance of Gazprom Slovak Acquisition 'Hard to Exaggerate' ............ 132
'Political Subtext' Suggested in Tax Police Audit of Gazprom Operations ......................... 133
Russia: Gas giant Gazprom facing possible prosecution for massive tax evasion .............. 134
Russian Independent Gas Producers To Pay 20 Percent More For Access To Gazprom
Pipeline ................................................................................................................................ 135
Scandal Over Capital Diversion From Gazprom Subsidiaries Viewed ............................... 136
Russia: Gazprom share values fall as doubts over reform take hold ................................... 139
Russia: Gas giant Gazprom anticipating big downturn in profits........................................ 140
Gazprom Cadre Purge Gaining Momentum ........................................................................ 140
UES ......................................................................................................................................... 142
Russia: CEO Chubais calls for moratorium on sale of core UES assets ............................. 142
UES should be ready to synchronize operations with Western grids by April 2004........... 143
Russia: Official says uncertainly main factor behind decline in UES capitalization .......... 144
Russia: UES chief welcomes Western strategic investors ................................................... 145
Russia: Energy Commission approves UES investment program ....................................... 146
Russian Website: Reforms Postponed Until After Elections .............................................. 146
Website Views Russian Energy Reform Postponement's Political Aspects ........................ 148
Russian Industrial Policy, Industrial Lobbying, Vehicle Industry Blueprint Eyed ............. 151
Postponement of Economic Reforms Until Second Half of 2004 Seen .............................. 152
Putin aide upbeat on 2003 Russian budget, criticizes energy sector reform ....................... 154
Russian parliament postpones power reform discussion till spring session ........................ 155
Special Interests Accused of Delaying Russian Electric Power Reforms ........................... 155
World Bank says most difficult reforms still ahead for Russian government ..................... 157
Russia: Yabloko leader discusses reforms within energy, housing sectors ......................... 158
Russian State Duma Delays Decision on Power Industry Reform ...................................... 159
Russia: YeES CEO Chubays Comments on Power Industry Reform -- GRAPHICS ......... 160
Russian Duma defies government to pass amended law on electricity tariffs..................... 170
Russia: Duma sets maximum electricity, heat tariffs .......................................................... 171
Russian power grid chief hints at political uncertainty over reform.................................... 172
Threat of Postponed Examination of Power Reform Package in Russian Duma Reported 174
Russian power grid chief: Budget loses money over energy reform debate delay .............. 176
Russian power grid shares collapse ahead of Duma electricity board debate ..................... 176
Russian RTV 'Vesti-Plus' focuses on reform of energy industry ........................................ 177
Russian Rail Enterprises May Be Allowed Access to Federal Wholesale Market for
Electricity and Generating Capacity (FOREM) .................................................................. 178
Duma postpones consideration of power industry reform bills ........................................... 179
Russian official views delay in energy reform .................................................................... 179
Russia: Electricity, gas tariffs to go up by 14-20 per cent in 2003 ...................................... 180
Gref Assesses Russia's Growth, Reform Prospects in Interview......................................... 180
Russia: Commentary Views Delays in Implementing Gref Reforms .................................. 184
Russia: Proposed 2003 Electricity Tariff Increases Detailed .............................................. 185
Russia Deputy Economic Development Minister Sharonov Eyes Electricity Draft Laws .. 186
Russia: 'Final Version' of Package of Electricity Reform Laws Viewed ............................ 187
Izvestiya: 'Exaggeration' To Claim Russian Tax Reform a Flop......................................... 188
Russian Duma Schedules Second Reading of Energy Reform Bills for 18 Dec ................. 190
Russia starts importing electricity from Kazakhstan ........................................................... 191
Putin aide: administrative reform will pass power down to local government ................... 191
Russian financial official: capital flight situation shows 'correctness of reforms' ............... 192
3
Russian 'Oligarchic Grouping' Seen Rumored Buying Up YeES Shares Ahead of Reform 193
Russia: YeES Deputy Head Speaks of Electricity Sector Problems ................................... 195
Plan to reform electricity utility seen causing possible crisis in Russia .............................. 199
Russia: Presidential aide criticizes planned power grid reform........................................... 199
Commentary on Suggestions For Reform of Russian Electrical Power Industry................ 200
Russia: Presidential Economic Adviser Illarionov Cites Reasons for Opposing YeES Energy
Reform Plan ......................................................................................................................... 203
Russia: Commentary Views 'Pseudoliberal' Currency Reform ........................................... 208
Duma Reading Postponement Could Stall YeES Reform Five Years ................................ 211
Kommersant Eyes Illarionov-Dubinin Spat Over Energy Reform at Boston Symposium.. 212
Putin's Adviser Illarionov Views Electric Power Industry Reform Issues -- Part 1 ............ 213
4
NUCLEAR
Rumyantsev says Russia ready to build nuclear power plant in North Korea
CEP20030111000008 Moscow ITAR-TASS in Russian 0705 GMT 11 Jan 03
[FBIS Translated Excerpt]
Moscow, 11 January: From the technical point of view, Russia could build a nuclear power plant
in the Democratic People's Republic of Korea. Such a nuclear power plant could help to defuse
the situation which has developed around North Korea, Russian Atomic Energy Minister
Aleksandr Rumyantsev has said in an exclusive interview for the ITAR-TASS news agency.
He went on to say that Russian experts were capable of constructing nuclear power plants
abroad and were already doing it in Iran, China and India. [passage omitted on earlier reported
statements by Rumyantsev.]
[Description of Source: Moscow ITAR-TASS in Russian -- main government information
agency]
Russian official optimistic about nuclear power cooperation with Japan
CEP20030111000097 Moscow ITAR-TASS in English 1447 GMT 11 Jan 03
[FBIS Transcribed Text]
By Veronika Voskoboinikova
MOSCOW, January 11 (Itar-Tass) -- Russia and Japan will be cooperating in the nuclear power
industry, including the creation of an experimental thermonuclear reactor ITER. Japanese Prime
Minister Junichiro Koizumi's participation in an international conference at the Kurchatov
Institute nuclear center in Moscow earlier on Saturday was evidence of Japan's interest in such
cooperation, Deputy Prime Minister Viktor Khristenko said.
The Russian-Japanese Action Plan, adopted by Vladimir Putin and Junichiro Koizumi identified
guidelines for fundamentally new high-technologies-related cooperation, Khristenko said and
allows for laying a legal basis of cooperation in that sphere.
Power production featured prominently on the agenda of Russian-Japanese summit talks,
Khristenko said. Tangible experience has been accumulated in this sphere. He recalled such
projects as oil and gas development off the island of Sakhalin - Sakhalin-1 and Sakhalin-2.
Investments in these projects have totaled 26 billion dollars, including 8-8.5 billion dollars of
Japanese investments. Private Japanese companies have invested about one billion dollars.
Khristenko said one of the Sakhalin projects had already entered the oil production phase and
gas production options within its framework were being discussed. When they achieve the peak
capacity, the two projects will yield an annual 35 million tonnes of crude. Transportation
5
opportunities are practically unlimited. The list of likely consumers, alongside Japan, includes
China and the United States.
In the course of the Russian-Japanese summit talks the transportation was discussed of natural
resources from East Siberia and the Far East to the Asia Pacific region. Consultations on this
theme will continue.
Khristenko said this applied not only to oil and gas fields in the Far East, but to natural resources
in East Siberia as well. Discussions with likely partners, in the first place, Japan and China have
been well underway. Khristenko expects the first supplies to the world market may be made in
2005-2006.
Russia is finalizing its own program for resources development in East Siberia and the Far East
that would make it possible to not just evaluate the available resources, but to distribute them
among domestic and foreign markets, including those in the Asia-Pacific region. Khristenko sees
Japan as one of the key buyers.
The Russian Deputy Prime Minister pointed to good opportunities for cooperation in high
technologies, including telecommunications. The first steps have been taken along these lines
already and contracts 130 million dollars worth signed for cooperation in using Russian satellites
and the space industry in general.
Russia and Japan may expand joint programs aboard the international space station, created and
run by a group of countries, including the United States, European countries and Canada.
The just-adopted Russian-Japanese Action Plan contains a major block of issues concerning
trading and economic cooperation in such areas as fishing and biological resources protection.
Khristenko recalled that seafood remained one of the leading items of Russian export to Japan.
-0-str/baz 111744 JAN 03
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
Russian minister sets out atomic industry strategy for 21st century
CEP20021130000112 Moscow RIA-Novosti in Russian 1422 GMT 30 Nov 02
[FBIS Translated Text]
Moscow, 30 November, RIA-Novosti Eduard Puzyrev: More than R1,000bn of investment, in
addition to budget funds, is needed for the development of Russia's atomic energy sector in the
years up until 2020, Atomic Energy Minister Aleksandr Rumyantsev told RIA-Novosti on
Saturday [30 November].
Rumyantsev said that "R162bn needed to be spent on the modernization of existing plant and
machinery at atomic plants, R152bn on the construction of the requisite infrastructure and to
address the social problems of atomic industry workers, and up to R750-760bn on the
development of atomic energy itself".
The minister identified a number of priorities to be tackled in the industry. First safety at atomic
power plants needs to be improved.
Secondly, five units are to be built at four atomic plants by 2010, which will allow the capacity
of each of the plants to be increased by 1 Gwt. The service life of the existing units will also be
extended through modernization - for example, one unit will be modernized each year up until
2007.
6
Thirdly, the operational coefficient of the existing plant will be increased. For example, by
increasing the operational coefficient of the current capacities by 2.5 per cent it will be possible to
reduce production costs at atomic plants by up to 3 per cent.
Fourthly, there are plans to introduce new, progressive technologies, in particular new types of
reactor, in the production of electricity at atomic plans. This would include thermonuclear
reactors, which in contrast to today's reactors will be totally safe for the environment. The
construction of such reactors will define the entire strategy and policy on new technologies for
electricity generation from peaceful atomic technology until the end of the 21st century, said
Rumyantsev.
[Description of Source: Moscow RIA-Novosti in Russian -- government information agency, part
of the state media holding company]
Minister Says China Russia's Strategic Nuclear Industry Partner
CEP20021202000017 Moscow Interfax in English 0133 GMT 2 Dec 02
[FBIS Transcribed Text]
BEIJING. Dec 2 (Interfax-China) - The Russian atomic energy minister on Monday called
China a strategic partner of Russia's as regards nuclear power engineering.
"Cooperation between Russia and China in the field of nuclear power engineering is forever,"
Alexander Rumyantsev told Interfax- China.
He said Russia was currently building two generating units for the Tianwan nuclear power plant
in China. This, he said, was a deal that would bring Russia about $1 billion.
One of the units was to go into operation in December 2004 and the other one about 18 months
thereafter, he said.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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PROHIBITED WITHOUT PERMISSION OF THE COPYRIGHT OWNERS.
7
Russia: Highlights from the Nuclear Industry - 19 December 2002
CEP20021219000374 S&T Monitor in English 19 Dec 02
[FBIS Report]
S&T Monitor
Russia: Highlights from the Nuclear Industry - 3 December 2002
The following are summaries of selected articles on the Russian nuclear industry taken from the
central and regional press as well as selected internet sites from 26 September to 12 December
2002. The opinions expressed in the following summaries are those of the sources and not of
FBIS.
Table of Contents:
Kursk Nuclear Power Plant Conducts Planned Emergency Exercises
International Thermonuclear Reactor Project Meeting in Tokyo
American Plan to Prevent Emigration of Russia's Nuclear Scientists may Lead to
Unexpected Conclusion
Saint Petersburg Oblast Governor Visits the Saint Petersburg Institute of Nuclear Physics
Uzbekistan to Relocate Radioactive Waste from Storage Site On Kazakhstani Border
Beloyarsk NPP Takes Measures to Prevent Sabotage and Theft
2002 Russian Nuclear Energy Production Figures
Russian Minister of Atomic Energy Visits France for Nuclear Industry Talks
8
Kursk Nuclear Power Plant Conducts Planned Emergency Exercises -- With the goal of
coordinating the efforts of Rosenergoatom [Russian State Concern for Generation of Electric and
Thermal Power at Nuclear Power Plants], other ministries, and agencies in the case of an
emergency at a Russian nuclear power plant (NPP), Rosenergoatom has conducted a two-day
simulated emergency exercise at the Kursk NPP on 25 October. Another purpose of the exercise
was the development of practical emergency skills of personnel at the Kursk NPP,
Rosenergoatom, the OPAS [okazanie ekstrennoy pomoshchi atomnym stantsiyam or the
provision of immediate assistance to nuclear power stations] group, the emergency-technology
center and crisis center of the concern [Rosenergoatom], sub-units and forces from the Ministries
of Defense, of Internal Affairs, and for Civil Defense, Emergency Situations, and the Elimination
of the Consequences of Natural Disasters. Upon conclusion of the exercise and following an
in-depth analysis, the results of the exercise will be distributed to all NPPs in Russia (regions.ru News agency owned by Modest Kolerov and focusing on Russian regional news, 26
September).
International Thermonuclear Reactor Project Meeting in Tokyo -- President of Russia's
Kurchatov Institute Academician Evgeniy Velikhov and the First Deputy Minister of Atomic
Energy Vladimir Vinogradov represented Russia during a two-day organizational meeting for the
international thermonuclear reactor project [called ITER which means "the way" in Latin
according to ITER's website] on 29 October. Meeting participants included government
representatives and experts from Russia, the European Union, Canada, and Japan and the
discussions pertained to working out an international agreement on the location, construction
considerations, and forms of implementation of the first thermonuclear reactor.
France, Canada, and Japan have all offered territory for the site of the future reactor and Russia,
at the time of the meeting, supported Japan's bid. The proposed location discussion is part of an
agenda that included determination of ITER's overall cost and how project financing would be
divided between the participants (ITAR-TASS - Main government information agency, 29
October).
American Plan to Prevent Emigration of Russia's Nuclear Scientists may Lead to
Unexpected Conclusion -- The American program created within Russia's "nuclear cities," and
designed to prevent a brain drain from Russian nuclear research centers, may have an unexpected
outcome. Program organizers initially attempted to retrain Russian nuclear scientists as
computer programmers, but this was not going well because they do not have the "right
mentality" according to the administrators. Thus the organizers decided that it would be better to
use the scientists to conduct scientific research. The offshore engineering services industry is
still in its nascent stage compared to the offshore programming services industry, and Russian
businesses, relying on the work of the nuclear scientists, could make great inroads here
(Vedomosti - Daily business paper published jointly with The Wall Street Journal and Financial
Times; reportedly friendly with the Kremlin, 29 October).
Saint Petersburg Oblast Governor Visits the Saint Petersburg Institute of Nuclear Physics - During a visit to the Konstantinov Institute of Nuclear Physics (Saint Petersburg) on 1
November, Saint Petersburg Oblast Governor Vladimir Yakovlev received briefings on scientific
developments, the logistical base of the institute, and prospects for its development. Yakovlev
advised the staff of the institute to expand the institute's project agenda to include commercial
projects and requested the director send him a listing of scientific developments so that they
might be included in the city's procurement process (Agentstvo Politicheskikh Novostey Website featuring political rumors and often critical of the Kremlin; outspoken journalist Sergey
9
Dorenko is chairman of the editorial council; located at www.apn.ru, 1 November).
Uzbekistan to Relocate Radioactive Waste from Storage Site On Kazakhstani Border -- On
3 December, <rusenergy.com> reported that Uzbekistan has agreed to move radioactive wastes it
is storing at its Kzylkum Waste Storage Facility to another location in response to a request by
Kazakhstan. Kazakhstan's request came in response to recent deterioration of the waste site to an
"unsatisfactory state." Alarm grew on the Kazakhstani side when it realized that the amount of
waste at the site is sufficient to contaminate a large part of southern Kazakhstan (rusenergy.com,
3 December).
Beloyarsk NPP Takes Measures to Prevent Sabotage and Theft -- The administration of the
Beloyarsk NPP announced its intention on 11 December to take measures aimed at preventing
sabotage and thefts of radioactive materials at the facility. These measures were to be enacted as
a result of a study done by Plenipotentiary Presidential Representative in the Ural Federal District
Petr Latyshev and will apply to the only NPP (Beloyarsk) located in the district. During a
Ministry of Atomic Energy (MinAtom) special meeting in January 2003, the ministry will finalize
the list of measures. Moreover, MinAtom is considering a number of investment projects
concerning the Beloyarsk NPP, including installation of a second reactor at the NPP which would
solve the electricity supply problem in the Sverdlovsk Oblast (Alyanc Media, 11 December).
2002 Russian Nuclear Energy Production Figures -- According to IMA-Press, Rosenergoatom,
for the first 11 months of 2002, produced more than 124.5 billion kilowatt hours of electricity.
For the same period in 2001, the concern's NPPs produced 120.6 billion kilowatt hours. At the
present time 26 of the concern's 30 reactors are producing, with a combined capacity of 19.8
thousand megawatts. No violations of the conditions or limits for the safe operation of the
nuclear reactors were noted (5 December).
Russian Minister of Atomic Energy Visits France for Nuclear Industry Talks -- On 12
October ITAR-TASS reported on Minister of Atomic Energy Aleksandr Rumyantsev's visit to
France. In the course of the visit Rumyantsev met with both Pascal Colombani, Chairman of the
French Atomic Energy Commission, and Nicole Fontaine, Minister-Delegate for Industry
[attached to the Minister for the Interior, Internal Security, and Local Freedoms], and covered
topics such as issues surrounding the June 2002 G-8 Kananaskis Summit. Other issues discussed
were the conversion of weapons grade plutonium, salvage of Russian atomic submarines, and
strategic planning. The meeting concluded with the signing of a protocol of intentions related to
cooperation between MinAtom and the French Industrial Group Areva [a French nuclear energy
company]. The protocol specifically addressed promising technologies used in the nuclear fuel
cycle and utilization of nuclear wastes as well as the creation of working groups on both sides (12
December).
THIS REPORT MAY CONTAIN COPYRIGHTED MATERIAL. COPYING AND
DISSEMINATION IS PROHIBITED WITHOUT PERMISSION OF THE COPYRIGHT OWNERS.
Unclassified
10
Document ID: CEP20021129000136
Entry Date: 11/29/2002
Version Number: 01
Source-Date: 11/28/2002
Association Established to Restructure and Integrate Minatom Nuclear Fuel Cycle
Enterprises
CEP20021129000136 Moscow Nuclear.ru WWW-Text in Russian 28 Nov 02
[Unattributed report: "Association Established for Restructuring and Integration of Russian
Atomic Energy Ministry Nuclear Fuel Cycle Enterprises"]
[FBIS Translated Text]
Enterprises of the Russian Atomic Energy Ministry (Minatom) Nuclear Fuel Cycle Department
and the OAO Tekhsnabeksport have established the Association for Restructuring and Integration
of Russian Atomic Energy Ministry Nuclear Fuel Cycle Enterprises. As Nuclear.Ru was told by
Vladimir Korotkevich, head of the Nuclear Fuel Cycle Department, the Association charter and
memorandum of association were signed by the heads of six nuclear fuel cycle enterprises (the
FGUP Siberian Chemical Combine, the FGUP PO Electrochemical Plant, FGUP Angarskiy
Electrolysis Chemical Combine, FGUP Mining-Chemical Combine, FGUP PO Mayak, FGUP
Uralskiy Electrochemical Combine) and the head of the OAO Tekhsnabeksport.
According to the charter, the Association is a non-commercial organization whose basic tasks
include: development of the restructuring concept of the Minatom nuclear fuel cycle enterprises;
development of methodological recommendations for internal reform of nuclear fuel cycle
enterprises; development of an optimal model for integration of nuclear fuel cycle enterprises;
development of programs and plans for restructuring, reform, and integration measures for
nuclear fuel cycle enterprises and preparation of the necessary normative-legal foundation;
provision of consultative, methodological, legal, and other assistance to association members for
preparation and conduct of restructuring, reform, and integration of nuclear fuel cycle enterprises.
Aleksandr Bystrov, who for some time worked in the separation department of the Russian
Minatom Nuclear Fuel Cycle Department and most recently worked in various entrepreneurial
structures, was appointed executive director of the Association. Anatoliy Shubin, Director of the
Electrochemical Plant, was chosen as chairman of the supervisory council. The supervisory
council includes: RF Atomic Energy Minister A. Rumyantsev; First Deputy Minister I.
Borovkov; Nuclear Fuel Cycle Department head V. Korotkevich; Tekhsnabeksport General
Director V. Smirnov, and the heads of six nuclear fuel cycle enterprises. According to V.
Korotkevich, the procedure for registration of the Association has still not been completed, since
it still not registered as a juridical body. "Basically, organizational work has been done in the
first stage," Korotkevich said, adding that "as soon as the Association is registered, a minimal
staff of associates will be assembled to complete the primary tasks."
Korotkevich emphasized that, "as it works under the new conditions, the Russian Atomic
Energy Ministry is constantly being reformed," adding that "it is vital that we continue the work
carried out in recent years to choose options for restructuring of nuclear fuel cycle enterprises in
order to accomplish a whole group of tasks which can be carried out only by uniting efforts,
resources, and finances, and orienting enterprises towards implementation of corporate measures
11
required under the new conditions." Korotkevich says that the chief mission of the Association
is to develop and prepare a restructuring concept. Roughly a year is earmarked for this process.
Next, the concept will be presented to the Minatom leadership and reviewed by the board. If the
proposed, economically sound options are accepted, this will be followed by steps to prepare the
appropriate government decrees.
In response to a question from Nuclear.Ru about whether the formation of a single system of
separation plants is likely, V. Korotkevich said: "I don't know about any specific plans which
would single out only the separation system from the nuclear fuel cycle enterprises. If we do this
under present conditions, other combines where there are no separation plants will simply die
off." He added, however, that it is still unknown which integration model will be selected,
"whether it will be a single GUP, a joint-stock company, or some sort of public enterprise, and all
the rest joint-stock companies." "This will be the task of the association, to propose models and
options. After one option or another is adopted, clearly, some sort of structure will be created in
which there will be a controlling company or some other organ," Korotkevich said. "Then the
functions of the Association will be exhausted, and it will join some other entity or cease to
exist."
[Description of Source: Nuclear.ru -- Independent news resource focusing on nuclear energy and
related topics.]
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DISSEMINATION IS PROHIBITED WITHOUT PERMISSION OF THE COPYRIGHT OWNERS.
Unclassified
Unclassified
Document ID: CEP20021204000321
Entry Date: 12/04/2002
Version Number: 01
Source-Date: 12/04/2002
Environmentalists claim Russia's Minatom plans floating nuclear power plant
CEP20021204000321 Moscow Interfax in English 1851 GMT 4 Dec 02
[FBIS Transcribed Text]
KALININGRAD, Russia, and MOSCOW. Dec 4 (Interfax-Northwest) - Russia's Atomic Energy
Ministry sees the Kaliningrad region as a likely venue for the first ever floating nuclear power
plant, environmentalists have said, slamming the alleged plan as the ministry's "most dangerous
initiative."
Kaliningrad environmentalist group Ekozashchita, which makes the allegation in a release, does
12
not name the source of the information or indicate the place in the region where the plant may be
located.
"Floating nuclear power plants are the most dangerous initiative of the Atomic Energy Ministry,
comparable to the threat of turning Russia into a nuclear waste dump," the release says.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
Document ID: CEP20020703000001
Entry Date: 07/03/2002
Version Number: 01
Source-Date: 07/03/2002
Alfa-Bank's Fridman Interprets Results of Struggle with MDM-Bank Over Konversbank,
Minatom Accounts
CEP20020703000001 Moscow Vedomosti (Internet Version-WWW) in Russian 03 Jul 02
[Report by Svetlana Petrova: "Fridman Hasty in Transferring Atomic Energy Money For
Servicing To His Bank" (Internet Version-WWW)]
[FBIS Translated Text]
Yesterday, the head of the board of directors of Alfa-Bank, Mikhail Fridman, gave his
interpretation of the results of the war with MDM-Bank over Konversbank. A large part of the
Minatom [Ministry of Atomic Energy] accounts has been transferred to Alfa-Bank. However,
Minatom officials believe that Fridman was hasty, and that no single bank services more than 15
percent of the sector's financial flows. And, as Vedomosti has learned, the passports for the $12
billion VOU-NOU contract were transferred to the state-owned Vneshtorgbank.
As Interfax interprets Fridman's words, the transfer of the atomic energy accounts to Alfa-Bank
was performed for the purpose of not allowing a monopoly in the fiscal flows of the sector to be
held by a single bank. And specifically, by MDM-Bank.
Konversbank has always been considered a choice object for acquisition, specifically because
of the sector's financial flows. And up until Fall of 1999, this bank serviced the VOU-NOU
contract (processing of highly enriched uranium into low enrichment fuel for AES [atomic power
plants]), which is effective until 2010. However, Yevgeniy Adamov, who headed up Minatom in
1998, transferred the passports for this mega-deal to MDM-Bank, but then the contract was once
again returned to Konvers (they say that this was because of a protest by the American side).
In December of 2000, MDM-bank co-owner Andrey Melnichenko came to head up
Konversbank, and announced plans to merge the two banks, concentrating up to 70 percent of the
sector's financial flows. Although these plans did not work out, Melnichenko did not relinquish
control over the bank, despite all the efforts of Alfa-Bank. MDM recently managed to
consolidate 85 percent of the shares in Konversbank and to emerge as the winner in this many-
13
month war.
"We are absolutely satisfied with the situation, and do not consider ourselves the losers. ...If
Melnichenko is also satisfied with it, then we may say that this deal [acquisition of almost all of
Konversbank by MDM] has been concluded to everyone's delight," Mikhail Fridman, the head of
Alfa-Group, told journalists yesterday.
But even though each of the opposing sides has supposedly achieved its goal, the money of the
atomic energy producers has been dispersed throughout different banks, including state banks
(specifically, Sberbank and VTB [Vneshtorgbank]). And the passports for the deals under the
VOU-NOU contract did not go to any of their competitors. As First Deputy Minister of Atomic
Energy Vladimir Vinogradov told Vedomosti, servicing of this contract, "in coordination with
Minfin [Ministry of Finance], was transferred to Vneshtorgbank. "After all, these are state
deliveries, and all the money should go to treasury accounts right away," explained Vinogradov.
"Therefore, we were given a choice of two banks authorized by Minfin, where it holds accounts-Vneshekonombank and Vneshtorgbank. The operation on transfer of the contract began around
4 months ago, and was concluded at the beginning of June, after receiving the consent of the
American side." Yet, according to Vinogradov, Alfa-Bank traditionally services enterprises
which carry Russia's contracts with Iran and China.
"Other accounts of Minatom enterprises are held in a rather large number of banks. These are
primarily commercial, and not state banks (with the exception of the VOU-NOU contract)," he
noted. "And Alfa-Bank is not a monopolist here. Even in its best years, Konversbank, together
with the VOU-NOU contract, serviced no more than 30 percent of the sector's financial flows.
Therefore, even in this period it was impossible to speak of monopolization, let alone now."
Vinogradov announced that Minatom enterprises are now working with over 100 banks, but
declined to name the main ones: "We have not collected data about banks which service accounts
[of Minatom enterprises] for a long time, but I believe that there is no more than 15 percent
concentrated in any one bank today."
[Description of Source: Moscow Vedomosti (Internet Version-WWW) in Russian -- Business
paper published jointly with The Wall Street Journal and Financial Times; reportedly friendly
with Kremlin.]
THIS REPORT MAY CONTAIN COPYRIGHTED MATERIAL. COPYING AND
DISSEMINATION IS PROHIBITED WITHOUT PERMISSION OF THE COPYRIGHT OWNERS.
Document ID: CEP20020523000276
Entry Date: 05/23/2002
Version Number: 01
Source-Date: 05/23/2002
14
Russian Gas and Power Industries React to Minatom Representative Bulat Nigmatulin's
Claim Nuclear To Account for More Generation by 2005
CEP20020523000276 Moscow Izvestiya in Russian 23 May 02
[Article by Yekaterina Kravchenko: "11:00 AM: Spiting Chubays" -- taken from HTML version
of source provided by ISP]
[FBIS Translated Text]
The Russian nuclear power industry will be capable of replacing oil and natural gas in our
country's fuel mix by 2005, declares Bulat Nigmatulin, deputy minister of atomic energy. By
2010 the nuclear power industry will be lightening Gazprom's load by at least 70 billion cubic
meters of gas annually. This is roughly half of current consumption of the "blue fuel" by RAO
YeES, and it will bring in at least $1.4 billion to Rosenergoatom. Rosenergoatom is also laying
claim to one-fifth of all funds received from greenhouse gas quota trading ($10 billion). The
Ministry of Atomic Energy's ambitious plans have been greeted very calmly by RAO YeES;
according to promises from company head Anatoliy Chubays, that structure will no longer be in
existence in 2004. So it will be the customer who will be voting to buy energy from nuclear
power plants.
It will take substantial investment to implement Rosenergoatom's idea, and that means that the
Ministry of Atomic Energy is prepared to compete with RAO YeES for the world community's
money. In the opinion of exports representing pension funds in the European countries and the
United States, the Russian nuclear power industry is an attractive investment. However,
Rosenergoatom still has to convince financiers that investing in "the peaceful atom" is preferable
to investing in RAO YeES's operations.
According to Ministry of Energy figures, in Russia's central regions natural gas accounts for up
to 80% of individual regions' fuel mix, and the national average is 50%. While the export price
of gas is over $100 per thousand cubic meters, the domestic price for that same amount of "blue
fuel" is a mere $20. It remains profitable for the regions and RAO YeES systems customers to
burn gas because it is cheap relative to other fuels, for example coal or oil.
The Ministry of Atomic Energy claims that, at a time when gas production is declining, export
volumes could be maintained by increasing power generation by nuclear power stations, and that
by 2005 the nuclear power industry will be able to replace oil and gas as the linchpin of Russia's
fuel mix. According to Rosenergoatom plans, by 2010 nuclear power will be able to replace
more than 70 billion cubic meters of natural gas each year, and by 2020 that figure will be over
100 billion cubic meters. In order to reach this goal Rosenergoatom is planning to extend the
service life of existing nuclear power stations and build a number of new ones. By 2010 Russia's
annual nuclear power production will have increased by 84 billion kilowatt-hours relative to
2000, reaching 212 billion kilowatt-hours. The Rosenergoatom investment program for 20022010 envisions spending R517 billion in the process. "World market trends indicate that the
developed countries are intent on developing nuclear power," says Aleksandr Katsay,
Rosenergoatom chairman. "Yet currently Russia's nuclear power plants generation no more than
15% of our electricity. However, over the next few years that should increase to 20%."
According to Ministry of Atomic Energy assumptions, the nuclear power industry should also get
a share of Russia's income from greenhouse gas quota trading. "It should be proportional to our
power production," says Katsay.
15
Paul Rodzyanko of Access Industries believes that part of the money made trading greenhouse
gas quotas should go toward investment in the environmentally clean nuclear industry precisely
because development of a "peaceful atom" industry holds down emissions. "Around the world a
pervasively positive perception is forming of nuclear energy as an inevitable means of reducing
greenhouse gas pollution of the atmosphere," says Rodzyanko. According to projections done by
Access Industries, nuclear power will become the basis upon which to satisfy increasing demand
for electricity during an energy boom. According to Rosenergoatom data, by 2010 the world
should have 100 new generating units in addition to the 430 that currently exist. Specifically, the
United States is planning to build 50 units over the next 20 years, and Japan another 12.
In Russia attitudes toward the nuclear power industry's initiatives remain unclear. The
Ministry of Atomic Energy's desire to increase generation by nuclear plants has been greeted
positively by Gazprom. "That would be good, because we are stretched to the limit," said a
Gazprom representative. RAO YeES is not afraid of greater competition from the nuclear
industry. "At the present time electricity generated by nuclear plants is more expensive than the
average FOREM [Federal Wholesale Power and Capacity Market] rate. And by 2005 there will
be a market in the power sector, and it will set everything right. RAO YeES Rossii will no
longer exist. The customer will decide what kind of energy to purchase," said RAO YeES
representative Yuriy Melikhov.
[Description of Source: Moscow Izvestiya in Russian -- One of Russia's most prominent dailies;
controlled by Vladimir Potanin although Lukoil owns a minority share.]
Russian Minatom, British Nuclear Fuels plan cooperation
CEP20020429000190 Moscow ITAR-TASS in English 1046 GMT 29 Apr 02
[FBIS Transcribed Text]
MOSCOW, April 29 (Itar-Tass) - Russian Atomic Energy Minister Alexander Rumyantsev and
President of the British Nuclear Fuels Corporation Hugh Collam met on Monday to discuss
expansion of cooperation, including joint Russian-British projects, a source in the press service of
the Russian Ministry told ITAR-TASS.
The two officials also considered aspects of leasing of both materials and equipment. The press
service source noted that the Russian ministry's tock Company "Machine-Building works in
Elektrostal that specializes in the manufacture of fresh nuclear fuels uses a British method of
manufacturing nuclear fuel tablets.
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
THIS REPORT MAY CONTAIN COPYRIGHTED MATERIAL. COPYING AND
DISSEMINATION IS PROHIBITED WITHOUT PERMISSION OF THE COPYRIGHT OWNERS.
16
Unclassified
Russia: Shubin Interview on Cooperation of Minatom, Regions
CEP20020425000001 Moscow Yadernyy Kontrol in Russian 29 Jan 02 pp 30-33
[Interview with Mikhail Vladimirovich Shubin, head of Minatom Department of Regional, Cadre
and Social Policy, by Yadernyy Kontrol correspondent Dmitriy Kovchegin, date and place not
specified, under rubric "Interview": "Mikhail Shubin: 'Cooperation of Minatom and the Regions
Is of Common Interest'"]
[FBIS Translated Text]
The activity of Russia's Ministry of Atomic Energy aimed at establishing partnership
relations with Russian regions, the territory of which includes sector facilities, has become
noticeable of late. The regions in turn also are beginning to realize the benefits of such
proximity and cooperation. Mikhail Shubin, head of the recently created Minatom
Department of Regional, Cadre and Social Policy, tells about the main trends in these
mutual relations and about certain other urgent problems of the Russian nuclear sector in a
conversation with Yadernyy Kontrol correspondent Dmitriy Kovchegin.
Mikhail Vladimirovich Shubin is a candidate of economic sciences. He was born in
Novosibirsk in 1950. He completed Novosibirsk Institute of Rail Transportation in 1974, after
which he worked in Novosibirsk construction organizations. From 1980 through 1992 he was
occupied with scientific and teaching activities. During 1994-2001 he was the head of the
Obninsk city government (city mayor). Since March 2001 he has headed up the Department of
Regional, Cadre and Social Policy of Russia's Minatom.
[YaK] Mikhail Vladimirovich, please tell us about the field of activity and subject of
jurisdiction of the Minatom Department of Regional, Cadre and Social Policy.
[Shubin] The Department was established in the spring of 2001. Prior to this there was a
Department of Cadre and Social Policy and Production Relations in the Ministry's structure,
which later was reorganized as the Minatom Department of Regional, Cadre and Social Policy.
Our first task is to bring the sector up to strength in cadres. In one of the Minatom collegiums
attended by Russian Prime Minister Mikhail Kasyanov as well as by Deputy Prime Minister Ilya
Klebanov, the government formulated the primary task of preserving critical directions of
Minatom activity: developments in the field of nuclear weapons and nuclear energy as well as
other scientific directions.
A critical mass of intellect has to be preserved in these directions. Naturally there is the
process of the aging of cadres. Our founding fathers of schools are aging and there has to be a
natural replacement. We shouldn't simply recruit young people quantitatively. For example, we
accept 230 persons for work and there may not be a single Kurchatov among these 230, but we
need one. And so we are seeking Kurchatovs, and in connection with this we are unfolding work
with central higher educational institutions such as MIFI [Moscow Engineering Physics Institute],
MGTU [Moscow State Technical University] imeni Bauman, MGU [Moscow State University]
and so on.
17
Further, as with any ministry in any sector, we have the problem of filling key positions with
cadres. We understand key positions to mean directors and managers of various directions.
Above all these are production engineers, who direct the process of production, experiments and
tests, as well as managers, who simply are capable of organizing any production process. This is
the second direction.
Finally, we support the training and retraining of managers who are engaged in the direction of
security.
The second direction of our activity, higher educational institutions and advanced training
institutes, arises from this cadre component, the principal task of the cadre direction. In this
system we have a rather capacious and qualified training and retraining system.
Our Department also is assigned the function of financial, methods and organizational support
of the work of sectoral higher educational institutions and advanced training institutes.
The second block of issues is the block of social issues. Here there are routine tasks which we
constantly perform. It includes pension work, work with professional supplementary pensions
and work with material support. Minatom funds this program from its own assets in accordance
with the Presidential Edict "On Urgent Measures of Social Support to Specialists of the RF
Nuclear Weapons Complex" of 23 August 2000. Payments are being made already today. On
the order of 12,000 persons who were engaged in the manufacture, testing and assembly of
nuclear weapons receive so-called supplementary material support from us. There was difficulty
in starting up this program in all of Russia's regions, problems exist to this day, and there is some
dissatisfaction. It must be noted that many took this to be supplementary material support
intended for those who were working in directions involving nuclear danger connected with
possible radioactive irradiation. As a matter of fact, this isn't quite so; these benefits are granted
only to creators of nuclear weapons, those who were directly involved in this process.
Added to this, our enterprises have a rather large network of facilities in the social sphere.
This includes medical establishments, children's preschool establishments, athletic facilities and
so on. As a matter of fact, the social sphere is what is funded from the budget: federal budget,
Minatom budget and the budgets of our enterprises. This is a noncommercial sphere, which has
to ensure a level of social services or the socioeconomic level of our workers and the population
living in our cities and on the territory adjoining our facilities. This is a very large, very diverse
layer of problems which we take up.
Finally, the third direction, a new one that was opened during the reorganization of our
Department, is regional policy. The goal in following a Minatom regional policy must be to
create normal conditions for our sector's technological structure to function. For example, there
is the Federal Nuclear Center, which is on a certain territory. Its task is to engage in science and
experiments and to put out products satisfying the country's needs. It must be relieved of all
other problems. We are the ones who must handle them. We must create conditions under
which the population has the necessary socioeconomic level ensuring a person's stable situation,
where he doesn't have to solve any other problems except his own main tasks.
There are a large number of issues which haven't been settled because of the changes that
occurred in the country and changes in legislation. The problem of determining and coordinating
boundaries arises in some of our closed administrative-territorial formations (ZATO's). Today
either the directors of our enterprises or the mayors of our cities handle this. As a central staff
18
and a body of state authority, we are getting involved in this process and attempting to conduct it
more promptly, more effectively and more properly, and for this we have the authority and the
knowledge.
Further, our enterprises in the ZATO's are city-forming and budget-forming; on other
territories they may not be city-forming, but almost always are budget-forming. For example,
nuclear electric power plants make a very weighty contribution to the budgets of territories. Our
large enterprises, at which a significant number of people work, also produce very serious
revenues. Therefore there unquestionably is interworking with regional and local authorities in
which both the interests of the sector and the interests of the territories must be tied together.
And it must be noted right off that we have no antagonistic contradictions, nor can there be any.
Why? Because establishing this same social environment suitable for people to live presumes
the mutual interest both of the sector as well as of local authorities. Just as it is unseemly to go
among poor people in evening dress and travel in limousines, so in exactly the same way we
wouldn't want to differ sharply from the environment around us. This doesn't mean, though, that
we would like to become impoverished to the level of the territory. We would like the territory
to rise to the level of social security, budget support, and wage support, to the level of the sector.
And if we can't pay wages to people not working on the territory, we can elevate the social level
by contributing to the social infrastructure. There are a lot of examples of this where the sector
has a rather serious influence on the creation of this environment for everyone living on the
territory.
One other problem we are resolving at a territorial level is that of employment. Conversion is
going on in Minatom and the structure is being optimized in terms of its quantitative and
qualitative makeup. We know that a certain policy is being followed for reducing nuclear
weapons; therefore the problem of population employment may arise and is arising.
If we take the ZATO's, there are programs for employment of the population both in ZATO
administrations and at our enterprises. Our goal is to make it so that these programs correspond,
so that they are mutually penetrating, and so that the territorial jobs program is oriented toward
using the labor force being freed up at our enterprises and at the same time could use the
innovations and technologies we have worked out and the skills of personnel. One other very
important task of ours is to see to it that the creation of jobs is science-intensive. By
accomplishing these two local tasks and bringing them together into a single global task, we also
are accomplishing a state task, because we are creating science-intensive production units,
without which you cannot get by in the modern world.
[YaK] Minatom has the practice of concluding cooperation agreements with regions. Is
this some kind of standard agreement or are they developed individually in each case?
What parameters are put into them?
[Shubin] Indeed, there is the practice of concluding Minatom agreements with regions, but
these are individual agreements. There can be no standard approach here, because each specific
situation has its features and its nuances.
But what is common and what is standard in them? What are the key points of these
agreements? Our contribution to each territory's socioeconomic development is of interest to
each territory. There is the government decree under which we must spend and are obligated to
spend certain amounts in those territories adjoining our facilities. They are called "facilities with
nuclear danger," but they are dangerous hypothetically. With that level of security at which we
have arrived today, this danger is conditional; nevertheless, it exists. But even if we speak about
19
psychological danger: a person simply lives next to a nuclear electric power plant, Chernobyl
stands before his eyes, and he bears some kind of psychological damage. To compensate for
such things, there is a government-approved program and a presidential edict under which we are
committed, and we invest a certain amount of money in the development of territories adjoining
Minatom facilities. The list of these facilities also was approved.
In concluding these agreements, the regions are interested in programs which they carry out,
and we coordinate our actions here. Certainly it would be incorrect and even stupid to spend
money without considering a region's wishes, needs and interests.
The question always comes up about the cost of electricity, since we produce it. We also try
to take interests into account here. There are understandings on restructuring debts and mutual
offsets. We help the regions by taking advantage of our generating capacities, and the regions
help us untie these knots by taking advantage of the presence of their own regional energy
enterprises. This, too, is in our mutual interests.
Minatom also is interested in seeing that social programs such as housing construction, if it is
carried on in a region, also interface with our programs and take our interests into account. We
participate in these programs and we would like to see housing construction be planned with
consideration of the fact that we need to bring the sector up to strength in manpower and we need
to solve housing problems.
In addition, we are interested in objective coverage of sector activity. Excessive fear of
radioactivity exists and you can't get away from it. There are three population groups: people
who aren't interested in this problem at all; people in whom it generates a purely negative
response; and people who aren't afraid of this problem. And based on my own experience--I was
the mayor of Obninsk for seven years--I can say that there is no fear of radiation where the
population in fact lives in regions connected with nuclear energy. Sharp opposition actions arise
where we only are in partial contact. As a rule, knowledgeable people don't take such a
confrontational position, because they realize that the 21st century, a century of high
technologies, lies ahead. Any high technology, that which contains colossal energy reserves, of
course contains a certain danger.
[YaK] What regions can be singled out as successful examples of cooperation and where
are there certain differences of opinion and contradictions?
[Shubin] I wouldn't begin to cite any examples. Our situation now is being adjusted in all
directions.
From the standpoint of nuclear energy, we aren't encountering opposition anywhere today. I
can't say that there are substantial problems with the sale of our reactors somewhere on the
territories. The heads of developing regions ask us the question "When?" because they sense that
this means both serious tax revenues and, most important, covering a most serious shortage of
electrical power in the territory.
Moreover, those regions which at one time shut down work on the populist wave of the fight
against nuclear energy today regret that they rejected cooperation with us.
With respect to our enterprises which are engaged and subsequently will be engaged in
reprocessing spent nuclear fuel, there, too, in my view the situation has turned around. Certainly
it must be said that this campaign against the sector, against the import of spent nuclear fuel,
20
nevertheless was largely speculative in nature.
[YaK] How is the task of cadre support of enterprises being solved in a situation where,
on the one hand, it is necessary to reduce the excessive nuclear weapons complex and, on the
other hand, it is necessary to maintain national security, develop high technologies and
develop the sector?
[Shubin] Our sector is a specific and relatively young sector. The creators of our sector, the
older generation of our personnel, are alive today. Some have taken a pension and some still are
working. Minatom has a corporative solidarity, which bears a completely normal character of
concern for its people. We feel sorry to part with those people who created the sector and who
worked all their lives in it.
One of the problems is that the aging part of our personnel doesn't try to go on pension;
nevertheless, there needs to be a renewal of cadres, otherwise we may reach a critical point where
60 percent of our personnel already will be of pension age. If they should wish to depart
simultaneously, a serious problem may arise with providing the sector with skilled specialists.
The first layer of the problem is the smooth movement of the older generation of our personnel
to a pension. Where possible, they must be assured a worthy old age. That is why the Blago
professional pension fund is gathering momentum with us. It is shifting to an accumulation
system, which works both in an individual form with workers and with legal persons.
There also is a rather strong system for protecting veterans at each of our major enterprises.
This includes lump-sum payments, which generally speaking are systematic in nature, additional
payments for renting apartments, and all kinds of subsidies. A rather large amount of enterprise
funds goes for the social protection of the older generation.
The second component consists of people of able-bodied age who still want to keep working,
but they are laid off as a result of an optimization of processes and a reduction of defense
programs. Here the only method for a painless solution to this problem is a rapid, efficient
conversion and the transfer of capacities that had been utilized in the weapons complex to the
production of consumer goods. In fact each Minatom enterprise has production units involved
with peaceful products.
There is the Konversiya fund in our consolidated balance of tasks and expenditures.
Conversion is a rather serious direction. Enterprises simply are obligated to invest in conversion
on a planned basis. These investments are not random in nature. It is the obligation of each
enterprise to carry out conversion.
There is a government program of settling out people for the ZATO's. It is operating. From a
quantitative aspect, it isn't of great significance. There are only solitary instances. The standard
of living in closed cities is higher to this day, and so there aren't that many who wish to depart.
[YaK] How has the training of young specialists in the sector been arranged as a whole?
[Shubin] A government decree recently came out about setting up four independent sectoral
universities in Sarov, Snezhinsk, Seversk and Novouralsk. Three MIFI branches also were
formed. Minatom also became a cofounder of MIFI together with Minvuz [Ministry of Higher
Educational Institutions]. This system of universities covers our needs for specialists by 90
percent, but there is the problem of attracting future prominent scientists. Now we have to man
21
our enterprises with graduates from the most prestigious and, I would say, outstanding
universities, at least in limited numbers.
[Description of Source: Yadernyy Kontrol-Bimonthly journal of PIR-Tsentr devoted to
international security, arms control and WMD nonproliferation.]
Web Reference -- Find Report: Minatom's 'Miscellaneous Resources' Page
CEP20020314000060
Reference:
1. CEP
[Reporting Internet source find]
[FBIS Report]
Country: Russia
Source Name: Ministry of Atomic Energy Miscellaneous Resources
City: Moscow
Language: Russian
Medium Type: Internet
Type of Access: WWW Homepage
Description of Content: Page carries the following descriptions of various Russian and
international departments, institutions, and organizations operating in spheres related to the
functions of the Ministry of Atomic Energy [Minatom], together with brief summaries of their
main functions:
Catalogue of Products by Enterprises of Russia's Minatom at
http://www.nuclear.ru/catalog/productions/. 'Catalogue of civilian products by enterprises of
Russia's Minatom, compiled on instructions from Atompromresursy Open Joint-Stock Company.'
[U.S.] Nuclear Energy Institute at http://www.nei.org. 'How do nuclear power stations [AES's]
operate, nuclear fuel, safety, radiation, transportation of nuclear materials. Tests available to
22
check your knowledge on-line. About 20 instruction manuals, not expensive.'
Russian Nuclear Weapons, Research, Test and Production Facilities at
http://www.fas.org/nuke/guide/russia/facility/nuke. '30 Minatom facilities, coordinates
appendix, each with two-three maps or plans (1:10000), 25-30 space photographs, main
production lines.'
Russia's Nuclear Complex at
http://www.pbs.org/wgbh/pages/frontline/shows/nukes/maps/russia.html. 'Interactive map of
Russia's nuclear complex with estimates of weapons-grade nuclear materials at each facility.
Descriptions of 12 instances of unauthorized transfer of nuclear materials publicized by the mass
media.'
The Virtual Nuclear Tourist at http://www.cannon.net/~gonyeau/nuclear/index.htm. 'An
amazing site. Run by a single person since 1996. More than 300 pages about the construction
of various reactors, ecological issues, waste, response to accidents. Large quantity of photos,
plans, web links.'
WEB-Energotsentr at http://www.energocentre.nsys.by. 'This center focuses on information
necessary for enterprises, institutions, and organizations whose activity is associated with the
production, distribution, and consumption of energy resources, including information about
producers and suppliers of equipment, technologies, materials, and services in the power industry
sphere.'
Atomic Power Industry and Safety at http://www-koi8.machaon.ru/atomsec/index.html. 'A sixtopic study course: Physical foundations of the use of nuclear energy; Its technical foundations;
Various nuclear reactors; Radiation safety; Nuclear energy accidents. Simple
language, good illustrations, dictionary of terminology, reading list. On the whole, a good source
for non-physics students.'
International Security Center Database at http://www.cisa.lanl.gov/index.html. 'Contains data on
200 enterprises of the former Ministry of Medium Machine Building, closed down in middle of
last year. Some information still accessible.'
Nuclear Security Bulletin at http://www.npi.ru/NEW/nucrep. 'Issues Nos 1-30 for 1997-1999.'
See CEP20020206000301 Find Report.
START Production Association State Enterprise at http://start.penza.ru. 'START Production
Association State Enterprise means development and series production of: Data processing and
transmission products; data protection systems; access control and management system; technical
means of protection.'
Russian Federation State Scientific Center 'Tekhnologiya' Science and Production Enterprise in
Obninsk [ONPP Tekhnologiya] at http://www.extech.ru/src/src_rus/gnc/gnz1. 'Creation of
nonmetallic materials on the basis of polymer composites, glass, and ceramics; designing
components from them; development of technological processes and production of nonmetallic
components and articles, as well as film glues, vibro-absorbing covers, heat isolating and heat
protection materials, and other products for the aerospace, chemical, and electrical engineering
industries, land and water transport, metallurgy, and others.'
Yadernyy Kontrol Journal at http://www.pircenter.org/russian/publications. 'Abbreviated
23
electronic versions of the journal. "Yadernaya Rossiya" [Nuclear Russia] database in process of
compilation (on the basis of open-source publications).'
Izhorskiye Zavody [Izhora Plants] at http://www.izhora.ru. 'The Izhorskiye Zavody Open JointStock Company produces primary equipment for AES's with VVER power plants; transportation
and packaging units for storage and transportation of spent nuclear fuel both inside and outside
AES's. Part of the Amalgamated Machinebuilding Plants Open Joint-Stock Company.'
Information Site of the Civic Center for Nuclear Nonproliferation [GTsYaN] at
http://www.ccnnp.ru. 'Information Site of the Civic Center for Nuclear Nonproliferation
(Krasnoyarsk). Dedicated to questions of nuclear safety, problems of spent nuclear fuel,
plutonium recycling, and nuclear nonproliferation. News, articles, commentaries, and review
from the Russian press, sketches, information about the mining and chemical combine.
Available in Russian and English language version.'
Tomsk Vocational School's Chair for Physics and Power Industry Installations at
http://www.phtd.tpu.edu.ru:8101/~chair21/tvs/koi. 'Good reference manual for various types of
fuel elements.'
MIFI [Moscow Engineering and Physics Institute] at http://www.mephi.ru. '17 dedicated
servers. Engineering center, technology park, information security, radiation security, training
systems. Eelectronic library: new acquisitions, catalogue (since 1993), multitude of links,
copies of articles from foreign journals available on payment. Live legendary male voice choir.'
Republic of Kazakhstan National Nuclear Center [RGP NYaTs RK] at http://www.nnc.kz.
'Official Web site of the Republic of Kazakhstan National Nuclear Center. The basic materials
offered on its pages cover mainly the history of the enterprise's creation, topics of work being
done and research being conducted, also contains relevant reference and contact information.'
Russian Nuclear Site at http://www.nuclear.ru. 'Independent information source dedicated to
questions of Russian and international nuclear power industry. News, projects, commentaries,
Western press reviews, catalogue of Russian Federation Minatom's enterprises.'
AtomSafe Site at http://www.atomsafe.ru. 'Selection of mass media material on nuclear topics
by the Social Ecological Union. It is not all that simple to respond to some antinuclear theses.'
See also CEP20020208000209 Find Report.
Sevastopol Institute for Nuclear Power and Industry at http://nei.iuf.net. 'Terms of admission,
faculties, specialization, scientific work, information for applicants and correspondence students,
leadership structure, staffers' personal pages.'
Center for Arms Control, Energy and Environmental Studies at http://www.armscontrol.ru.
'Mainly on problems of disarmament and nonproliferation.'
Nuclear Safety Centers at PNNL and ANL (USA) at http://www.insc.anl.gov. 'Sites with
information about Russia's AES's.'
Ownership/Affiliation: 'Miscellaneous Resources' page from website of Russian Federation
Ministry of Atomic Energy
Access Address: http://www.minatom.ru/links/links.php?razd=3
24
E-Mail Address: info@minatom.ru or webmaster@ainf.ru
Cost: Free
Notes: Site carries caveat 'Copyright 2000-2002 Ministerstvo RF po Atomnoy Energii'
Date of Find: 14 March 2002
Unclassified
Document ID: CEP20020307000122
Entry Date: 03/07/2002
Version Number: 01
Source-Date: 03/07/2002
Web Reference -- Find Report: Minatom's 'Information Resources' Page
CEP20020307000122
Reference:
1. Web Reference: Source Assessment of Russian Atomic Energy Ministry
CEP20020201000204
[Reporting Internet source find]
[FBIS Report]
Country: Russia
Source Name: Ministry of Atomic Energy Information Resources
City: Moscow
Language: Russian
Medium Type: Internet
Type of Access: WWW Homepage
Description of Content: Page carries the following descriptions of various departments,
institutions, and publications of the Ministry of Atomic Energy, together with brief summaries of
their main functions:
ATOMINFORM -- Central Scientific Research Institute of the Russian Federation Ministry of
25
Atomic Energy [Minatom] Economy and Information Administration [TsNII Atominform] at
http://www.ainf.ru. 'Official site of TsNII Atominform. Structure of the Institute, main avenues
of scientific research and its subdivisions, science and technology developments and
achievements, news, personalities.'
Russia's Atomic Energy. 21st Century (TsNII Atominform) at http://atominfo.ainf.ru/ae.
'Provision of information to the top leadership about the status of the sector's activity.'
SNG-Atom (TsNII Atominform) at http://www.sng.ainf.ru. 'Utilization of atomic energy for
peaceful purposes across the entire territory of the CIS.
Emergency Response Center [Avariyno-Tekhnicheskiy Tsentr] at
http://www.atom.nw.ru/ATC/atc.htm. 'Radiation situation in St. Petersburg and Leningrad
Oblast (interactive map). Database of automatic radiation monitoring systems [ASKRO]:
Leningrad AES [LAES], Siberian Chemical Combine [SKhK], Scientific Research Institute for
Atomic Reactors [NIIAR]. Of course, this is nothing like the US radiation monitoring system in
LANL [Los Alamos National Laboratory], but still impressive for our conditions.'
Angara Electrolytical Chemical Combine at http://www.aecc.ru. 'Description of the combine's
structure, its subdivisions and products.'
Atomspetstrans at http://www.atomspectrans.ru. 'The Russian Federation Ministry of Atomic
Energy's state unitary enterprise Atomspetstrans was founded in March 2000. Its main sphere of
activity is to organize the transporation of nuclear materials, radioactive elements, and products
from them, as well as other freight; for this purpose the enterprise has been assigned the functions
of plenipotentiary sector operator for transportation flows. It also performs the functions of
contractor and investor when conducting scientific research, experimental design, prototype,
production, and construction work for the creation of modern means of transportation and
transport infrastructure facilities required for specialized transportation.'
Balakovo AES at http://aes.balakovo.ru. 'Beta-testing of new site began in October 1999.
Radically planned in terms of design, but empty so far (the old version at aes.balakovo.ru is not
accessible).'
All-Russia Scientific Research Institute for Chemical Technology [VNIIKhT] at
http://www.aspect.ru/vniiht.htm. 'The site contains sections for: ASPEKT Association for
advanced complex technologies, avenues of activity, main tasks, association's founders.'
All-Russia Scientific Research Institute for Exploitation of Nuclear Power Stations [VNIIAES] at
http://www.vniiaes.ru. 'The server carries information about the institute's foundation and
development, descriptions of the avenues of its activity, and lists of its structural subdivisions
with descriptions of the subjects of their work and contact information. Brief information about
the subdivisions (objectives and tasks). Contact addresses.'
Scientific Research Institute for Atomic Reactors [NIIAR] State Scientific Center at
http://www.niiar.ru. 'List of publications (only titles) by Institute's staffers in 1996-1998
(preprints, articles, books, reports). Innovation projects, main achievements in the last three
years, new developments for industry, Institute's experimental base, catalogue of radionuclide
products, main avenues of activity, structure, news, history, publications, location.'
Academician A.A. Bochvar All-Russia Scientific Research Institute for Inorganic Materials
26
[VNIINM] State Scientific Center at http://www.bochvar.ru. 'Catalogue of technologies on offer
(36 links).'
Institute for Theoretical and Experimental Physics [ITEF] State Scientific Center at
http://www.itep.ru. 'Only in English, 10 local subdivision servers, electronic versions of
preprints for 1995-1999, work programs. Information about projects, seminars, publications,
links. Site offers search system.'
Institute for High Energy Physics [IFVE] State Scientific Center at http://www.ihep.su. 'One of
Minatom's best sites in terms of information availability. About 20 local servers in addition to
the central server. Catalogue and full texts of preprints, abstracts, and conference works since
1996, library's new acquisitions, long list of Internet sites on topics covered by the Institute.
Access to the main electronic journals. Database on microworld physics, library of programs for
conducting and analyzing experiments, computer implementation of theoretical models.'
Academician A.I. Leypunskiy Institure for Physics and Power Engineering [FEI] State Scientific
Center at http://www.ippe.obninsk.ru. 'Databases for fast reactors and fission of charged
particles, Nuclear Data Center, AKTIS Association database, Scientific-Methodological Center
for Recording and Monitoring Nuclear Materials [UMTsUK]. Attempt is being made to expand
the 'Electronic Publications' section.'
Mining and Chemical Combine [GKhK] at http://adm26.krasnoyarsk.su. 'Center for Sanitary
and Epidemiological Oversight in Krasnoyarsk Kray at http://res.krasu.ru/radcond [radiation
conditions in the GKhK observation zone and Yenisey River ecology].'
Rosenergoatom [REA] State Concern at http://www.rosatom.ru. 'Press Center staffers provide
information backup for the Rosenergoatom Concern's official site, process documentary material
about the work of Russian nuclear power stations, disseminate it among the mass media, and
publish it on the site's pages. New site under development since early 1999, plans to publish in
four languages (!) (Russian, English, German, French). Many sections are still empty.
"Normative Legal Base" with access to some Russian federation laws, presidential edicts, and
international conventions.'
Troitskiy Institute for Innovative and Thermonuclear Research State Scientific Center of the
Russian Federation [GNTs RF TRINITI] at http://www.triniti.ru. 'Structure of the institute, main
avenues of scientific research by the institute and its subdivisions, scientific and technical
developments and achivements, personalities.'
Russian Ministry of Atomic Energy State Regional Education Center in St. Petersburg at
http://www.graph.runnet.ru. 'Small strictly functional site. Range of services.'
Central State Institute for Further Training of RF Minatom Senior Officials and Specialists at
http://www.scicet.obninsk.ru. 'List of conference management and educational services on
offer. Catalogue of programs for further training, professional retraining, teaching seminars on
the following subjects: Management of nuclear industry and nuclear energy enterprises;
Promising technologies, safety, and ecology; Automation of engineering and management labor;
Information technologies and automated systems; Accountancy, book-keeping, and financialeconomic analysis.'
Russian Minatom's Safety and Emergencies Department [DBChS] at
http://www.dses.minatom.ru. 'Departmental news, objectives and tasks, departmental structure,
27
classification of emergencies, normative and legal documents.'
Atomstroyeksport Closed Joint-Stock Company at http://www.atomstroyexport.com. 'Official
site. Sections: History of creation, structure, services, who are we, contacts, conference, news,
cooperation principles, quality assurance, projects. English-language version available.'
Konversbank Closed Joint-Stock Company at http://www.conversbank.ru. 'Official site. Under
construction for future launch.'
Zheleznogorsk Closed Administrative-Territorial Formation (Krasnoyarsk-26) at
http://www.adm26.krasnoyarsk.su. 'The server offers information about the city of
Zheleznogorsk, its administration, the city's enterprises, and other material about the city.'
Zarechnyy Closed Administrative-Territorial Formation (Penza-16) at http://zarechny.penza.ru.
'Interesting section on "Municipal Innovations" -- housing on credit.'
Nuclear Energy Institute at http://www-nuen.tamu.edu/inpe/frames.html. No description
provided; attempt to access produced error message 'requested URL was not found on this server.'
Russian Minatom's Institute for Strategic Stability State Unitary Enterprise [GUP ISS] at
http://www.iss.niiit.ru. 'Official site of the Institute for Strategic Stability State Unitary
Enterprise. The server offers information about the Institute and its personalities and partners.'
Rostov AES Infortmation and Analysis Center at http://infoatom.don.ru. 'In the conditions of
strong opposition to building the AES in Rostov, this site offers a good example of work with the
public (but very little news since August 1999).'
Russian Minatom's Information Institute for Standards at http://standart.atomnet.ru.
'"Information resources of the sector's automated system for processing and seeking information
on standardization ('Normativ' automated information system): Bibliographical information and
full-text electronic versions of normative documents on standardization compiled by the sector's
enterprises and organizations."'
Kirovo-Chepetsk Chemical Combine [OAO KChKhK] at http://www.kckk.ru. 'Official site of
the B.P. Konstantinov Chemical Combine Open Joint-Stock Company in Kirovo-Chepetsk. The
site offers a list of its products and price list.'
Kirovo-Chepetsk Chemical Combine [AOOT KChKhK] at http://city.kchepetsk.ru. 'City site.
Long list of the chemical combine's products.'
Kola AES at http://www.kolanpp.ru. 'Official site. Sections: News, forums, leadership, links.'
Leningrad AES at http://www.laes.sbor.ru. 'Dynamics of the utilization coefficient of installed
capacity and unscheduled shutdowns during exploitation, discharge of inert radioactive gases.
Not a bad page by the Center for Work With the Public (popular information about the power
station). Map, plan of the AES, description of automatic radiation monitoring system, dosage
readings at 22 measuring points, automatically updated once every 24 hours.'
Russian Minatom's International Center for Nuclear Safety [MTsYaB] at http://www.insc.ru.
'General information, sphere of activities, collaboration, news.'
28
SNIIP Scientific Engineering Center [NITs SNIIP] at http://www.sniip.ntl.ru. Describes itself as
'Research and production complex for the development of nuclear information measuring
technologies and the creation of systems for control, diagnosis, and management of reactor
installations at AES's.' 'Output (detectors, miniature measuring instruments, means for detection
of radioactive banknotes, total of 15 links). Holding company's structure. The server's financial
search section carries advertisements by small trade intermediary firms and even an "Introduction
Service" banner.'
Scientific Research and Design Institute for Power Industry State Unitary Enterprise [GUP
NIKIET] at http://www.entek.ru. 'Site under construction for launch.'
D.V. Yefremov Scientific Research Institute for Electrophysical Apparatus [NIIEFA] at
http://www.niiefa.spb.su. 'Compact description and illustrations of all types of accelerators, laser
and magneto-gas dynamics equipment, three science and technology centers (accelerators,
microtechnology, controlled synthesis). Good advertisements for a large selection of products.'
NITI [Scientific Research Technological Institute] in Sosnovyy Bor at http://www.sbor.spb.su.
'Brief information on the city [of Sosnovyy Bor] server.'
Novosibirsk Chemical Concentrates Plants [NZKhK] at http://www.nccp.ru. 'The NZKhK JointStock Company is one of Russia's two enterprises (the only one beyond the Urals) producing fuel
for nuclear power stations, founded 25 September 1948. Today it is an enterprise with a
harmonically developed infrastructure, producing output up to world standards and developing
tomorrow's technologies.'
V.G. Khlopin Radium Institute Science and Production Association [NPO RI] at
http://www.atom.nw.ru. 'Brief history, main avenues of work. An interesting project in the
sphere of www-technologies: Catalogue of standardized [etalonnyy] spectrums (various
nuclides, radioactive pollution of the environment, spectrums of fission products and of output at
various stages of processes within the fuel cycle).'
Tekhsnabeksport Open Joint-Stock Company at http:\\www.tenex.ru. 'Official site of
Tekhsnabeksport Open Joint-Stock Company.'
OIYaI [Dubna Joint Institute for Nuclear Research] at http://www.jinr.ru. 'Almost all
publications are available in electronic format. A good prototype of an electronic library, to be
aimed at by every scientific organization.'
Gidropress Experimental Design Bureau [OKB] at http://www.gidropress.podolsk.ru. 'The
server carries information about the enterprise: History of its development, data about
elaborations conducted in the past and currently under way, structure of the organization, and its
experimental-research and production bases. There is a list of publications and reports on
research and development compiled by the Gidropress OKB.'
Mayak Producion Association [PO] at http://www.x-atom.ru/mayak. 'History, publications,
output (7 links). The page was compiled to mark its 50th jubilee anniversary and has not been
updated since.'
Kurchatov Institute Russian Scientific Center [RNTs KI] at http://www.kiae.ru. See
CEP20020205000088 Find Report.
29
All-Russia Scientific Research Institute for Technical Physics [RFYaTs VNIITF] Russian Federal
Nuclear Center at http://www.vniitf.ru. 'Good section on 'History' (chronology, Russia's nuclear
shield, explosions for peaceful purposes, Center's tasks in conditions of absence of nuclear
tests). Structure: Brief description (1-2 pages).'
All-Russia Scientific Research Institute for Experimental Physics [RFYaTs VNIIEF] Russian
Federal Nuclear Center at http://www.vniief.ru. 'Very interesting popular science journal
"Atom" (history of nuclear weapons, new technologies). Unfortunately, not published since
1996. Eleven issues of [journal] VANT (modelling of physical processes), four issues for 1997,
one each for 1998 and 1999. Historical sketch on the city [of Sarov] and its memorials. Unique
photo museum on nuclear weapons. 'Conversion' section unchanged since 1997.'
Siberian Chemical Combine at http://www.shk.tsk.ru. 'Description of the main plants: Isotope
fission, reactors, radio-chemical, sublimate, chemical-metallurgical, scientific research and design
institute [NIKI] (700 associates, 25 doctors and candidates [of science]). List of conversion
avenues (stable isotopes, magnetic alloys and magnets, ultradispersible powders...).'
Smolensk AES at http://www.smolensk.ru/user/desnogorsk/snpp.htm. 'Basic data about the
power station can be found on V. Shchepachev's site.'
Structure of Minatom's Central Apparatus (X-Atom) at http://www.x-atom.ru. 'After a long
delay, some new and extensive sections have appeared: SNG-Atom, Russia's AES's in the
Intergraph geoinformation medium (only a prototype so far). Standards center (not eveything
accessible), Russian-English dictionary (good coverage of nuclear vocabulary).'
Urals Electrochemical Combine [UEKhK} at http://www.ricon.e-burg.ru. 'City site under
construction at www.novouralsk.ru. So far, no information about UEKhK. Contact address for
FSB [Federal Security Service] with the following caption: "The FSB organs' powers include
the struggle against computer crime." The www.ricon.e-burg.ru server advertises UEKhK's
products.'
Institute of Physics and Power Engineering [FEI] in Obninsk at
http://www.rssi.ru/cp1251/rssi.htm. 'Subdivisions, output, technologies, uk and fz [precise
expansions unknown], Russian AES's, publications, city of Obninsk.'
Chepetsk Mechanical Plant at http://www.chmz.net. 'Information about the enterprise, its output,
and methods of collaboration with it.'
Ownership/Affiliation: 'Ministry Information Resources' page from website of Russian
Federation Ministry of Atomic Energy
Access Address: http://www.minatom.ru/links/links.php?razd=1
E-Mail Address: info@minatom.ru or webmaster@ainf.ru
Cost: Free
Notes: Site carries caveat 'Copyright 2000-2002 Ministerstvo RF po Atomnoy Energii'
Date of Find: 7 March 2002
30
Document ID: CEP20020103000240
Entry Date: 01/03/2002
Version Number: 01
Source-Date: 12/28/2001
Minatom's TVEL Nuclear Fuel Production Holding Corporation Considers New Economic
Strategy
CEP20020103000240 Moscow Vek in Russian No 51, 27 Dec 01 - 10 Jan 02
[Interview with Anatoliy Vorobyev, TVEL economic strategy, conducted by Gennadiy
Voskresenskiy: "Seven Programs for Tomorrow: A New Economic Couirse for One of the
Ministry of Atomic Energy's Largest Structures"]
[FBIS Translated Text]
This year marks an anniversary, although not an even one, for one of the largest corporate
structures under the Russian Ministry of Atomic Energy. That structure is the TVEL Open Joint
Stock Company [OAO TVEL]. The anniversary commemrates five years since the Russian
presidential directive establishing the government-owned joint stock company, which owns a
controlling stock interest in the principal Russian nuclear fuel producers.
TVEL views the past five years as a period of growth. Current successes and
accomplishments can be traced back to the events of that period. By the same token, those
achievements and successes do not automatically guarantee tranquility in the future. However,
in order to make the transition to a new stage in its development the corporation needs a new
policy, reform and structural changes. What kind? That was the topic of our conversation with
doctor of economic sciences Anatoliy Ivanovich Vorobyev, one of TVEL's managers and its
director of economic strategy.
[Voskresenskiy] Anatoliy Ivanovich, why did Russian nuclear fuel producers feel the need to
integrate in a corporate structure five years ago?
[Vorobyev] The media - your newspaper as well as many others - have on numerous occasions
written about why we needed integration. A good deal has also been said on the matter by TVEL
management. The main idea is that the economic, technological and organizational integration
of independent commercial entities into a corporate structure allows them to make Russian
nuclear fuel competitive in the world market. Not one of our incorporated enterprises, no matter
how respected it might be in the uranium production and services market, is by itself capable of
offering customers such a comprehensive array of services as TVEL can. In that sense, of
course, integration has worked.
31
But in my opinion we should start with the future, not the past. And talking about that future
means, in a sense, being philosophical.
Of course, "strategy" can be taken to mean how much nuclear fuel and fuel rod assemblies we
need to ship and to whom, how we can increase the degree of depletion, how much raw material
we use, what efficiency we get from installed capacity, and so on. But when we talk about
strategy, particularly economic strategy, then we need to talk about the main purpose behind
TVEL's establishment. That main purpose was to create a flexible and efficient system for the
management of and interaction between enterprises in the nuclear fuel cycle. In that sense our
current strategy is a continuation of one begun back in 1990-91. That is, the creation of a
corporation possessing unique areas of expertise, this in turn giving it a certain range of
advantages over its competitors.
Does TVEL have those advantages? That is a hard question to answer, given the current
situation.
Despite some "growth areas," nuclear energy around the world is in a state of stagnation. That
is particularly noticeable in the European countries, especially in Germany and Sweden, where
laws have been passed mandating nuclear power plant closure and decommissioning. Naturally
that trend is intensifying competition in the uranium markets. Western companies are expanding
into our traditional markets, something that has a direct bearing on Russia's interests.
Analyzing the situation in nuclear fuel markets and TVEL's place in them, we are forced to
deal with stepped-up integration processes between the largest Western companies. The alliance
between BNFL (British Nuclear Fuel Ltd.), the U.S. company Westinghouse, Germany's Siemens
and France's Framatom, as well as an active (or, rather, aggressive) patent policy on the part of
Western companies, attempts by Westinghouse to "invade" the Ukrainian market - these things all
indicate a desire to redistribute existing markets and restrict TVEL's presence in the European
market.
The only way to defend our positions is to develop a new course in strategy and economic
policy that will provide a proper response to the global challenges presented by multinational
corporations.
We put a lot of thought into what that course should be. We concluded that it is essential to
loop the nuclear fuel cycle with which we are involved into a single chain, from raw materials
mining to assembly production, so that our customers in the West and in the East will not just be
dealing with a commission salesman who sells the product and then is free of any obligations, but
instead with the kind of company that can offer them a full-fledged, comprehensive package of
services. Services not just in terms of supplying new fuel, but also returning irradiated fuel rod
assemblies. Services involved in the development, licensing and manufacturing of nuclear fuel,
something that not a single one of our incorporated enterprises could provide individually. This
all requires major scientific and technical support, and that means it will be necessary to invest
significant amounts in research and development and intellectual property protection. Overall
that is the basis of our competitive advantages, based upon a philosophy of integration.
[Voskresenskiy] If there is anything that can be added to what you have said, it is just that
these are competitive advantages in a very high-tech field. Not in a raw materials market like oil
or gas, but in fact in a high-tech market...
32
[Vorobyev] Yes, of course. It is no secret that there are areas in which we are seriously
behind. It would be naive to assume that within just a few years time we can achieve the level of
our main competitors in the area of financial capital turnover or any large-scale non-raw material
business. In my opinion the only thing that is left in Russia at all is an immense body of work
that has already been done in science and technology, sort of like our unutilized intellectual
capital.
TVEL is one of the more important reasons our country has been able to preserve and mobilize
its scientific and technical potential. Specifically, TVEL was behind the creation of the TVELScience Association [assotsiatsiya "TVEL-Nauka"], an organization in which our leading
scientific and design institutes work together. And what is an association? An opportunity to at
some point in the future bring intellectual property into commercial applications. To what end?
Well, to maintain the competitiveness of our fuel, increase revenue, protect our markets and enter
new ones.
Working with intellectual property would be a topic all to itself. TVEL has been a pioneer in
that regard as well. Today we are working with non-physical assets and accounting for
intellectual property on the balance sheet the way we should. Thereby we are creating a new
source of science funding, namely depreciation of non-physical assets.
[Voskresenskiy] The use of intellectual property in commercial applications has always been
and remains to this day the weakest aspect of Russian economic activity, in contrast to the
developed countries, where that work was always been accorded the status it deserved. How has
TVEL managed in the past and continued to manage not only to protect is intellectual property,
but also to find commercial applications for it?
[Vorobyev] Mainly thanks to the fact that our management has always strived to introduce
innovations into what one might call the classic business process, into technological and
production processes. One of the innovations with which we approached our operations process
was our work with intellectual property. About three or four years ago we noticed that stock in
one of our leading enterprises was being actively bought up. That was the Novosibirsk Chemical
Concentrate Plant. Then the same situation was repeated at another very large enterprise, a
machine building plant in Elektrostal. Of course there are only a few reasons why that happens.
In this case much of it was due to the fact that the enterprises' stocks were greatly undervalued.
In the West the largest companies' value breaks down into two main parts: 40-50% is the
value of fixed production assets, and up to 50% consists of the brand name, intellectual property,
certain patents and good will - the company's reputation and other protected trademarks. And in
our country? When we analyze enterprises' balance sheets, we try to estimate their market value,
and virtually never is there any weight whatsoever given to intellectual potential, unique
technologies or experts' knowledge and experience. The result is that stocks are cheap and
naturally can be bought up for a pittance. After studying that unfortunate experience we
concluded that we can and must substantially increase the market value of our enterprises, mainly
by properly accounting for the accumulated intellectual potential and creating additional revenue
through the use thereof.
We started out by doing an inventory of that potential, by clarifying which developments and
technologies were being used. It turned out that TVEL and its enterprises spend millions of
rubles on R&D every year but that unfortunately the results of that R&D work are not always
properly reported. Then we started creating dossiers that specifically described how, where and
at what stages various R&D results were being utilized in production. That was what later
33
allowed us to come up with a market valuation of our non-physical assets. In this way it became
possible to create new sources of self-financing for the science itself.
That meant simultaneously defending our markets. With Russia facing a real patent war
around the world, with the largest Western companies developing a definite patent strategy to
protect their intellectual property and bring it into commercial application, we are achieving a
different result, and a highly important one: in effect we are patenting our markets. By doing a
pretty fair job of defending them! And, going forward, by countering unscrupulous competition.
[Voskresenskiy] Speaking of new strategy, TVEL points out in its corporate documents that
that strategy is aimed at strengthening the competitive advantages of Russian producers. Then
they go on to talk about promising new markets, particularly in the Asian region. The most
remarkable thing about this is that TVEL, despite stiffer competition in the uranium and nuclear
fuel markets, has not only protected but actually expanded its positions. The question is, how?
[Vorobyev] Of course this was due in large part to our competitive advantages with regard to
price. And that in turn is affected by many factors. That is no secret; many people are well
aware of it.
But are many people aware that competitive advantages can be achieved only thanks to
systematic organization of operations within TVEL? After all, that was precisely what allowed
us to lower our costs. Furthermore, currently as one of the focuses of our new strategy of
harmonizing intra-corporate relations we are striving to further develop and improve that
systematic organization. We view a possible transition (this of course will be a multistage
process) of TVEL into a single stock as one element in this strategy...
[Voskresenskiy] What would that be, a single TVEL stock?
[Vorobyev] Essentially the same process that is currently active in virtually every sector of
Russian production, from the oil industry to the baked goods industry.
The gist of the process we are considering is that the statements originally contained in the
Russian president's directive, defining the principles and approaches to a new organization for
Russia's nuclear fuel cycle, have evolved substantially over the past five years, and at some stages
there has occurred (and by no means in a positive way) a transformation of the mechanisms of
interaction between the parent company and its subsidiaries.
Management of intra-corporate enterprises has begun to be carried out not so much on the basis
of the "Law on Joint Stock Companies" as through financial and economic mechanisms. Along
with the positive effects of this transformation (the transition from "vertical" management to
economic partnership relationships between the commercial entities, i.e. TVEL and its intracorporate enterprises) many problems have also arisen, without solutions to which it will be
impossible to have any new economic policy. TVEL's lack of working capital to service its
production and commercial cycle for fuel rod assembly manufacturing has for a number of years
forced us to tolerate a situation in which subsidiaries (for example, OAO Mashinostroitelnyy
zavod, located near Moscow in the city of Elektrostal) have been the parent company's largest
creditors. They have been responsible for acquiring the whole range of essential components and
materials and independently promoting their products in some sections of the uranium market.
This made it necessary to resort to complicated barter and promissory note systems here in this
country, raising the cost of the finished products. Sometimes that cost increase was unjustified
and due solely to the poor functioning of economic mechanisms of interaction between the
34
holding company and its subsidiary, and between the subsidiary and its financial agents.
Given these circumstances, and also analyzing global merger and acquisition strategies in the
worldwide nuclear business, we concluded that one of the main priorities in TVEL's new
economic policy course should be restructuring of its relationships with intra-corporate
enterprises - including through a long-range transition to a single stock.
That strategy and the restructuring of the corporate structure means, above all, strengthening
intra-corporate ties and strengthening centralized management. It also means adding to our
companies those raw materials suppliers involved in nuclear fuel production who were "left out"
in 1996. All this will allow us to eliminate the proliferation of settlement and payment systems,
lower production costs and tax losses, and consolidate our capital and investment resources.
By the same token, a policy in which administration comes from the single center of the
corporation does not allow the enterprises to compete among themselves in foreign commodity or
raw materials markets. But there have been examples of that kind of competition between our
enterprises.
We face the task of developing a system of economic evidence to support the advantages of the
proposed concept. The main impetus here will have to come from economics, common sense,
appropriateness to production and considerations of corporate efficiency. If consolidated
resources and profits go to investment in production modernization and are spent to meet
enterprises' basic needs, then what objections could there be to those arguments? Consider
leasing, for example. Everyone is already convinced of enterprises' obvious benefit from that
investment tool. In Novosibirsk we have set up tablet and powder manufacturing facilities to
replace previous suppliers, and as a result we are expanding our production capacity.
Renovation of our largest zirconium manufacturing facility in Glazov happened using funds
directed to that project by TVEL.
The most important thing about all this (and everyone agrees on this point) is that it is easier to
achieve competitive advantages in a market with a larger corporation. In that sense the principle
of "what is good for TVEL should also be good for its subsidiary enterprises" is fully justified.
That is the goal that we constantly have before us.
[Voskresenskiy] The press often inquires about the Ulba plant in Kazakhstan. What is the
current status of efforts to acquire stock in that enterprise? And where do efforts to establish a
joint Russian-Kazakh-Ukrainian enterprise in the nuclear fuel industry stand?
[Vorobyev] At this stage, which is characterized by mergers and acquisitions among our
Western competitors, their expansion into our markets and the patent war that we discussed
previously, we are naturally taking advantage of our direct ties to partners in the CIS countries,
and in this regard we are seeking some sort of countermeasures and offering our partners terms of
cooperation that are at least no worse than what our competitors have to offer.
As for the Ulba plant specifically, it has always played an important role in our production
collaboration. Naturally we are interested in maximum reinforcement of collaboration with it as
one of our most important strategic partners in nuclear fuel manufacture. We were guided by
these considerations when we began talks regarding possible TVEL integration with that
enterprise. Incidentally, we met with understanding on the part of the management of
Kazatomprom, Kazakhstan's national nuclear company, a structure similar to OAO TVEL.
35
There are obvious prospects for a strategic partnership between us. After a series of
negotiations we have concluded that the most reasonable step toward production integration will
be for TVEL to acquire a "golden share" in that enterprise. This will allow us to influence the
enterprise's strategic decisions and give us veto power over certain of its decisions.
As for a joint venture... A venture of that nature was registered just recently, back in the fall.
However, it would be premature at this point to speak of creating any large-scale production in
Ukraine - all the partners recognize that. So far we are only talking about some elements of
partnership. However, the outlook for it is quite optimistic.
By and large all these positive trends are, once again, dependent upon the success of efforts to
improve intra-corporate relations in the Russian nuclear fuel cycle. It is clear that expanding its
potential by taking in key enterprises will create the prerequisites for implementation of new
marketing opportunities that have opened up since the passage of a new package of laws
permitting the importation of irradiated nuclear fuel into Russia and Russian-American initiatives
regarding the use of spent plutonium, which will eventually substantially strengthen Russian
positions in the world market.
[Voskresenskiy] To what are you referring?
[Vorobyev] To the fact that new opportunities are opening up in our relations with foreign
partners. If TVEL offers comprehensive services involving the processing of irradiated nuclear
fuel in Russia as well as the supply of new fuel, that of course opens up completely new market
prospects, both with regard to the profitability of sales and to expansion of existing markets and
entry into new ones.
[Voskresenskiy] However, would you agree that in order for those opportunities to open up, it
will take legislative initiatives aimed at normalizing the legal framework with regard to nuclear
materials - irradiated nuclear fuel, fuel rod assembly leasing, etc.? What about that?
[Vorobyev] Yes, that is true. And that is precisely what we are working hard on right now.
By the end of next year we should have drafted five documents to follow up on the recently
passed "nuclear" laws. Of these the highest priority one concerns authorized organizations; these
would be defined as OAO Tekhsnabeksport with regard to irradiated fuel assemblies of foreign
manufacture, and OAO TVEL with regard to fuel assemblies of Russian manufacture that were
shipped to the West. This document has already received all the necessary approvals and has
been submitted to the government. A second document outlines procedures for the importation
of irradiated fuel rod assemblies into Russia from foreign states for the purpose of temporary
production-related storage and subsequent reprocessing. This has already been submitted to the
Ministry of Economic Development, the Ministry of Natural Resources and Environmental
Protection, the Federal Agency for Nuclear and Radiation Oversight - to a total of 10 different
agencies - for approval. Next year we intend to draft another three documents, specifically
regarding expense procedure and the precedence of funding for environmental programs. To put
it briefly, we still have a lot of work to do to ensure that the billions of dollars cited in the press,
dollars that have now become the talk of the town, really do start flowing into this country.
On the other hand, TVEL does have certain competitive advantages over other agents in this
market. Among them are our package services with regard to the supply of new nuclear fuel and
the return of irradiated fuel assemblies, post-reactor testing for the purpose of product
improvement and, possibly, the provision of a place of the temporary, production-related storage
of irradiated nuclear fuel.
36
[Voskresenskiy] Advantages are of course a good thing. But TVEL itself has acknowledged
that it needs to improve. Could you address that in more detail?
[Vorobyev] When speaking of improvement, or more precisely of self-development, we are
talking about the fact that the need to get back to the mission set forth when our corporation was
founded. And formulate our strategy accordingly. The strategy consists of two focuses. The
first is to strengthen the vertical axis of intra-corporate management. In that regard everything
has been falling into place lately. The second focus is to harmonize our ties with the "outside
environment." Firstly, with Rosenergoatom and all the other customers who use our products
and, secondly, with our suppliers and raw materials sources. Some work is already being done in
that area as well.
Basic programs have also been outlined to achieve the goals we have set for ourselves. What
kind of programs? Given certain consolidated tasks we have defined priorities in our operations,
primarily involving institutional transformations and targeted guidelines. We are proposing to
realize those targeted guidelines by implementing seven main economic programs, to be carried
out in conjunction with the overall restructuring of the nuclear fuel cycle - improvement of intracorporate relations, harmonization of ties with the customers who use our products, and
incorporating enterprises from the raw materials sector. The seven economic programs are
"investment," "costs," "intellect and innovation," "durability," "information," "law" and
"capital." A whole article could be devoted to each of these.
[Voskresenskiy] One last thing, Anatoliy Ivanovich. What, in your opinion, have been the
main results of TVEL's development over the past five years of growth?
[Vorobyev] In just a couple of words, they are that there has been a fundamental change in
our entire intra-corporate ideology, from "who beats whom" to "who serves whom." That is, we
have moved from the practice of total competition to a realization of the philosophical truth that
all of us are part of one family, united by the understanding that TVEL is not an
administrative/bureaucratic superstructure, but instead a capable structure that helps direct the
whole production system, knowing in the process which priorities should be emphasized and how
investment resources should be consolidated. That, I am convinced, is the most important result
of our five years of development.
[Description of Source: Moscow Vek in Russian -- weekly political newspaper with links to
Konversbank and the Ministry of Atomic Energy]
.
Unclassified
GAZPROM
Russia's domestic gas market seen as first step in gas industry reform
37
CEP20021115000292 Moscow ITAR-TASS in English 1639 GMT 15 Nov 02
[FBIS Transcribed Text]
By Anton Uskov
MOSCOW, November 15 (Itar-Tass) -- A domestic gas market in Russia will be the first step in
the gas industry reform, a source in the Russian government said Friday. Gazprom giant will
retain the right to be the sole gas exporter from Russia, he remarked.
"This must be done in order not to ruin the selling markets abroad," the source said.
Other companies should get an opportunity to sell gas on the domestic market at prices they
think best, the source said. He said he was concerned about burning of large amounts of casing
head gas in the production of oil, because the country is lacking a sufficient number of enterprises
to upgrade casing head gas to the natural gas level.
The cabinet will discuss the Russian energy strategy in February 2003. It will decide which
types of fuel and in what amount Russia needs and how the domestic energy industry will
develop.
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
THIS REPORT MAY CONTAIN COPYRIGHTED MATERIAL. COPYING AND
DISSEMINATION IS PROHIBITED WITHOUT PERMISSION OF THE COPYRIGHT OWNERS.
Document ID: CEP20021220000188
Entry Date: 12/20/2002
Version Number: 01
Moscow Daily: Gazprom Head Miller's Telegram Indicates Possible Gas Shortages
CEP20021220000188 Moscow Nezavisimaya Gazeta in Russian 12/20/2002 PP1,3
1. Russia: Gazprom Document Suggests Bankruptcy 'Approaching Inexorably'
CEP20021217000273 Moscow Nezavisimaya Gazeta Russian 17 Dec 02
[Article by Andrey Savitskiy: "Gas Bubble II. Miller Is Not Running Out of Money Only But
Also of Gas" -- taken from HTML version of source provided by ISP]
[FBIS Translated Text]
The article published by Nezavisimaya Gazeta recently on Gazprom's impendent bankruptcy
("Gas Bubble," Nezavisimaya Gazeta of 17 December) has raised much clamor. The article was
reprinted by the world's leading news agencies and newspapers, primarily German, such as Die
Welt and Handelsblatt (which is quite understandable, as Germany is more dependent on supplies
of our gas than other countries).
38
Some of those reports had even an apocalyptical nature, suggesting a threat of an imminent
energy crisis connected with by Gazprom's possible bankruptcy.
Nevertheless, as Nezavisimaya Gazeta's further investigation has shown, the situation of the gas
concern is even more alarming than it might have appeared from the article "Gas Bubble."
This article caught Aleksey Miller in Tashkent, where the gas concern chief was buying gas.
Why would a major gas extracting company that reportedly has the world's largest gas reserves
need Uzbekistani gas? It seems that Gazprom is not having problems with money shortages
only.
One week before Miller's trip to Uzbekistan, an unprecedented telegram from Gazprom was
disseminated among regional subdivisions of the gas concern on behalf of the management board
chairman. Many Nezavisimaya Gazeta own correspondents in various regions managed to
obtain the text of this message. It was sent on a government letterhead, which emphasized its
special status. The telegram's introduction, too, is quite unusual for a technical directive: "In
conditions of a widespread cold snap this December..."
So, it turns out that "in conditions of a widespread cold snap" the established daily gas
consumption limits were overrun in most regions of the Russian Federation. In this connection,
Management Board Chairman Aleksey Miller obligates leaders of his regional gas selling
subunits, "on their own responsibility, to carry out gas supplies in the winter period of 2002-2003
to all consumers without exception within the established daily gas consumption norms and
without waiting for special instructions on this." Translated into plain terms, this means the
following: There is a shortage of gas, which is why you can curtail the supplies to absolutely
everyone, including the population.
There is one simple factor proving that we are dealing here specifically with a shortage of
stockpiles. The phrase about compliance with the limits, which is cited from this strange
telegram, does not mention payments. Earlier, gas supplies to consumers were reduced if the
latter did not pay. Now, Miller orders to limit gas supplies to the established norms regardless of
payments.
This means that the situation is bad and the concern is trying with all its might to save gas and to
consume it in compliance with the planned limits regardless of industrial needs and winter
temperatures. After all, if due to the cold and miscalculations the reserves run out before spring,
the supplies to consumers will have to be actually cut off.
There are many things Russia is short of, but it has always had gas in abundance. And all of a
sudden, it proves in short supply. It is going to be an unprecedented scandal. An excellent gift
to the Kremlin in a pre-electoral year. In this case, punishment will hit Gazprom management
much sooner than bankruptcy. In other words, if the huge money (exceeding the annual
indebtedness of the entire Russia) and money shortages may still allow for maneuvering
somehow within one year, the cold weather and gas shortages may open the abscess within the
next several months.
What caused this problem? Earlier, under the old team of technical specialists, Gazprom had a
thick volume containing calculation methods, which was drafted based on long-time experience.
It was used to calculate a consumption forecast, according to which required reserves of gas were
pumped into underground depositories. There were, of course, local shortages: Reserves on one
39
side and "unplanned" frost on the other. In any case, however, there was a rigid rule: If ever, gas
supplies were cut off only to the so-called industrial zone and on no account to the population.
There were distinct priorities, which the above telegram does not mention. If Miller orders to
limit supplies to "all consumers without exception," this indicates a difficult condition of his
company.
The Gazprom leader may not be a sectoral specialist but his deputy, Aleksandr Ryazanov, is a
professional gas expert. In the past, he headed the Surgut refinery almost for 10 years. By the
way, back then Ryazanov was in conflict with SIBUR and even spent some time behind bars at a
detention center. Eventually, however, he was ousted from the refinery by well-known
Goldovskiy. But this is not a reason for taking one's revenge on the whole country, for crying
out loud...
Anyway, the winter stocks of gas may prove, to put it mildly, insufficient as a result of actions by
Gazprom management. The Miller team can only pray for warm weather.
Postscript: Nezavisimaya Gazeta intends to continue its investigation into the situation at
Gazprom and other corporations vitally important for the country, as well as some leading state
banks, such as Sberbank, Vneshtorgbank, and Vneshekonombank.
[Text of telegram] "Government telegram. To the leaders of gas extracting and gas transportation
companies of OAO [open joint-stock company] Gazprom (to be delivered)
In conditions of a widespread cold snap this December, most regions of the Russian Federation
have been overrunning the established daily gas consumption limits.
To prevent the single gas supply system from malfunctioning due to uncontrolled gas
consumption, I obligate the senior leaders of regional gas selling companies and branch offices of
OOO [limited liability company] Mezhregiongaz, on their own responsibility and jointly with gas
extracting and gas transportation companies of OAO Gazprom, to carry out gas supplies in the
winter period of 2002-2003 to all consumers without exception within the established daily gas
consumption norms and without waiting for special instructions on this.
The operational redistribution of gas volumes among consumers, allowing for the settlement of
their current payments in cash for the gas supplied, will be carried out in compliance with OAO
Gazprom Order No. 100 of 14 October 2002, the established procedure for distribution of OAO
Gazprom's gas resources No. AM-6671 of 29 October 2002, as well as the regulations on
interaction among the TsPDU [Central Production and Control Administration], gas extracting
and transportation organizations, and OOO Mezhregiongaz.
Please communicate the text of this telegram to the leaders of components of the Russian
Federation, operational personnel of lower subdivisions in the regions, and OOO Mezhregiongaz
branch offices.
[Signed] A.B. Miller, OAO Gazprom Management Board Chairman."
[Description of Source: Moscow Nezavisimaya Gazeta in Russian -- Daily Moscow newspaper
aimed at an elite audience and controlled by Boris Berezovskiy.]
40
Unclassified
Document ID: CEP20021218000187
Entry Date: 12/18/2002
Version Number: 01
Miller's Role in Gazprom Seen; No Reform Expected Until Putin's Second Term
CEP20021113000203 Moscow Izvestiya in Russian 12 Nov 02
[Article by Aleksey Makarkin, head of the analytical department of the Center of Political
Technologies: "Inventory Taker and Cleaner" -- taken from HTML version of source provided by
ISP]
[FBIS Translated Text]
When people talk about the Gazprom reform, they imply first of all the company's division
into extracting and transportation components. This will not happen in the immediate
future. At least not until the new management of the gas monopolist has finished the
process of establishing real control over the company's assets and the authorities have made
a political decision to carry out this reform. It seems that Miller and his team will remain
"transitional period" people for a long time. At least until the beginning of Vladimir
Putin's second presidential term.
Rumors about Aleksey Miller's imminent resignation have been circulating for about one of
the one and a half years that he has spent as chairman of the Gazprom Management
Board. However, this resignation has never become a fact. And the point is not only that
Miller is a protege of Vladimir Putin. An equally important fact is that the present
Gazprom Management Board head quite successfully copes with a job assigned to him: the
job of "cleaner" and "inventory taker."
During his term, the company's top management was subjected to an unprecedented
purge. Almost all the board deputy chairmen and subdivision heads, as well as presidents
of several subsidiaries and regional branches were brushed away (for example, the
resignation of Viktor Shchugorev, the long-time Astrakhangazprom head, was as important
an event for that oblast as Rem Vyakhirev's departure at the federal level).
A special character of the Miller team is a forced impromptu method based on which it was
recruited. The appointments were made "on the run." After all, the Gazprom chief never
before managed the structures of this level. As a result, the "key" Management Board
deputy chairman for finances, Gazeksport head, and Sibur presidents have been changed
twice this year, while many positions in the company are occupied by Miller's old friends
from St. Petersburg.
Specifically, Chief Accountant Yelena Vasilyeva occupied the same position at AO [jointstock company] Baltiyskaya Truboprovodnaya Sistema [Baltic Pipeline System], which was
managed by Miller. In the same company, Marketing Department Chief Kirill Seleznev
used to head a tax group. Corporate Finance Department Chief Andrey Kruglov worked
together with Miller at the St. Petersburg City Administration. Asset Management
Department Chief Aleksandr Krasnenkov, too, knows Miller well from St. Petersburg
days: He was general director of the Astoriya Hotel. Yet, despite their lack of familiarity
with the gas sector the Miller management has not yet made any major mistakes.
41
The "purge" was accompanied by the restoration of the company's control over a group of
assets that were separated or in the process of being separated. The most reverberating
was the SIBUR case, which involved a criminal investigation against Yakov Goldovskiy and
Yevgeniy Koshits, respectively, former president and vice president of the Gazprom's
subsidiary. In the end, Gazprom restored its control over the SIBUR central apparatus.
It is "pulling back" the latter's components (which were already grabbed by new owners)
and initiated the signature of an amicable agreement with SIBUR's creditors (although one
of them, Alfa Bank, is against it).
Gazprom has managed to restore its control -- even if not in so spectacular a manner -- over
its other subsidiaries, such as Zapsibgazprom, Purgaz, and Severneftegazprom. The fate of
these companies sparked a protracted conflict between Gazprom and Itera, one of the most
famous "Gazprom-related" structures closely connected with the Vyakhirev management.
Finally, the Miller team managed to agree that the controlling stakes in these companies
would go to Gazprom but Itera would receive compensation: partially in cash and partially
shares (in the companies where Gazprom was a minority shareholder).
Non-Core Assets
One of the most significant issues for Miller was the one of non-core assets, which range
from metallurgical enterprises owned by Gazprominvestkholding to the NTV television
company and other Media-Most structures taken over by Gazprom at the very end of the
Vyakhirev era. To all appearances, they will not be treated in the same way.
There is good reason to believe that the company will retain its controlling stake in NTV at
least until the 2004 presidential elections. Political considerations will play a key role
here. At the same time, a new major minority shareholder may appear inside the
company. After all, increasing investment attractiveness of the media holding company
was exactly the goal of a recent deal to buy from Vladimir Gusinskiy his stakes in the
companies belonging to Media-Most.
At the same time, the new management of the company has from the very outset maintained
fairly good relations with Alisher Usmanov from Gazprominvestkholding, which controls a
group of enterprises from the metallurgical sector. At least, there have been no reports on
major disagreements between Miller and Usmanov. On the contrary, it is
Gazprominvestkholding that, according to mass media, conducted on Gazprom's behalf
negotiations with Itera on the aforementioned disputed assets. In other words, the
preservation of partnership is at issue here.
Thus, Aleksey Miller has fulfilled his "minimum program": His company, whose integrity
was open to question, is on its way to restore control over the "half-separated" assets.
However, there are still serious problems with the "maximum program," which concerns
effective management of these assets.
A System of Alliances and Prospects
The part played by Miller in Gazprom is "czar's man." This, however, does not mean that
he just performs the functions of a high-level executor. The logic of fighting among various
Kremlin-related clans makes him look for allies in corporate circles. Hence the
rapprochement with Rosneft chief Sergey Bogdanchikov and Tuva Senator Sergey
42
Pugachev, who retains Mezhprombank in the sphere of his influence. With Rosneft,
Gazprom is connected by a series of joint projects to develop gas and oil deposits in
Yamalo-Nenetsk Autonomous Okrug and on the Barents Sea shelf. Gazprom conducts a
dialog with Mezhprombank on the latter's involvement in a whole range of Gazprom
programs ranging from a system of payments for gas buyers from the CIS [Commonwealth
of Independent States] to the restructuring of credit indebtedness.
It is indicative that neither Bogdanchikov nor Pugachev belong to the so-called "Yeltsin
family." On the contrary, they try to become an alternative group that has access to the
incumbent president. It is also true, however, that compared to the well-structured
"Yeltsin family," representatives of the "alternative" business elite (it is sometimes referred
to as "St. Petersburg" even though not all of its members are connected with our northern
capital) seem much more disconnected and less capable of effective coordinated actions.
But then, the advantage of direct access to the head of state should not be underestimated.
Miller and Reform
Gazprom's political significance is the main barrier hampering its reform. The authorities
do not want to touch a company remaining one of the main budget donors and capable of
making a considerable contribution to any election campaign -- and not just thanks to its
financial resources but also with the help of its extensive network of regional branches.
Also significant is Gazprom's international role, although the gas company has been used
recently in a more pragmatic manner in this area. As a result, an expensive and risky
project to build a gas pipeline running across Belarus and bypassing Ukraine is becoming
increasingly uncertain (which boosts the chances of an option to modernize the existing gas
pipeline running across Ukrainian territory). It seems that Gazprom's international
expansion will not be so active in the immediate future as it was planned under Vyakhirev.
Another problem plaguing Gazprom is its multistage decision-making process, which
involves not only its management but also presidential and government structures. It is not
surprising that the present Gazprom management prefers to talk about financial indicators
and technical condition of the company's facilities rather than reform plans. It is this fact
that largely explains why Miller and his team are perceived as "transitional period"
people.
Will Miller manage to go beyond his present role as high-level executor? By style, he is not
a clear leader but rather a team member. Besides, the general logic of the monocentric
system being created by Putin prevents creation of new "appanage princedoms" or "semiindependent fiefdoms" in state departments and structures with state participation.
Vyakhirev was not removed only for "Vyakhirev No. 2" to be created -- even if the latter
has St. Petersburg roots.
[Description of Source: Moscow Izvestiya in Russian -- One of Russia's most prominent
dailies; controlled by Vladimir Potanin although Lukoil owns a minority share.]
Gazprom Embezzlement Eyed, Liberalization Seen Likely, Set To Cause Inflation
CEP20021218000187 Moscow Stringer News Agency WWW-Text in Russian 18 Dec 02
43
[Article by Lavrentiy Pavlov: "The Secret of Gazprom Promissory Notes: 'Where Is the Money,
MIL?'" -- taken from HTML version of source provided by ISP]
[FBIS Translated Text]
A few months after his appointment as head of the Gazprom OAO [open joint-stock company]
management body, Aleksey Miller had an unpleasant conversation in the Kremlin. With his
immediate boss back from the Petersburg City Hall Foreign Relations Committee, Vladimir
Putin.
Looking at his loyal fellow fighter and in a quiet voice Putin politely inquired, "Where is the
money?"
Miller became ill at ease. "We will investigate it and report back," he hastened, not fully
realizing the scale and difficulty of the task that had been set.
The episode was about the difference between the price of Russian gas for foreign consumers and
the price used to record receipts from selling it in the revenue side of the budget. All the signs
are that the difference, and a very respectable one at that, was pocketed by intermediaries. But
would it that this were the only hole through which enormous amounts of money have leaked
away from the state out of the gas sector!
In the era of Boris Yeltsin's rule, the sector was handed into the responsibility of two hardened
managers, Viktor Chernomyrdin and Rem Vyakhirev. In the frenzy of Yeltsin's NEP [New
Economic Policy], during which state supervision of the use of natural resources was considered
improper, this duo marshaled Gazprom's activity on the basis of their own ideas of good and evil.
Their patrimony was called an empire not only because of its strength and wealth but also
because it was a monopolist on the internal market. And even in the nonpayment chaos of the
1990s, a monopolist like this always had the opportunity to force its buyers to pay for gas in full
in line with clear-cut and explicit payment schemes. But the chiefs and those close to them
preferred a different route.
The schemes for the movement of Gazprom funds immediately began to become more
complicated, financial flows bifurcated many times and were quickly hidden in the shadows.
Barter deals, bogus firms, and little-know accounts in hundreds of banks were used as
camouflage.
When there was a need to pay contractors for work they had done, for example, Gazprom
transferred "ready" money to one of its own companies. Over a billion dollars a year was
pumped into the Stroytransgaz firm, which was owned by relatives of the gas sectors bosses, on
pipeline construction contracts, say. Stroytransgaz paid the contractors but only with promissory
notes. If someone had done a million rubles' worth of construction work, for example, he would
get that million ... in securities.
But the laborers needed not securities but real working funds. So they went to redeem the
promissory notes at firms and banks close to Gazprom. But they only bought the securities at a
discount, one that reached as much as 20-30%. The contractor actually received the same
percentage less for his work, even though he had to pay tax and VAT on the virtual million he
had been given in promissory notes!
Knowing these ruses, some farsighted industrialists increased the projected cost of the work in
44
advance in order to get what was theirs in the end. Gazprom did not lose anything either but the
discount money generally skipped the accounts and taxation. There were many such operations
and they still continue.
Similar tricks were played with all the financial instruments that found themselves at Gazprom's
disposal. Particularly willing use was made of debt liabilities, moreover to the mutual benefit of
both borrowers and lenders.
So the emergence and artificial pumping up of a number of CIS countries' debts for Russian gas
supplies were a real gift to those who did not turn their noses up at any way to make money.
Secret recordings of a conversation between President Leonid Kuchma and those close to him,
allegedly made by Major Melnychenko who later bolted to the West, were recently published in
Ukraine, which owes Russia at least $3 billion for gas.
In these recordings, Kuchma said that at Russia's request they had paid $50 million or $60 million
into the gas debt account: "They told me they had reckoned on ... multiplying it by five. We
settled up through Itera, in order not to go through Gazprom -- it is too visible that it is less
there. It was immediately siphoned off through offshore zones."
The Ukrainians thus had an opportunity to greatly reduce their official debt while "our people"
could be glad of getting hard cash not recorded by the treasury.
Indeed, where is this shadowy money now? Has anyone tried to check? Yeltsin's times have
gone so would it not seem possible now?
An Optical Illusion
Foreigners have always taken Russian citizens' and businesspeople's solicitous attitude toward
Gazprom with an ironic smile. For them, our fuel empire's main characteristic was and still is its
sheer murkiness. Or more precisely, the opacity of its financial records.
In this connection, Gazprom's minority shareholders, chiefly German banks, were plain indignant
at the choice of the company's auditor back in early 2002. And demanded that
PriceWaterhouseCoopers, which had been too cosseted by our gasmen, not be allowed to inspect
Gazprom's finances.
The Western press also tried to unsentimentally investigate Gazprom's problems. The
respectable French newspaper Le Monde raised the alarm a year ago. "Having built up debts that
have reached $12 billion and being unable to halt the fall in output, Gazprom has regularly been
subjected to criticism for the 'opacity' of the conduct of its affairs. This diplomatic formulation
conceals group bosses' regular embezzlement of money from the major Russian company's
funds. Rem Vyakhirev and his closest comrades-in-arms and Former Prime Minister Viktor
Chernomyrdin, who headed up the privatization, organized a division of the empire by
transferring assets or handing the most profitable enterprises to companies that are their friendly
with them or which they own. It is chiefly a question of relations between Gazprom and the Itera
group.["]
Alas, whereas the private company Itera used to be considered just a "back-up option" for gas
king R. Vyakhirev, its role in Gazprom's financial difficulties is now more evident. The Wall
Street Journal, which is influential in US business circles, reported: "Audit checks showed that
45
the previous bosses had given interest-free loans to outside firms, spent millions on buying luxury
hotels and aquariums, and sold major gas fields to third parties at below market prices....
Gazprom has announced that it has bought back a 32% shareholding in a gas field that the
corporation's former bosses sold to the outside Itera company in 1999 for 32,000 rubles
($1,025). Gazprom investors believe the corporation's former managers enriched themselves on
deals with Itera although both parties deny it."
Germany's Frankfurter Rudschau newspaper has published documents about how multi-billion
assets were sold to relatives of the corporation bosses. The Interprokom company, registered in
Budapest, allegedly handed the Horhat company completely free 90% of shares bought in 1998
by Chernomyrdin's son and Vyakhirev's daughters and his aide Sheremet for $2.50 (two and a
half dollars!).
It is easy to gather whole volumes of such facts and pieces of evidence both abroad and in our
native fatherland. A complete "optical illusion" based on the effect of "opacity." Having
become familiar with even a small part of this dossier, one painfully wants to understand the
following.
Why did President V. Putin in fact put the question of where the Gazprom money had gone to
Aleksey Miller and not his imposing predecessors in the company leadership? Why is V.
Chernomyrdin briskly "steering" Ukraine's very profitable gas debt as Russian ambassador and
not giving evidence in very official Moscow offices at least?
You can argue as much as you like about how the top-level bosses' strenuous labor was
incentivized in Gazprom but it is clear that it has long been time to answer for the results of this
labor.
Gazprom currently owes creditors over $15 billion, which is comparable in size to its most
successful annual revenue. Moreover, around $7 billion is short-term debt that must at least be
refinanced in 2003.
That is to say, it will be necessary to get loans again. But foreigners are in no rush to give money
to Gazprom because of the company's ongoing "opacity." Gazprom owes its own [fellow
Russian companies] a decent amount too: It has borrowed a total of around $2 billion from
Sberbank and Vneshtorgbank, an amount the Central Bank believes exceeds the lending norms
established for Russian credit organizations.
It is probably for that reason that such a bustle has arisen over getting back CIS countries' debts
for the export of Russian gas. But "relieving" neighbors here and there of a hundred million
dollars each will not solve the problems. So far the main debtor, Ukraine, does not even want to
hear about settling. People are not yet talking out loud about Gazprom going bankrupt but the
eternal Russian question of "What is to be done?" is arising increasingly often the offices of its
current bosses.
Take a Third Tablet!
One prescription has already been written. Back when he was appointed, A. Miller was given
carte blanche for a major cadre purge in the company and he set about it with enthusiasm.
Native Petersburgers, even ones that had been far from the gas sector in their previous lives, were
appointed to key posts. Gazprom control was restored over some subsidiary companies that had
previously been practically given to Itera. They are also trying to greatly curb the export
46
appetites of Itera itself.
But these steps have not affected the gas empire's economic parameters.
In the first six months of 2002, Gazprom spent $900 million more than it received. Over the
same period, revenue from internal sales fell by 150 million "greenbacks" on 2001, and that is
while maintaining supply volumes and with a 20% increase in Russian gas tariffs. This is
evidence that even more money is leaking past Gazprom's cash tills than before Putin's time.
And is proof that the situation in the company cannot be solved with just a purge of top managers.
The flaws of "opacity" and the shadow economy have penetrated deep into Gazprom structures
over the last ten years and have infected them on a genetic level. So firing a couple of dozen top
bosses will not cure hundreds of others.
In these conditions, making a fundamental change in the gas empire management system is
tantamount to rebuilding a multi-story apartment block without evicting the residents, each of
which will be able to "reach an agreement" with the foreman not to touch his privatized
apartment.
Break It Up! And Hang the Parts!
Another route is radical Gazprom reform. The government is already discussing the possibility
of breaking it up at least into extraction and transport parts. It is true that the management would
change radically with this. But a there is a major calamity lying in wait here too.
Experts know that when a company is broken up, there is a sharp fall in its capitalization, that is
to say the overall value of its share capital. And our Gazprom's capitalization is extremely low
as it is, only $19 billion, even though it should be much higher. A fall in capitalization would
entail a train of economic problems capable of suffocating the firm for good.
Well understanding the doomed nature of both options, the current Gazprom leadership has to all
appearances decided to choose a third remedy. Through tamed media, they have begun to inure
society and the authorities on all levels to the idea of liberalizing the internal gas market. That is
to say, Russians will gradually be sold gas not at fixed prices but at increasingly free ones.
Meaning high ones.
No, no, not the population the Gazprom people swear, only industrial enterprises for now.
Glossing over the fact that the new gas price will increase the cost price of products and most
Russian goods are bound to become more expensive. And inflation will go up sharply.
A group of VIPs has labored strenuously, relieving the Gazprom stores of respectable amounts
and at the same time having undermined one of the bulwarks of our economy. In order to rescue
this bulwark, we the country's millions of citizens now have to compensate the monopolist out of
our starvation wages for the money that disappeared without trace into the pockets of a few dozen
daring managers. That is all there is to it. In our country, it is now called the particular nature
of the Russian market.
[Description of Source: Moscow Stringer News Agency WWW-Text in Russian -- Website
devoted to compromat and exposes of politicians; reportedly supported by former Yeltsin
bodyguard Korzhakov and the Yukos oil company.]
47
Unclassified
Document ID: CEP20021219000108
Entry Date: 12/19/2002
Version Number: 01
Source-Date: 12/19/2002
Existing Gazprom Debts Twice as High as 2003 Borrowing Plans, Moscow Daily Says
CEP20021219000108 Moscow Komsomolskaya Pravda in Russian 19 Dec 02 P 4
Reference
1. Russia: Gazprom Document Suggests Bankruptcy 'Approaching Inexorably'
CEP20021217000273 Moscow Nezavisimaya Gazeta Russian 17 Dec 02
[Report by Anton Nefedov under the "Scandal" rubric: "Whither Gazprom? Country's Biggest
Monopoly Owes Twice as Much as It Can Repay"]
[FBIS Translated Text]
There is an accepted wisdom in life that you should live according to your means and not take
more than you have earned. Russia learned this lesson after August 1998: It is not taking out
new loans and is paying back the old ones on the dot.
But within Russia there is another country -- Gazprom. The gas empire within the country has
not declared a default and throughout the 10 years of its credit history has conducted itself in a
fashion more exemplary than that of a graduate of an institute for young ladies of noble birth. In
other words, it has built up debts right, left, and center. And at the same time it has lived high on
the hog without making too much attempt to curb its appetite. Even under the new leadership.
And it seems it has now gotten itself into trouble.
It emerges from the gas corporation board's draft resolution "On Borrowings for 2003" and
from the Operating Report for 2002 that the "level of Gazprom debt is close to the maximum
permissible. And the loans of $3.56 billion that are to be raised in 2003 are not sufficient even to
service previous debts for a year."
After all, in the coming year alone Gazprom will have to pay twice that much -- $7.45 billion -on its existing debts. And in total Russia's largest and most respected monopoly has piled up
debts of $14.7 billion. And its creditors have only one option left -- to take the holy of holies in
lieu of the debts -- the revenue from the export of Russian gas!
The draft resolution "On Borrowings" says: "Gazprom has borrowed more from the Russian
market than the banks can lend according to the norms of the Russian Federation Central Bank."
And how! It has borrowed its way into big trouble...
Meanwhile, the Gazprom people are clearly in no mood to tighten their belts. The concern's
48
anticipated revenue in 2003 is R964 billion. But its expenditure is planned to be no less than
1110 billion silver rubles! Furthermore, this figure includes advertising expenditure equivalent to
$70 million. Perhaps this has been done so as to deliver a fine report to the Kremlin?
[Description of Source: Moscow Komsomolskaya Pravda in Russian -- One of Russia's largestcirculation and most outspoken dailies, controlled by Vladimir Potanin.]
THIS REPORT MAY CONTAIN COPYRIGHTED MATERIAL. COPYING AND
DISSEMINATION IS PROHIBITED WITHOUT PERMISSION OF THE COPYRIGHT OWNERS.
Unclassified
Russian Audit Chamber dismisses reports of Gazprom bankruptcy
CEP20021218000020 Moscow Interfax in English 0748 GMT 18 Dec 02
[FBIS Transcribed Text]
MOSCOW. Dec 18 (Interfax) - The head of the Russian Audit Chamber has dismissed media
reports that Gazprom is bankrupt.
"We have looked at Gazprom and found that the situation there is not straightforward, but there
are no grounds whatsoever to describe the company as bankrupt," Sergei Stepashin told reporters.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
Unclassified
Russia: Gazprom Document Suggests Bankruptcy 'Approaching Inexorably'
CEP20021217000273 Moscow Nezavisimaya Gazeta in Russian 17 Dec 02 PP 1, 4
[Report by Andrey Savitskiy: "Gas Bubble. Sensational Document Published on Pages of
Nezavisimaya Gazeta: Gazprom's Debts Reach $14.7 Billion and Exceed Russia's Total Annual
Debt"]
49
[FBIS Translated Text]
Nezavisimaya Gazeta has come into possession of a sensational document elaborated deep inside
Gazprom and accessible to an extremely restricted circle of people in the concern's leadership. It
is a draft resolution of the company's board, entitled "On Approval of the 2003 Borrowing and
Securities Flotation Program." According to Nezavisimaya Gazeta's information, the resolution
has already been signed by Aleksey Miller in circumstances of the strictest secrecy. It is not for
nothing that each page is marked "confidential."
The document indicates unequivocally that the debt noose is tightening around Gazprom's neck.
The concern's leaders are making frantic attempts to defer bankruptcy, but judging by the figures
it is approaching inexorably.
In 2002 Russia paid about $14 billion on its foreign debts. Gazprom's debt is $14.7 billion. In
other words it already exceeds the annual payments of the entire state. This is probably what
people have in mind when they say that Gazprom is the world's biggest gas company, with a
turnover comparable to that of entire states. But a company with debt of state proportions could
simply become a bomb on a state scale.
The concern's debts are growing. According to the document, in 2003 Gazprom will have to
pay $7.5 billion. Converting short-term borrowings into long-term borrowings (in other words
deferring critical payments until better times) is proving virtually impossible. Furthermore, a
significant proportion of Gazprom's export earnings (on which it depends for its existence,
because gas sales within Russia are usually at a loss) has to be automatically and unquestioningly
given to creditors in repayment of accumulated loans. The document contains a sensational
admission: 70 percent of total export earnings, including 97 percent of earnings from contracts
with first-class European partners, is tied up under accumulated loans. What then is the point of
the biggest state concern's existence if it, in essence, is giving away Russian gas in payment of
debts accumulated by the management? It turns out that Gazprom is not just not feeding Russia
but is in effect "eating" it. What use is this to anybody?
The government has capped the tariffs for the natural monopolies' services next year. This
means that in the domestic market Gazprom will obtain less money that it would like. It also
means that Gazprom will be unable to increase gas extraction in order to achieve a corresponding
increase in gas exports and export earnings. It has become a vicious circle. The concern's
leadership virtually admits that the limits for borrowing in the domestic market have been reached
and even exceeded. Borrowing in the external market is growing, and the only source of revenue
-- export earnings -- has to be used to secure it. The gas monster's existence is not only losing
any economic point for the country but is also planting a bomb under the foundations of the
state's economic and political stability.
The phrase "2003 problem" has changed from a frightening one into an ordinary and even
untopical one. The idea was that, because of the slipshod debt policy of the previous decade,
Russia's debt repayments would peak in 2003 at about $17 billion. A couple of years ago, when
economists had just started talking about the "2003 problem," the amount of repayments seemed
impossibly high. But economic growth, albeit slight, and above all high oil prices now make it
possible to view the national debt problem without fear.
However, the much-used phrase "2003 problem" must now be looked at anew. The state has
more or less sorted out its foreign debts, but its "2003 problem" will now be Gazprom's debts,
which have reached truly state proportions. The coming year will be full of choices to be made:
Will the Kremlin agree to rescue Gazprom by raising tariffs if foreign creditors apply pressure?
50
(In other words, will we all be instructed to pay the Gazprom management's debts?) Will
Gazprom be able to build the pyramid further, attracting yet more loans in order to repay the old
ones, using Russian gas to provide additional payment?
That way the gas will soon run out.
[Description of Source: Moscow Nezavisimaya Gazeta in Russian -- Daily Moscow newspaper
aimed at an elite audience and controlled by Boris Berezovskiy.]
Unclassified
Russia: Government to decide on Gazprom investment programme
CEP20021216000180 Moscow ITAR-TASS in English 1420 GMT 16 Dec 02
[FBIS Transcribed Text]
MOSCOW, December 16 (Itar-Tass) -- The Russian government will make a decision on the
2003 investment programme of the gas company Gazprom , Prime-Tass quoted Federal Energy
Commission chairman Georgy Kutivoi as saying
He told a news conference on Monday that the government had decided that Gazprom could
increase its gas prices for industrial users and the population not higher than 20 per cent.
Gazprom will be shor of its own resources for implementing its 2003 investment programme in
the amount of 179 billion roubles, Kutovoi said.
"Gazprom will have to reduce the investment program or solve the issue by attracting other
resources -- credits or issue of securities. This matter will be carefully worked out for discussion
in the government, " Kutovoi said.
He said estimates of the Federal Energy Commission confirmed
The need for raising gas prices in 2003 by 34.7 per cent.
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
Unclassified
Alfa Group Seen Attempting To Use Press To Drive Wedge Between Gazprom, Itera
CEP20021211000209 Moscow Kompromat.ru WWW-Text in Russian 11 Dec 02
51
[Report by Igor Shanskiy: "Alfa Sets its Sights on Gas: And the Dirtiest PR Has Been Put in
Motion" -- Internet Version-WWW]
[FBIS Translated Text]
Not long ago, or more precisely last week, strange articles saying a serious conflict had arisen
between Gazprom RAO [Russian Joint-Stock Company] and Itera appeared practically
simultaneously in Versiya and certain other publications. Moreover, it was stressed that Itera is
blackmailing Gazprom with some mysterious compromising materials that it is purportedly
prepared to release to the mass media at any moment. Public relations professionals and those
who know at least something about the extraction and trade in gas immediately grasped the
meaning -- a third force is trying to drive a serious wedge into the relationship between Gazprom
and Itera. Incidentally, when the aforementioned articles appeared, people in Gazprom and Itera
were unspeakably astonished as according to confidential information from both structures,
neither Itera nor Gazprom intended to enter into a conflict and had not even thought of any kind
of media war. Naturally, the question arose: What third force is this that so wants to create the
semblance of a war of compromising materials between the two companies that have long been
linked by partnership relations? The answer proved to be utterly unexpected.
The third force actively provoking a conflict between Gazprom and Itera proved to be the not
unknown Alfa financial industrial group (for which you can read TNK [Tyumen Oil Company]).
It turns out that this company has been taking an active interest in the gas business in recent years
and has gradually "infiltrated" Gazprom structures while cutting off Gazprom's longstanding
partners by any means. To the Alfa people's chagrin, though, the attempt at an utterly crude
provocation with Itera has completely failed. Why? Because anonymous comments from one
of the organizers of the "anti-Itera" actions and some documents have found themselves at our
disposal. So....
This is what we were told by someone with a most direct relationship to the compromising
materials war: "Through a representative of the TNK-Garant private security enterprise,
representatives of Alfa, or more accurately TNK, suggested that I place information that a conflict
had occurred between Gazprom and Itera in Versiya, Kommersant, Moskovskiy Komsomolets, and
certain 'yellow' publications. Above all, Alfa demanded that I provide a body of facts that Itera
was purportedly prepared to 'sling' the dirtiest compromising materials at Gazprom and thus
blackmail it. At first I took up the job but when I understood it was an utterly filthy affair and
that it and could leave journalists seriously vulnerable, I gently dropped the subject, refused to
cooperate with the Alfa people, and returned their money. Then I saw that these articles were
appearing all the same and I understood that Alfa had found another, less scrupulous person."
Now we will acquaint the reader with a very interesting document. It is the so-called "Itera
Plan," that is to say a kind of work specification for the mass media for the preparation of articles
provoking a conflict between Itera and Gazprom. Let's quote a few paragraphs from this chef
d'oeuvre created in the depths of the Alfa financial industrial group. So:
[Citation of document begins.]
Plan for Itera Actions
The main aims of these actions are to intensify to the utmost a conflict between Itera and
Gazprom. To demonstrate that Itera has an interest in "attacks" on Gazprom and that it is
funding and provoking them. Makarov wants to completely subjugate Gazprom....
52
... 2. Readers (above all Gazprom itself and the Kremlin) must be convinced that it is precisely
Itera that is releasing all the compromising materials on Gazprom to the mass media on
instructions from Makarov and his entourage. Also, according to information from "reliable
sources," Itera is allegedly putting a certain amount of pressure on Putin to sanction cadre
reshuffles in Gazprom.
3. The most important thing is to convince Gazprom, the Presidential Staff, and other circles that
Itera has entirely gotten outside their sphere of influence, has begun to feel powerful and
completely independent, and is ready to "enter into a clinch" with Gazprom and other powerful
structures....
Plan of Articles and Themes:
1. Versiya or Sovershenno Sekretno. At least half a page in size. The same material is placed
on Internet sites. Scheduled for 25-30 November.
Theme: A conflict between Itera and Gazprom. Itera is blackmailing Gazprom with
compromising materials and even now is prepared to begin to "sling" negative things in the mass
media. Itera has declared a media war against Gazprom.
2. Kommersant. At least one-third of a page in size. The theme is reflected on the Internet.
Scheduled for 7-17 December. Itera has declared a war against Gazprom. Makarov is preparing
to seize power in Gazprom. Makarov is planning to take up Miller's position (or put one of "his"
people in the position of Gazprom boss) soon. Itera is training reliable people for a "peaceful
seizure" of key Gazprom posts. Itera is now lobbying its "anti-Gazprom" interests in Putin's
closest entourage.
3. Moskovskiy Komsomolets. Of at least one-fourth page in size. The theme is reflected on the
Internet. Scheduled for 15-20 December.
Title option "Is Makarov Our President?" The thrust is the Itera head's presidential ambitions.
Over time, Makarov is planning to subjugate Gazprom by getting unlimited financial and
administrative influence and lining up "his" people (or buying off current people) in the
Presidential Staff and the Russian Federation government. The next move by the "cyclist who
has gone too far" is to run for Russian Federation president in 2008.
4. Under the aforementioned theme, it would make sense to place on "scandal" Internet sites and
in the "yellow" press "confidential" (purportedly bugged) statements by Makarov and his
entourage that Putin is a weak president and that Makarov would be entirely capable of running
the country and, to start with, running Gazprom. Scheduled for 20-25 December.
[Citation of document ends.]
That is the most diverting little document the "man from Alfa" was actively inculcating into the
minds of representatives of the mass media, backing up the false compromising materials with by
no means false North American dollars. And in quite serious amounts. Thus, according to some
information, the "Alfa people" have allocated a little over $60,000 to provoking a conflict
between Gazprom and Itera in the press. So it is entirely probable that in the near future we will
be able to behold materials in Moskovskiy Komsomolets, Kommersant, and certain other
publications composed entirely on the basis of the aforementioned Alfa Group document. Cheap
public relations staffers are not distinguished by their imaginations: What the "boss" has given
53
us is what we will put in the press. The boss in the guise of Alfa Group is in a rush and pushing
from behind -- the oil and finance boys very much want to get their hands on the rich Gazprom
storehouses as quickly as possible. In this the "Alfa people" will not hesitate at provocation or
commonplace lies.
[Description of Source: Moscow Kompromat.ru WWW-Text in Russian -- extensive database of
compromising material on Russian politicians, businessmen, and criminal world figures]
Russia's Gazprom gas company may sell $8 billion of non-core assets
CEP20021211000018 Moscow Interfax in English 0656 GMT 11 Dec 02
[FBIS Transcribed Text]
MOSCOW. Dec 11 (Interfax) - Russian gas monopoly Gazprom could sell non-core assets
worth about 8 billion rubles by the end of 2002, a source close to Gazprom's management told
Interfax on Tuesday evening.
The Gazprom board addressed this issue at a meeting on December 10.
"It was originally expected that earnings from the sale of non- core assets could reach 9 billion
rubles in 2002, but later the NTV television company was excluded from this list. Without this
asset taken into account, earnings could have been roughly 4.5 billion rubles, but Gazprom has
already sold 5.5-billion rubles' worth of non- core assets, and this figure could reach 8 billion
rubles by the end of the year," the source said.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
Unclassified
Russia's Gazprom To Increase Investment by 50 Percent in 2003
CEP20021210000459 Moscow ITAR-TASS in English 1841 GMT 10 Dec 02
[FBIS Transcribed Text]
By Natalya Slavina
MOSCOW, December 10 (Itar-Tass) - Russia'a major producer of natural gas, OAO Gazprom,
has drafted an impressive investment program for next year, envisioning a 50 percent increase of
total investment compared with the monies invested in 2002.
Materials that the corporation has prepared for a regular session of the cabinet of ministers, due
December 11, indicate that Gazprom has earmarked an investment resource of 188 billion rubles,
54
80 percent of which will be used to boost extraction and transportation of natural gas and to
maintain existing pipelines.
At the same time, sources at the Russian Economics and Development Ministry said Gazprom's
investment plans for next year did not go beyond 180 billion rubles. They also noted the "higher
than normal" costs of construction projects the gas giant carried out this year, saying the excess
stood at about 20 percent and the construction works were not efficient enough.
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
Unclassified
Gazprom plans to raise gas prices in 2003
CEP20021210000026 Moscow ITAR-TASS in English 0533 GMT 10 Dec 02
[FBIS Transcribed Text]
MOSCOW, December 10 (Itar-Tass) --The Gazprom public joint-stock company considers it
necessary to raise gas prices by 40 percent for industrial users and by 20 percent for the
population in 2003. In this case Gazprom's revenue increment may additionally amount to 52,000
million roubles so that the company would be able to reach out to self-financing level by 2006,
Yelena Karpel, head of Gazprom's department for economic expert examination and pricing,
announced at a briefing, PRIME-TASS reports.
PRIME-TASS quotes Karpel's statement, made on December 9, as saying that, according to
Gazprom's estimates, only with such price hikes the company can ensure a gas production
increase up to 10,000 million cubic metres a year. Otherwise, Gazprom may cut down gas
production from the current amount of 521,000 million cu. m. down to 490,000 million cu. m. a
year.
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
Unclassified
Russia: Gazprom Selling Gas Through Middlemen, Exceeding Price Limits Set By Federal
Energy Commission
CEP20021206000355 Moscow Vremya Novostey in Russian 06 Dec 02
55
[Report by Aleksandr Grivach and Aleksey Davydov: "Liberalization Getting Around
Government"--taken from html version of source provided by ISP.]
[FBIS Translated Text]
In 2 weeks, the cabinet of ministers will gather at a meeting for which preparations have been
ongoing for several years now. One of the key questions for Russia's economy--the development
of the country's gas market--will be placed on the agenda. Despite the many-faceted nature of
the problem, as a rule, there are two main positions at its cornerstone: Liberalization (read-increase) of domestic Russian prices on gas, and de-monopolization of Gazprom. Moreover, the
management of the concern is placing the emphasis on the first component, while
Minekonomrazvitiye [Ministry of Economic Development and Trade], in a report prepared for
the meeting of government, is inclined toward transformations in both directions at once.
Furthermore, the authors of the MERT [Ministry of Economic Development and Trade] concept
state that one of the main enemies of organization of market relations in the sphere of the gas
trade is "the system of setting limits on deliveries of gas to its consumers, the size of which
weakly depends on the contractual process (questions of setting limits on gas deliveries to
consumers are totally within the competency of the Gazprom structures), and imposing fines for
exceeding these limits." The discussion centers around the detailed listing of the gas balance,
which is formally ratified within Minenergo [Ministry of Energy], but final distribution, which
affords considerable "freedom of creativity," takes place within Gazprom. In essence, public
officials approve only the main "breakdown" of the gas between the main sectors of the economy
(public sector workers, power producers, and other industries). But deliveries to specific
consumers are approved by Gazprom itself.
"Cutting limits of deliveries is motivated by Gazprom's reduction of gas drilling," states the
Minekonomrazvitiye report. "However, despite the difficulties in appraising the real volumes of
set limits (Gazprom does not disclose this information), their amount is significantly less than the
real gas deficit (analysis shows that, in 2001, with the company's reduction of the gas drilling
volume by 11.2 billion cubic meters, the reduction of the limits was more significant). As a rule,
no real gas shortage is in fact observed at the end of the contractual period, in connection with
which we may say that the economic sense of limiting deliveries lies in the plane of above-limit
sales of gas at higher prices."
There is no need to recall that, from the very outset, the regulated domestic market became
fruitful soil for creating various "gray" [semi-legal] schemes for extracting additional profits by
means of organizing an artificial price shortage. As one of the market participants explained to
Vremya Novostey, a specific enterprise which consumes 50 million cubic meters a month is given
a limit at the level of 35 million. The rest is to be bought through middlemen at a price higher
than the one set by the Federal Energy Commission. In this case, "commission fees" may
comprise 10-50 percent. And the end price is directly proportional to the length of the chain
along which the gas goes--that is, the number of middlemen participating in the deal. According
to the estimate of another market participant, the overall volume of gas which is sold according to
such schemes comprises a minimum of 30-35 [million] cubic meters a year (that is,
approximately 10 percent of the total domestic consumption). At an average commission rate of
20 percent, the volume of supplemental income for organizers of the schemes equals $4 on every
1,000 cubic meters, or $120-$140 million which are not taxed and not reported. In other words,
already today a significant volume of Gazprom gas, despite the presence of tariff regulation, is
traded at rather free prices. And now this has in fact officially been acknowledged at the
departmental level.
Naturally, these schemes were devised not yesterday and not today, but the hopes for
56
improvement of the situation with the arrival of Aleksey Miller's team were also not justified.
However, after the head of RAO [Russian joint-stock company] YeES Rossii Anatoliy Chubays
officially accused the Mezhregiongaz management of selling gas through middlemen, Mr. Miller
issued a directive on 14 October (our editorial office has a copy of at its disposal), according to
which "the allocation of supplemental volumes of gas to existing and new consumers of the
Russian Federation" is charged "to the Department for Marketing and Refining of Gas and Liquid
Hydrocarbons." The manager of this department, Kirill Seleznev, was also instructed to develop
the Procedure for Distribution of Gas Resources by 20 October. Perhaps this is a coincidence,
but 2 weeks after Mr. Miller's directive was signed, a number of consumers were faxed a
"commercial proposal" from OOO [limited liability company] Mezhregionsnab. Aside from
information about readiness to supply gas over the limit at the FEK [Federal Energy Commission]
price for "a commission remuneration in the amount of 10 percent" (moreover, the order may be
no less than 100 million cubic meters per year), the message contained an application form
addressed to Aleksey Miller for delivery of gas next year. According to information of Vremya
Novostey, the telephone numbers given in the document belong to the Resurssbyt firm, whose
founders include a relative of one of the managers of the Gazprom Department on Marketing and
Refining of Gas and Liquid Hydrocarbons. Then again, yesterday our correspondent was unable
to reach anyone at these telephone numbers, and the recorded message which "asked" the caller to
leave a message or send a fax did not say whom the caller had reached.
According to an interviewee of our newspaper who asked to remain anonymous for
understandable reasons, already today the overall supply of above-limit Gazprom gas through
various firms comprises around 2 billion cubic meters for January-February of next year alone.
And it is being offered to potential buyers as [gas] which was not used by consumers in the
current year.
[Description of Source: Moscow Vremya Novostey in Russian -- daily paper created in 2000 by
disgruntled correspondents from Vremya MN; reportedly has links to the Presidential
Administration.]
THIS REPORT MAY CONTAIN COPYRIGHTED MATERIAL. COPYING AND
DISSEMINATION IS PROHIBITED WITHOUT PERMISSION OF THE COPYRIGHT OWNERS.
Unclassified
Russia: Gazprom Deputy CEO Ryazanov Comments on Proposed Reform of Gas Market
CEP20021203000242 Moscow Vedomosti in Russian 03 Dec 02
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[Interview with Aleksandr Ryazanov, deputy chairman of the board of Gazprom, conducted by
correspondent Irina Reznik: "Interview: Aleksandr Ryazanov, Deputy Chairman of Board of
Gazprom;" place and date not given--taken from html version of source provided by ISP.]
[FBIS Translated Text]
Aleksandr Ryazanov: "We cannot always keep the genie in the bottle."
It is for naught that stock market participants hastened to call the concept of gas reform
prepared by Minekonomrazvitiye [Ministry of Economic Development and Trade] "a gift to
Gazprom." For the monopoly itself, this document was a rather unpleasant surprise. First of all,
it proposed that the tariff increases on gas be increased gradually, over a long period of time.
Secondly, public officials are for some reason proposing to separate the TsPDU [Central
Production and Control Administration] and the transport company from Gazprom. And
Gazprom is especially dismayed about the public officials' notions about the gray [semi-legal]
market in gas. In general, Gazprom is preparing its "response to Chamberlain," and plans to send
it to Minekonomrazvitiye in the next few days. The deputy chairman of the board of the
monopoly, Aleksandr Ryazanov, tells Vedomosti about what kind of a gas market Gazprom wants
to see in the future, and what it is doing now to achieve it.
[Correspondent] Gazprom has probably already had time to familiarize itself with the concept
for development of the gas market prepared by Minekonomrazvitiye. In my opinion, Gazprom
could not even have dreamed of a more loyal document. It retains both the integrity of Gazprom,
and the unified system of gas provision, proposing only to separate out the transport
expenditures. Furthermore, Gazprom is being offered various tax benefits, repeal of the excise
tax on gas until 2005, and an increase in domestic prices on gas to $42 per 1,000 cubic meters by
2007.
[Ryazanov] We have familiarized ourselves with the program, and I am currently preparing a
response to the main developer, [Deputy Minister of Economic Development Andrey]
Sharonov. I will say that this report on gas reform, written by Minekonomrazvitiye, is, to put it
mildly, certainly not what we had discussed with the officials in the work group. For the past 2.5
months, we had not met at all. And suddenly, a document appears which was not coordinated
with us, and with which Gazprom categorically disagrees on certain principle instances. For
example, it says that Gazprom sells up to 65 billion cubic meters of gas a year according to
"gray" [semi-legal] schemes. Someone should explain to us what all this means.
[Correspondent] The concept speaks of the fact that, having allowed Gazprom to sell gas
"over the limit" at higher prices, the state is unable to monitor the origin of the gas offered by
independent suppliers, who are offering it at high prices. As a result, a semi-legal market in gas
arises, at which gas produced by the structures of the gas monopoly is in fact being sold at a
mark-up to 50-100 percent.
[Ryazanov] In my opinion, everything is very transparent here. All of the Gazprom gas is
distributed in balance among consumers. And all of these consumers get gas only at the FEK
[Federal Energy Commission] price. There are, of course, certain nuances, when a surplus of gas
is taken. For such gas overruns, Mezhregiongaz has the right to charge 50 percent more for this
above-limit gas in the winter, and 10 percent more in the summer. We too do not like such a
situation. We want to establish strict daily control over these overruns, and Mezhregiongaz is
currently developing an electronic program which would monitor the gas overrun for every 24hour period.
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There is, however, another instance: The so-called re-distribution of the limit. Let us presume
that one consumer has not claimed all of his [allocated] gas, and we give it to another. But the
re-distributed gas must also be sold at the FEK price.
We can, of course, say that someone has re-distributed the gas, making money off of this with
the aid of some semi-legal schemes. [Chairman of the Board of RAO (Russian joint-stock
company) YeES Anatoliy] Chubays wrote about this to [Chairman of the Board of OAO (jointstock company of the open type) Gazprom Aleksey] Miller, and even named the middleman
companies which are extorting money from the power producers. Today, the Gazprom KRU
[Control-Audit Administration] is conducting an audit at Mezhregiongaz based on these
documents. It will be completed in mid-December.
Then we will make a decision. We have already taken certain steps. We have raised the level
of distribution of limits on gas to the level of Gazprom, and have relegated the role of
commissioner to Mezhregiongaz. We want to do everything openly, and not to provide grounds
for such suspicions.
[Correspondent] Let us return to the MERT [Ministry of Economic Development and Trade]
report. What else does Gazprom not like about it?
[Ryazanov] It states that the Gazprom TsPDU must be separated out and merged with the
transport company, creating a separate legal entity on this basis and charging all transport
expenditures to it.
[Correspondent] But Minekonomrazvitiye motivates this by saying that Gazprom's
expenditures for purchase of gas and its transport are steadily increasing, surpassing the rates of
growth of the proceeds from sale of the gas.
[Ryazanov] The data which they use to confirm this are entirely incorrect. This is a
mistake. We believe that the transport company, as well as the TsPDU, must remain within the
structure of Gazprom, and that the transport expenditures are already now accounted for
separately within Gazprom. We hand all these figures over to the FEK on a regular basis. In
my opinion, Minekonomrazvitiye does not have a very good understanding of the situation.
Furthermore, the report proposes to do everything gradually, to spread the correction of prices
out until as long as 2008. But we believe that we must change over as quickly as possible to the
situation whereby the sale of gas in Russia is not performed at a loss. Even the governors, who
are most worried about expenditures of their constituents, understand that it is better to have
expensive gas than to have it cheap, but unavailable.
[Correspondent] And, is it still unprofitable to sell gas at $35-$42 per 1,000 cubic meters?
[Ryazanov] At $35 per 1,000 cubic meters, we will break even. But we must consider the
fact that we are developing new and more expensive deposits. We can, of course, stop investing
into new deposits. Our volume of gas drilling would decline, but Gazprom would immediately
correct its financial position. But please, if the government is ready for us to drill gas in a
volume of 500 billion cubic meters a year, and the rest could be supplied by independents.
[Correspondent] One gets the feeling that Gazprom is prepared to place its full stake on these
530 billion cubic meters of gas.
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[Ryazanov] We are given the assignment, and the strategy is determined for us: A minimum
of 530. At the same time, we are not being given a price on gas which would allow us to invest
in production. As a result, we are experiencing a shortage of funds. We must always keep
borrowing on the market and, as a result, paying more and more on debts. All this brings us to
the level of financial instability.
[Correspondent] But to this, the MERT officials object that it is not only a matter of the price
of gas--Gazprom has huge expenditures and high domestic expenses.
[Ryazanov] In fact, we do have things to work on. I, for example, believe that the facilities
which we are building must be cheaper. For this, we must first of all hold open competitions for
procurement of resources. For next year, we have planned a cost reduction of almost $1 billion.
But there is a rational limit to this process.
[Correspondent] Except that, for the present time, Gazprom is doing everything just the
opposite. It has obligated its subsidiaries to buy all equipment only through
Gazkomplektimpeks, and it had planned to award all of its building contracts to another 100percent subsidiary--Gazpromstroyinzhiniring. What kind of competitions are these...
[Ryazanov] Both companies are our 100-pecent subsidiaries. So that this does not keep
Gazprom and its enterprises from buying equipment and pipes at producer-sponsored
competitions, for example.
[Correspondent] The authors of the gas concept point out that Gazprom is not presenting data
on the available pipeline capacities. No one knows how much room there really is there. The
monopolist may refuse anyone, especially since, it seems, Gazprom does not have any great
interest in developing independent gas suppliers.
[Ryazanov] We specifically do have very great interest in seeing to it that independent
producers drill more gas. Because only thanks to them will the real price of gas be formulated.
Today, independent producers have too little influence on the gas market. I might add that
independent companies, and not only Itera, this year received access to the Gazprom pipeline for
transit of 102 billion cubic meters of gas. And often, having access, a company does not pump
the gas, or the buyer backs out.
We understand perfectly well that oil producers have licenses to gas deposits, and we will have
to come to agreement with them. Otherwise, they will work against Gazprom. We are prepared
to invest in transport, and let the oil producers invest into drilling. It is foolish to sit on deposits
and not develop them.
As for available capacities, the law on state secrecy does not allow us to publicize this at the
present time. Although all interested state structures have full information on this topic. And in
general, I agree that this information should be published on the Internet.
[Correspondent] Does Gazprom intend to submit its own proposals on gas reform to the
government?
[Ryazanov] We would not like to do this. We believe that we will be able to coordinate our
position with Minekonomrazvitiye. We still have time to come to a compromise.
[Correspondent] But for now, it appears that Gazprom has not been able to arrive at a
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compromise, even on the investment program. Does Minekonomrazvitiye not want to raise gas
prices by 40 percent?
[Ryazanov] We have corrected the figure on capital investment. We asked for 188 billion
rubles (R), but MERT stopped at R179 billion. With prices on gas, the situation is even more
difficult. We even proposed a compromise variant: To make gas more expensive in the winter,
raising the price by 50 percent, and cheaper in the summer--by 30 percent. After all, otherwise,
with a 20-percent indexation, we would have to correct the budget by almost R40 billion--either
to increase the program of borrowing, and then we would have to borrow already not R120
billion, but R160 billion next year, or to reduce the investment program and the volume of
production in the coming years.
[Correspondent] Judging by the Gazprom consolidated report, the problem is not always
tariffs. For example, from 30 June 2001 through 30 June 2002, Gazprom received a 20 percent
increase in the price of gas, but the proceeds from sales on the domestic market remained at
almost the same level: R65 billion on 30 June 2002, as compared to R69 billion for the analogous
period last year.
[Ryazanov] These, after all, are the data according to the ISAR [International Standards of
Accounting and Reporting]. There, the data for last year must be corrected by the value of
inflation. And they are corrected by somewhere around 15 percent. But, as you may recall, the
20-percent price increase became effective as of 15 February of this year. And this is where the
decline in revenues came from. If we look at these same data according to the RSBU [Russian
system of bookkeeping and accounting]--that is, without such a correction--then we had a growth
of revenues on the domestic market in the amount of R5 billion. But, of course, the data
according to ISAR more precisely reflect the tendency toward decline in the company's revenues-both as a result of the decline in income from export, and as a result of the inadequate indexation
of prices on the domestic market. But this is a question not for the company's managers--we
cannot influence either the foreign market, or even the domestic market. We can only try to
convince the government not to starve the "cash cow."
[Correspondent] One gets the impression that Gazprom and Itera have come into a streak of
bad luck. It would seem, Itera has returned all the assets to you--both Purgaz and
Armrosgazprom, and it gave away Severneftegazprom on conditions which were clearly
unfavorable for it...
[Ryazanov] I believe that we should not follow the path of 2-3 years ago, when Itera was
piling up debts and saying, "we will settle accounts later." We have coordinated its debt and
signed a settlement agreement in the summer, taking into consideration the fact that Itera had
been of great help to us in the Baltic region and Armenia. But, after all, current payments must
be paid. And the company has the money to do so. For transit of Central Asian gas, Itera's debt
comprised $30 million and, when we limited deliveries there, Itera immediately repaid half of this
sum. Within 24 hours, they repaid the entire debt on Azerbaijan--R200 million--for normal
economic relations. Why hide it, Gazprom has made many concessions to Itera. We gave them
our most solvent market in Sverdlovsk Oblast.
[Correspondent] And now you will take it back?
[Ryazanov] We want to come to agreement on everything. Let them pay normally for
transit. After all, there are also some lucrative markets. Why, for example, is it Itera that sells
gas to Azerbaijan, and not Gazprom or Gazeksport?
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Gazprom may formulate a transit contract for supply of Central Asian gas to Ukraine. We will
supply Turkmen gas to Ukraine on the same conditions as Itera, and perhaps even better ones.
We will start implementing this already as of next year. Ukraine is suffering today because our
limitations on supply of gas to Itera comprise 65 percent. It is not paying us for transit. But
when the NAK [national joint-stock company] of Ukraine has a contract with us, I think we will
not have these problems. Why, utilizing Gazprom capacities, should Itera get a super-profit?
I believe that, in general, Gazprom has done everything for Itera to make the company viable.
At a certain stage, this was justified. They returned our assets, but there should not be any
preferences. Only normal cooperation.
[Correspondent] You are limiting Itera's deliveries to Ukraine, and at the same time are
prepared to give it an export quota to Poland in the amount of almost 0.5 billion cubic meters of
gas. The discussion here centers around the barter scheme of "gas for food," with the Bartimpex
firm controlled by Aleksandr Gudzovaty.
[Ryazanov] There is nothing strange about that. Because, to put it mildly, it is not very
profitable for Gazprom to supply gas under this contract. We do not want to engage in this.
Barter is not for us. But Itera has also come to agreement with the Moscow government, and
with Bartimpex, and says that this is profitable for it. They are promising additional
procurements of food for Moscow, and therefore we have agreed to this scheme.
By the end of the year, we will evidently allow Itera to pump 230-240 million cubic meters of
gas to Poland. And if all the parties are satisfied--and this will also help Gazprom in its mutual
relations with Poland (the entrepreneur Gudzovaty was considered to be an influential figure in
the Polish government--Vedomosti)--then perhaps next year this scheme will work. It is
understandable that we gave away part of our export market. But this is not our market--it will
be supplemental gas for Poland. Our contract volumes to Poland will not be reduced.
[Correspondent] There are no more points of dispute between SIBUR and Gazprom. Did the
monopoly get everything it wanted?
[Ryazanov] We returned 99 percent of everything that concerns assets. The question remains
only in fulfillment of the settlement agreement and repayment of indebtedness. Here, there is a
definite problem, because the sum of the debt, including penalties, is very high. And the SIBUR
business plan, which is currently being revised, shows that these years will be very difficult for
it. First of all, it must reduce expenditures on transport and processing of raw material, and place
its subsidiaries on strict estimate calculation. On a cost estimate, the SIBUR enterprises would
pay less taxes to the local budgets, which would not be to the liking of the governors. But we
cannot make the subsidiary super-profitable, and have SIBUR operate at a loss. We must redistribute, and ultimately consolidate, the main share of profits at SIBUR, so as to settle accounts
with the creditor banks.
[Correspondent] Yakov Goldovskiy's structures had shares in SIBUR itself. Did he return
them?
[Ryazanov] He is returning them gradually... Today, we are structuring and consolidating all
the assets. For now, Gazprom formally owns the controlling packet in SIBUR, but I hope that,
within half a year, we will approach a qualified majority--75 percent of the shares. This will help
us not only to successfully restructure SIBUR's business, but also to subsequently attract a
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strategic investor, all the while retaining actual control.
[Correspondent] Very many packets [of shares] in SIBUR enterprises are today consolidated
in the structures of Gazprominvestkholding. Are you going to re-register them to SIBUR or
Gazprom?
[Ryazanov] In my opinion, SIBUR should own the subsidiaries. Otherwise, this reduces its
capitalization. However, it makes sense to take certain facilities out of SIBUR and transfer them
to the Gazprom balance sheet. For example, do we need to have two transport companies--one
in SIBUR, and the other in Gazprom? Perhaps it would be more correct to create a single one,
which would reduce transport expenditures.
[Correspondent] The SIBUR management wants to return the Surgutskiy GPZ [gas refinery]
to the complement of the holding company, but you hold a different position. Have you come to
a compromise?
[Ryazanov] You know that there is already an agreement with LUKOIL in regard to the
Lokosovskiy GPZ, and one with Rosneft on the Gubkinskiy GPZ.
As for the Surgutskiy GPZ, we have an idea of creating a joint enterprise with Surgutneftegaz
between SIBUR and the Surgutskiy GPZ. Such proposals will be formulated by the end of the
year. The deal was lawfully concluded, Surgutneftegaz paid the money, and it is incorrect to say
that the assets were taken away.
[Correspondent] In the summer, Gazprom and the Kazakh National Gas Company created the
SP [joint venture] Kazrosgaz. Certain minority shareholders of Gazprom have doubts about the
profitability of this enterprise for the monopoly, and fear that the Central Asian gas which has
rushed to export will not be to the benefit of Russian gas export.
[Ryazanov] Our enterprise, Orenburggazprom, where the Kazakh gas is sent for refining,
makes fairly good earnings off of this project. Then, Kazrosgaz takes this gas back and sells it to
Gazeksport at an entirely acceptable price.
We hope to conclude a long-term contract with Kazakhstan for 7 billion cubic meters of gas a
year. It would generally be more correct simply to buy up all the gas from the Karachaganakskiy
and Tengiz deposits and to export it. Next year, export of Kazakh gas will increase to 3-4 billion
cubic meters of gas, and in 2004--to 6-7 billion cubic meters of gas. We would like Kazrosgaz to
itself begin participating in development of the Kazakhstan deposits.
[Correspondent] Are you not afraid that, following the Kazakhstan gas, other Central Asian
gas will begin to flow onto the Gazprom export market?
[Ryazanov] We cannot always keep the genie in the bottle. After all, it will get out
sometime. Furthermore, for Gazprom it is more economically profitable and expedient to export
Central Asian gas than Russian gas. After all, it all depends on who is controlling the export
market, and it is still retained by Gazeksport. Central Asian gas is not subject to excise tax. The
profitability on it is much higher. And all talk of the fact that Kazrosgaz is an enterprise created
to the benefit of the Kazakh side, which does not bring Gazprom any profit, is unfounded.
BIOGRAPHY
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Aleksandr Ryazanov was born in 1953.
In 1979, he graduated from the Moscow Institute of the Petrochemical and Gas Industry imeni
Gubkin and the VZFEI [All-Union Correspondence Finance-Economics Institute].
From 1988 through 1994, Ryazanov served as general director of the Sugrutskiy GPZ.
Ryazanov lost his position because of the ex-head of SIBUR, Yakov Goldovskiy. However,
before leaving the Surgutskiy GPZ, Ryazanov sold 36 percent of the shares in the Sugrugskiy
GPZ to the manager of Surgutneftegaz, Vladimir Bogdanov.
In December of 1999, Aleksandr Ryazanov became a deputy of the State Duma from
Nizhnevartovsk.
In 2001, he joined the Unity faction.
According to Ryazanov, that is when he met the chairman of the board of Gazprom, Aleksey
Miller, to discuss a number of gas-related questions. Later, Miller called Ryazanov and invited
him to come to Gazprom, explaining that "there are many open positions" in the monopoly.
Ryazanov told him that he would come to Gazprom only in the capacity of deputy chairman.
Miller agreed.
[Description of Source: Moscow Vedomosti in Russian -- Business paper published jointly with
The Wall Street Journal and Financial Times; reportedly friendly with Kremlin.]
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Russia: Appointment of Seleznev's Son as Gazprom Manager Seen as Political
CEP20021205000264 Moscow Stringer News Agency WWW-Text in Russian 04 Dec 02
[Unattributed report: "Seleznev's Son Replaces Chernomyrdin's Nephew"]
[FBIS Translated Text]
A. Miller is rigorously investigating the political propriety of his appointments policy. For
example, Kirill Gennadyevich Seleznev has been appointed as head of Gazprom's marketing
department. It is worth noting that the State Duma speaker's son has replaced V.S.
Chernomyrdin's nephew, Viktor Nikolayevich Chernomyrdin, in this post. It is clear that
Gazprom's founder [V.S. Chernomyrdin], who is currently ambassador to Kiev, is already of no
interest to the president's "Petersburg" entourage.
The St. Petersburg connection is also indicated by the fact that immediately after his
appointment, the 28-year-old graduate of St. Petersburg University, who specialized in impulse
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devices and rotor lines, was immediately sent a diploma by State Courier Service from this higher
educational establishment in "finance and credit" (so that in the future no questions would be
raised about him working in this area).
On the basis of the above, we can have no doubt that Gazprom funding for Seleznev senior's
Socialist Party will be guaranteed.
[Description of Source: Moscow Stringer News Agency WWW-Text in Russian -- Website
devoted to compromat and exposes of politicians; reportedly supported by former Yeltsin
bodyguard Korzhakov and the Yukos oil company.]
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Unclassified
Document ID: CEP20021203000121
Gazprom to spend $5.7 billion on Northern European pipeline
CEP20021203000121 Moscow Interfax in English 1121 GMT 3 Dec 02
[FBIS Transcribed Text]
MOSCOW. Dec 3 (Interfax) - Gazprom plans to spend $5.7 billion on a project to build the
Northern European gas pipeline, Gazprom CEO Alexei Miller said at a press conference on
Tuesday.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Russia: Gazprom cuts Itera gas exports to Ukraine by 65 percent
CEP20021202000345 Moscow Interfax in English 1719 GMT 2 Dec 02
[FBIS Transcribed Text]
MOSCOW. Dec 2 (Interfax) - Russia's gas company Gazprom has cut exports of Central Asian
gas to Ukraine by the Itera group by 65%, given Itera's debts to Gazprom for services to store and
transport gas to Ukraine, Gazprom announced in a press-release.
On November 25, 2002, Gazprom reduced Itera's exports to Ukraine by 50%. However, to this
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day, Itera has not settled its debt to Gazprom, the press-release says.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Unclassified
Duma Speaker Says Government Unlikely to Adopt Gazprom Reform at 19 Dec Session
CEP20021129000347 Moscow Kommersant in Russian 29 Nov 02 P 2
[Report by Irina Rybalchenko: "Gazprom Reform May Be Postponed Again"]
[FBIS Translated Text]
Yesterday [28 November] State Duma speaker Gennadiy Seleznev spoke at a conference of the
"Gas Vertical" parliamentary association. He stated that the solution to the question of the
liberalization of the gas market, to be discussed at the 19 December government session, is
unlikely to be adopted.
The reform of Gazprom must be carried out taking into consideration the interests of absolutely
all consumers -- both communal domestic and industrial consumers. "The 'Gas Vertical'
association, whose members include deputies, Federation Council members, independent gas
producers, and governors of gas-producing regions, will help take account of these interests to the
maximum degree," Gennadiy Seleznev stated yesterday. And he added: "The reform must be
such that there is no impression that people's pockets are again being emptied." Meantime,
according to Gennadiy Seleznev, the government has still not sorted out the key issues -- rules for
gas transportation and the setting of tariffs. The issue of the liberalization of the Gazprom shares
market has also not been resolved.
In addition, there is no consensus within the gas industry. The independent producers (Itera and
Nortgaz and the major oil companies producing associated petroleum gas -- Rosneft, TNK, and
LUKOIL-Surgutneftegaz) consider that there should be competition in gas production and
marketing and tariffs should not be set by the state but by the market. Gazprom itself is against
handing over production and sales to separate enterprises. Valeriy Yazev, chairman of the State
Duma gas subcommittee, supports it.
Viktor Boroday, chairman of the "Gas Vertical" parliamentary association, proposes dividing
the gas market into regulated and unregulated markets (for communal domestic and industrial
consumers respectively). "Gas Vertical" members also insist that independent producers receive
an export quota of 30% of the total volume of gas produced by them.
The Federal Energy Commission [FEK] is in favor of increasing gas tariffs. According to its
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deputy chairman, Oleg Zhilin, the average adjusted price for gas in the Russian domestic market
this year is $19.8 for 1,000 cubic meters. On the border with Western Europe it is 400% higher
and on the Russian border with Kazakhstan 100% higher. "Artificially low gas prices distort
heating and electricity prices. And there is no reason to finance high-earning sectors -- the
chemical, petrochemical, and aluminum industries -- through cheap gas," he said. At the same
time, he thinks, it is in the state's interests to maintain its monopoly over gas exports.
"I do not think the government will adopt some strategic decision on Gazprom's reform on 19
December," Gennadiy Seleznev said recapping. But "Gas Vertical"s' members will try to
formulate proposals of their own for the upcoming reform.
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]
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Unclassified
Russia: Gazprom's net profit down 55.8% Jan-Sep to R34.224 billion
CEP20021128000192 Moscow ITAR-TASS in English 1419 GMT 28 Nov 02
[FBIS Transcribed Text]
MOSCOW, November 28 (Itar-Tass) - The Russian gas giant Gazprom's net profit in JanuarySeptember slumped by 55.8 percent on the year to 34.224 billion roubles, Prime-Tass reports with
reference to the company's own statement.
Gazprom's gross profit in the period was 40.266 billion roubles against 118.155 billion roubles
in January-September 2001.
Income from the sales of goods and services in January-September reached 429.545 billion
roubles, against 363.3 billion roubles in the same period last year.
Production costs in the first three quarters of 2001 were 156.496 billion roubles against 102.838
billion roubles a year earlier.
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
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Unclassified
67
Russia: Gazprom Board Meeting Addresses Problem of Drop in Prices on Russian Gas;
Plans North European Pipeline
CEP20021120000230 Moscow Rossiyskaya Gazeta in Russian 20 Nov 02 P 2
[Report by Aleksey Chichkin: "Europe Undressing Gas Producers"--taken from html version of
source provided by ISP.]
[FBIS Translated Text]
Yesterday's meeting of the Gazprom governing board took place on a background of
catastrophic decline in export proceeds of the holding company, which is one of the main donors
to the Russian treasury. The loss of one-fifth of the income in 9 months alone is comparable
only to the scope of the well-known world fuel crisis of 1973.
And so, the board of OAO [joint-stock company of the open type] Gazprom adopted the
decision to undertake the implementation of the North European gas pipeline project (SEG). As
the OAO Gazprom press service reported, the board meeting approved the preliminary schedule
of its implementation. We may recall: The SEG is to be laid along the bottom of the Baltic, with
"outlets" to almost all the countries of the region, as well as to Kaliningrad Oblast (which, as the
Scandinavian mass media believe, will finally cure its "post-Soviet energy hunger"). Further,
Transbalt is planned to extend to Germany, Belgium, and even Great Britain. Altogether, plans
call for supplying over 10 billion cubic meters a year along this route after 2007, with the annual
currency proceeds "set" in the amount of $1-$1.5 billion. But a slight hitch is arising with the
income, to put it mildly. Throughout all of Europe, valuations on Russian gas are declining, and
this decline will most likely last for a long time to come. This is primarily due to the strict
limitations on sale of Russian gas.
As of 1999, re-sale of gas by any states and companies has been allowed on the European
market within the scope of the European Union's long-range program on liberalization of the gas
market in Europe. According to Gazprom data, for a number of years now, losses to the Russian
side from such "liberalism" have exceeded $500 million per year.
But we must note that the European valuations on our gas are over six times higher than in
Russia itself! That is why we must increase gas deliveries abroad: In the past 14 months, they
have increased in volume by approximately one-third. Were it not for such growth, the "gas
dollar" revenues for January-September would have been not $11 billion, but almost a third less.
In the course of the recent "business breakfast" at Rossiyskaya Gazeta, the head of the holding
company, Aleksey Miller, admitted that many European companies are interested in buying our
gas practically for a pittance. "Liberalization" of the European market, according to A. Miller,
drives down the price primarily on Russian "blue fuel," because its relative share in gas provision
of the EU [European Union] region is almost one-third, and in Eastern Europe it exceeds 80
percent. We may recall that, in the Fall, the Government of the Russian Federation decided to at
least somehow support the sector by reducing the tax on export of gas from 10 to 5 percent. But
this step only forestalled the decline of the "gas dollar" revenues.
The main battles on this question will be continued at the upcoming EU-Russia summit
68
meeting to be held in Brussels. It appears that this is specifically why the "gas problem" was not
touched upon in a bilateral context at the Paris negotiations of the Russian government
delegation.
[Description of Source: Moscow Rossiyskaya Gazeta in Russian -- Government daily
newspaper.]
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Russian government may buy up Gazprom shares
CEP20021121000133 Moscow Interfax in English 1136 GMT 21 Nov 02
[FBIS Transcribed Text]
MOSCOW. Nov 21 (Interfax) - The Russian government may possibly buy up shares in
Gazprom that are currently owned by the gas concern's subsidiaries, a source on the Gazprom
board of directors told Interfax on Thursday.
According to the source, at the moment the state owns about 38% of Gazprom shares and a
significant packet is in the hands of the company's subsidiaries. In total, the Gazprom shares
owned by the state and the shares owned by the subsidiaries amount to over 50%.
The source noted that there are two ways to resolve this problem: the first - to leave everything
as it is and coordinate the management of the shares owned by the state and the Gazprom
subsidiaries; and the second - for the state to buy up Gazprom shares belonging to the subsidiaries
and to receive controlling shares in the company.
"There will not and cannot be any nationalization of the company's shares," the source said.
However, the source stressed that the process of liberalizing the Gazprom share market should
not depend on the option chosen by the state.
As reported earlier, the Gazprom board of directors on Tuesday called for the speedier
liberalization of its share market. This will be possible if the state has at least 51% of the stock.
The board members agreed to remove restrictions on dealing in the company's shares in the near
future.
Earlier, at the first stage of liberalization of the Gazprom share market, it was planned to lift all
restrictions on the domestic market, allowing the shares to be traded on all floors with a license
from the Federal Securities Commission.
Then it was proposed to abolish the permission system for foreigners to acquire the company's
shares and to increase the share of non-residents in the Gazprom capital to the 20% limit set by
law, and also fully or partially end the division of the company's market into domestic and foreign
sections.
According to information from January 2002, the main Gazprom shareholders are the state 38.37%, Russian corporate entities - 33.32%, private investors - about 16% and foreign investors
- 11.5%.
[Description of Source: Moscow Interfax in English -- non-government information agency
69
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Russia: Gazprom calls for 40 percent increase in domestic gas prices in 2003
CEP20021120000250 Moscow Interfax in English 1547 GMT 20 Nov 02
[FBIS Transcribed Text]
ÿIF2757 3 NWS 115 [AE] ID#:0000000004 (C)INTERFAX 2002. RUSSIA-GAZPROMRATES-INVESTMENTS . RUSSIA-GAZPROM-RATES-INVESTMENTS Gazprom wants
domestic prices to go up 40% in 2003
YAMBURG. Nov 20 (Interfax) - Increasing domestic gas prices in 2003 by 20% as suggested
by the Russian Economic Development Ministry rather than by 40% as suggested by Gazprom
will entail a sharp drop in the country's gas output, deputy chairman of Gazprom's board of
governors Alexander Ryazanov told a meeting in Yamburg of the Federation Council's Natural
Monopolies Committee on Wednesday.
Ryazanov quoted experts as saying that Russia's annual gas output will drop from 520 billion
cubic meters to 490 cubic meters in two years unless prices increase by the larger amount.
"We want investments rather that a quick buck. Gazprom has to invest 188 billion rubles in the
gas industry in 2003," he said.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Russia: Gazprom calls for 40 percent increase in domestic gas prices in 2003
CEP20021120000250 Moscow Interfax in English 1547 GMT 20 Nov 02
[FBIS Transcribed Text]
ÿIF2757 3 NWS 115 [AE] ID#:0000000004 (C)INTERFAX 2002. RUSSIA-GAZPROMRATES-INVESTMENTS . RUSSIA-GAZPROM-RATES-INVESTMENTS Gazprom wants
domestic prices to go up 40% in 2003
YAMBURG. Nov 20 (Interfax) - Increasing domestic gas prices in 2003 by 20% as suggested
70
by the Russian Economic Development Ministry rather than by 40% as suggested by Gazprom
will entail a sharp drop in the country's gas output, deputy chairman of Gazprom's board of
governors Alexander Ryazanov told a meeting in Yamburg of the Federation Council's Natural
Monopolies Committee on Wednesday.
Ryazanov quoted experts as saying that Russia's annual gas output will drop from 520 billion
cubic meters to 490 cubic meters in two years unless prices increase by the larger amount.
"We want investments rather that a quick buck. Gazprom has to invest 188 billion rubles in the
gas industry in 2003," he said.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Unclassified
Document ID: CEP20021114000388
Entry Date: 11/14/2002
Version Number: 01
Gazprom Deputy CEO Ryazanov on Plans to Develop Electricity Enterprises
CEP20021114000388 Moscow Nezavisimaya Gazeta in Russian 14 Nov 02 P3
[Article by Varvara Aglamishyan: "Gazprom Wants to Become an Electricity Holding
Company"]
[FBIS Translated Text]
The gas monopoly intends to develop its own electricity enterprises.
In the future Gazprom should become a gas and electricity holding company. Yesterday the
deputy CEO of the company, Aleksandr Ryazanov stated that the gas monopoly is thinking now
about founding its own electricity enterprises. So the building of gas and energy structures could
become an affair of the next five to seven years.
The intention of the monopoly can be largely explained by the fact that in the next few years
regular increases in the price of electricity are expected and in this situation "the burning of its
own gas without the participation of RAO YeES [The Russian Joint Stock Company United
Energy Systems] could save them quite a bit of money". For right now the electricity holding
company gets 140 billion cubic meters of gas annually at a price of 20 dollars per thousand cubic
meters. According to the calculations of the gas company people, only 20-25% of the expenses of
RAO YeES are needed for the production of electricity. 70% are eaten up by the network, which
in addition, is in bad condition and is riddled with subsidies, of which Gazprom has had enough.
The gas company people do not want to be dependent on such expenses.
71
However, that which is a strategic perspective for Gazprom is a vital necessity right now for its
petrochemical "affiliate" SIBUR. That company announced its intention to obtain a $30 million
credit for the development of its electricity output. In the words of Ryazanov, head of the board
of directors of the Gazprom petrochemical company, SIBUR plans to build its own enterprises,
either as factory stations or on parity basis with the petroleum companies. The acquisition of
already existing RAO YeES assets is not planned, except maybe in exceptional cases, such as the
TETs [Thermo-Electric Station] located near the Tobolsk NKhK [Petrochemical Complex].
Tentatively an investment of around $300 million is planned for the development of their own
electric generation, bearing in mind that the entire SIBUR investment for the period up to 2010,
should not exceed 500 million dollars. In the words of Dmitriy Mazepin, president of SIBUR,
such attention to electricity projects can be explained by the fact that right now in the cost of
production of the company, 40-60% of the expense comes from the payment for electroenergy.
Because the future of YeES and its restructuring are quite unclear and to bank on something for
years ahead is impossible, SIBUR is not running a risk and is thinking of creating new
production.
However it is not all that simple. Plans to make new output in fact signify an attempt to weaken
the meaning of Tyumenenergo in particular and other YeES enterprises as a whole in the activity
of SIBUR.
We recall that at one time the activity of Tyumenenergo, which ceased supplying electricity to
enterprises separating from SIBUR, which indirectly provided for the return of property back into
the hands of Gazprom. The shutdown of gas refining plants ("taken away" by the former
petrochemical leadership of SIBUR-Tyumen, which was not affiliated with SIBUR) could not
have happened at a better time for the gas monopoly. Of course the General Director of
Tyumenenergo, Artem Bikov, was not acting out of special love for Gazprom, rather only to
collect debts owed for electricity. But as Nezavisimaya Gazeta sources claim, if there had not
been a direct order from the Kremlin, then Gazprom would never have expected the yielding of
such a valuable debt to it again, which in the end provided for the return of assets to it. Taking
into consideration this experience, SIBUR is taking care of its independence now.
Inside Tyumenenergo, they are reacting calmly to the statement of the SIBUR leadership. "These
statements are louder than the actions that follow from it", noted the head of the energy company,
Artem Bikov. In his opinion, the development of its own electricity generation is not a first
priority problem for SIBUR.
As far as the present financial position of SIBUR is concerned, recently the board of directors of
the company examined the results of the operation of the petrochemical company in the first 9
months of this year. The loss in this period came to 4.2 billion rubles, but in spite of this now the
company has almost reached the level of production it had before the loss and return of its assets.
The indebtedness of SIBUR and its affiliates is 49 billion rubles, 27 billion of which are owed to
Gazprom (including fines and penalties), as well as 350 million dollars owed to the banks.
[Description of Source: Moscow Nezavisimaya Gazeta in Russian -- Daily Moscow newspaper
aimed at an elite audience and controlled by Boris Berezovskiy.]
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72
Russia's Gazprom sets out plans for 2003
CEP20021119000039 Moscow Interfax in English 0802 GMT 19 Nov 02
[FBIS Transcribed Text]
MOSCOW. Nov 19 (Interfax) - The Gazprom executive board has confirmed the company's
planned level of gas production in 2003 at 531.7 billion cubic meters, while in 2002, according to
early figures, production will amount to 521.5 - 522 billion cubic meters, the company said in a
press release.
The board, which met on Monday, decided to concentrate financial resources next year to ensure
growth in production.
Production growth will mainly come from bringing the first launch complex at the Zapolyarnoye
field up to design capacity. In addition, the return to Gazprom's control of several gas production
companies will also influence the company's gas production, the company considers.
Gazprom plans to launch a number of new items of infrastructure in the winter. In particular, the
second phase of the fifth and sixth compressor stations at the Yamburg field and a compressor
station at the Yamsoveisky field.
In 2003 it is planned to launch another gas processing unit at the Zapolyarnoye field, the TabTakhinsky area at the Urengoi field and also the Yen-Yakhinskoye and Vyngayakhinskoye fields.
The board also decided to include the equipping of the South Russian field and the development
of programs to develop fields in Tomsk region and Eastern Siberia in the company's investment
program.
In addition, the executives decided to start to implement the Northern-European gas pipeline
project. At the meeting the board confirmed a plan of work and a schedule for the project. Talks
will be held with all interested parties in the near future so as to coordinate joint activity.
The project to build the Northern-European gas pipeline involves laying a pipe to Europe along
the bed of the Baltic Sea and also the construction of marine pipeline tributaries to supply gas to
Kaliningrad region, Finland, Sweden and Denmark. As part of the project it is also planned to
supply gas to Britain. The implementation of this project will make it possible to directly link the
Russian gas transport system with the European gas network.
The raw material base for the Northern-European pipeline will initially be fields in the NadymPur-Tazovsky region of Yamalo-Nenets autonomous district, and in the future - in Yamal, the
Ob-Tazov bay and the Shtokmanov field. It is planned to start supplying natural gas in 2007 and
to reach full capacity in 2009.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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73
Liberalization of Russian gas market first step to liberalizing Gazprom market
CEP20021115000336 Moscow Interfax in English 1824 GMT 15 Nov 02
[FBIS Transcribed Text]
MOSCOW. Nov 15 (Interfax) - The liberalization of Russia's gas market will be the first step
toward liberalizing the Gazprom shares market.
"We should make it possible to produce and sell gas to companies other than Gazprom," said an
Interfax source.
According to the source, on December 19, the government intends to discuss the gas market
liberalization issue, and in February it will examine the national energy strategy. The discussion
of the strategy issue has been postponed until February, because the proposals earlier submitted to
the government lacked clear-cut points on how Russia will develop its energy sources, and what
the balance of various sources of energy, gas included, will be like.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Unclassified
Miller's Role in Gazprom Seen; No Reform Expected Until Putin's Second Term
CEP20021113000203 Moscow Izvestiya in Russian 12 Nov 02
[Article by Aleksey Makarkin, head of the analytical department of the Center of Political
Technologies: "Inventory Taker and Cleaner" -- taken from HTML version of source provided by
ISP]
[FBIS Translated Text]
When people talk about the Gazprom reform, they imply first of all the company's division into
extracting and transportation components. This will not happen in the immediate future. At
least not until the new management of the gas monopolist has finished the process of establishing
real control over the company's assets and the authorities have made a political decision to carry
out this reform. It seems that Miller and his team will remain "transitional period" people for a
long time. At least until the beginning of Vladimir Putin's second presidential term.
Rumors about Aleksey Miller's imminent resignation have been circulating for about one of the
one and a half years that he has spent as chairman of the Gazprom Management Board.
However, this resignation has never become a fact. And the point is not only that Miller is a
protege of Vladimir Putin. An equally important fact is that the present Gazprom Management
Board head quite successfully copes with a job assigned to him: the job of "cleaner" and
"inventory taker."
74
During his term, the company's top management was subjected to an unprecedented purge.
Almost all the board deputy chairmen and subdivision heads, as well as presidents of several
subsidiaries and regional branches were brushed away (for example, the resignation of Viktor
Shchugorev, the long-time Astrakhangazprom head, was as important an event for that oblast as
Rem Vyakhirev's departure at the federal level).
A special character of the Miller team is a forced impromptu method based on which it was
recruited. The appointments were made "on the run." After all, the Gazprom chief never before
managed the structures of this level. As a result, the "key" Management Board deputy chairman
for finances, Gazeksport head, and Sibur presidents have been changed twice this year, while
many positions in the company are occupied by Miller's old friends from St. Petersburg.
Specifically, Chief Accountant Yelena Vasilyeva occupied the same position at AO [joint-stock
company] Baltiyskaya Truboprovodnaya Sistema [Baltic Pipeline System], which was managed
by Miller. In the same company, Marketing Department Chief Kirill Seleznev used to head a tax
group. Corporate Finance Department Chief Andrey Kruglov worked together with Miller at the
St. Petersburg City Administration. Asset Management Department Chief Aleksandr
Krasnenkov, too, knows Miller well from St. Petersburg days: He was general director of the
Astoriya Hotel. Yet, despite their lack of familiarity with the gas sector the Miller management
has not yet made any major mistakes.
The "purge" was accompanied by the restoration of the company's control over a group of assets
that were separated or in the process of being separated. The most reverberating was the SIBUR
case, which involved a criminal investigation against Yakov Goldovskiy and Yevgeniy Koshits,
respectively, former president and vice president of the Gazprom's subsidiary. In the end,
Gazprom restored its control over the SIBUR central apparatus. It is "pulling back" the latter's
components (which were already grabbed by new owners) and initiated the signature of an
amicable agreement with SIBUR's creditors (although one of them, Alfa Bank, is against it).
Gazprom has managed to restore its control -- even if not in so spectacular a manner -- over its
other subsidiaries, such as Zapsibgazprom, Purgaz, and Severneftegazprom. The fate of these
companies sparked a protracted conflict between Gazprom and Itera, one of the most famous
"Gazprom-related" structures closely connected with the Vyakhirev management. Finally, the
Miller team managed to agree that the controlling stakes in these companies would go to
Gazprom but Itera would receive compensation: partially in cash and partially shares (in the
companies where Gazprom was a minority shareholder).
Non-Core Assets
One of the most significant issues for Miller was the one of non-core assets, which range from
metallurgical enterprises owned by Gazprominvestkholding to the NTV television company and
other Media-Most structures taken over by Gazprom at the very end of the Vyakhirev era. To all
appearances, they will not be treated in the same way.
There is good reason to believe that the company will retain its controlling stake in NTV at least
until the 2004 presidential elections. Political considerations will play a key role here. At the
same time, a new major minority shareholder may appear inside the company. After all,
increasing investment attractiveness of the media holding company was exactly the goal of a
recent deal to buy from Vladimir Gusinskiy his stakes in the companies belonging to MediaMost.
75
At the same time, the new management of the company has from the very outset maintained
fairly good relations with Alisher Usmanov from Gazprominvestkholding, which controls a group
of enterprises from the metallurgical sector. At least, there have been no reports on major
disagreements between Miller and Usmanov. On the contrary, it is Gazprominvestkholding that,
according to mass media, conducted on Gazprom's behalf negotiations with Itera on the
aforementioned disputed assets. In other words, the preservation of partnership is at issue here.
Thus, Aleksey Miller has fulfilled his "minimum program": His company, whose integrity was
open to question, is on its way to restore control over the "half-separated" assets. However, there
are still serious problems with the "maximum program," which concerns effective management of
these assets.
A System of Alliances and Prospects
The part played by Miller in Gazprom is "czar's man." This, however, does not mean that he just
performs the functions of a high-level executor. The logic of fighting among various Kremlinrelated clans makes him look for allies in corporate circles. Hence the rapprochement with
Rosneft chief Sergey Bogdanchikov and Tuva Senator Sergey Pugachev, who retains
Mezhprombank in the sphere of his influence. With Rosneft, Gazprom is connected by a series
of joint projects to develop gas and oil deposits in Yamalo-Nenetsk Autonomous Okrug and on
the Barents Sea shelf. Gazprom conducts a dialog with Mezhprombank on the latter's
involvement in a whole range of Gazprom programs ranging from a system of payments for gas
buyers from the CIS [Commonwealth of Independent States] to the restructuring of credit
indebtedness.
It is indicative that neither Bogdanchikov nor Pugachev belong to the so-called "Yeltsin family."
On the contrary, they try to become an alternative group that has access to the incumbent
president. It is also true, however, that compared to the well-structured "Yeltsin family,"
representatives of the "alternative" business elite (it is sometimes referred to as "St. Petersburg"
even though not all of its members are connected with our northern capital) seem much more
disconnected and less capable of effective coordinated actions. But then, the advantage of direct
access to the head of state should not be underestimated.
Miller and Reform
Gazprom's political significance is the main barrier hampering its reform. The authorities do not
want to touch a company remaining one of the main budget donors and capable of making a
considerable contribution to any election campaign -- and not just thanks to its financial resources
but also with the help of its extensive network of regional branches. Also significant is
Gazprom's international role, although the gas company has been used recently in a more
pragmatic manner in this area. As a result, an expensive and risky project to build a gas pipeline
running across Belarus and bypassing Ukraine is becoming increasingly uncertain (which boosts
the chances of an option to modernize the existing gas pipeline running across Ukrainian
territory). It seems that Gazprom's international expansion will not be so active in the immediate
future as it was planned under Vyakhirev.
Another problem plaguing Gazprom is its multistage decision-making process, which involves
not only its management but also presidential and government structures. It is not surprising that
the present Gazprom management prefers to talk about financial indicators and technical
condition of the company's facilities rather than reform plans. It is this fact that largely explains
76
why Miller and his team are perceived as "transitional period" people.
Will Miller manage to go beyond his present role as high-level executor? By style, he is not a
clear leader but rather a team member. Besides, the general logic of the monocentric system
being created by Putin prevents creation of new "appanage princedoms" or "semi-independent
fiefdoms" in state departments and structures with state participation. Vyakhirev was not
removed only for "Vyakhirev No. 2" to be created -- even if the latter has St. Petersburg roots.
[Description of Source: Moscow Izvestiya in Russian -- One of Russia's most prominent dailies;
controlled by Vladimir Potanin although Lukoil owns a minority share.]
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Unclassified
Russia: Gazprom says aiming to increase long-term exports by 20 percent
CEP20021105000055 Moscow Interfax in English 1028 GMT 5 Nov 02
[FBIS Transcribed Text]
MOSCOW. Nov 5 (Interfax) - Gazprom aims during the period to 2010 to increase gas exports
under long-term and government-to-government contracts by 20%.
Gazprom will be producing about 100 billion cubic meters (bcm) of gas annually at new fields
by that time. Total Russian gas production, including by independent producers, should be 655
bcm, Vladimir Rezunenko, a Gazprom executive, told the second international conference on
Russian and CIS hydrocarbon exports.
The most promising new fields will be located on the Yamal Peninsula and in Eastern Siberia,
the Far East and offshore in the Kara and Barents seas.
Rezunenko said gas produced at the new fields would cost the end consumer in Russia more
than it does today, because the fields in question are a long way from established infrastructure
and their reserves are harder to access.
Gazprom will need more than 21,000 km of large-diameter trunk pipeline tubes to expand gas
supplies to Russia and abroad, build new submarine pipelines and links with existing pipeline
networks by 2020. The company will also have to replace 23,000 km of existing pipelines and
pipeline branches and modernize 25,000 megawatts of gas pumping equipment. All of this will
require a considerable amount of investment, Rezunenko remarked.
Gazprom is currently delivering two major pipeline projects - the Yamal-Europe route and the
Blue Stream project for a pipeline from Russia to Turkey. The North Europe pipeline project is
on the drawing board.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
77
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Unclassified
Source-Date: 11/01/2002
Russia's Gazprom considering 7 percent production cut over pricing issue
CEP20021101000327 Moscow Interfax in English 1645 GMT 1 Nov 02
[FBIS Transcribed Text]
MOSCOW. Nov 1 (Interfax) - Russian gas giant Gazprom is considering the possibility of
reducing gas production 7% to increase efficiency if tariffs are not raised.
A source close to the company's board said that directors on Thursday discussed Gazprom's
development strategy.
Gazprom considers it necessary to raise gas tariffs 40% for industrial consumers and 20% for
the population. This will enable the company to raise 188 billion rubles in investment to sustain
output at 530 billion cubic meters.
If tariffs cannot be raised, Gazprom proposes the government lower output targets from 530
billion to 490 billion - 500 billion cubic meters a year. This will enable Gazprom to increase its
efficiency by removing the need to raise a significant volume of investment.
Gazprom would also like to support its investment program with the sale of 10 billion cubic
meters of gas at free prices next year (3.5% of supplies to the domestic market). It is planned that
the gas distribution company Mezhregiongaz will continue to hold gas auctions, at which the
market price is an average of 35% higher than that set by the government.
The company could receive an additional $100 million in revenue from the sale of 10 billion
cubic meters of gas, Valery Nesterov, an analyst with Troika Dialog, has said. A considerable
volume of funds could also be raised from the rise in export prices.
The Gazprom budget envisages the export price in 2003 at $97 per 1,000 cubic meters, while
analysts expect the price to be $100-110.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Russia trade minister: Liberalization of Gazprom share market 'question of time'
78
CEP20021030000307 Moscow Interfax in English 1417 GMT 30 Oct 02
[FBIS Transcribed Text]
MOSCOW. Oct 30 (Interfax) - A Russian minister promised on Wednesday that the government
will not take too long to liberalize the market for shares in Russian natural gas monopoly
Gazprom.
"Liberalization of the Gazprom share market is necessary, only it's a question of time,"
Economic Development and Trade Minister German Gref told a meeting in Moscow.
He said the Cabinet was debating the matter currently. "I won't name any concrete dates now,
but I don't think this process is being dragged out," he said.
In speaking about an anticipated restructuring of Gazprom, he said Russia should put an end to
price discrepancy on its home market, among other things cross subsidizing should be ended.
He also said the consideration by the Cabinet of a proposed energy strategy had been scheduled
for this week, but had been put off as the draft document needed amendment.
He said the ratio between export duties on crude oil and oil products was one of the points to be
amended.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Unclassified
Russia's Gazprom to liberalize share trade
CEP20021026000004 Moscow Interfax in English 2124 GMT 25 Oct 02
[FBIS Transcribed Text]
MOSCOW. Oct 26 (Interfax) - The board of directors of Russian natural gas monopoly Gazprom
has two main items on the agenda for an October 31 meeting - liberalization of the market for
Gazprom shares and the state of the Russian gas market, a Moscow source said on Friday.
"I can say that, as regards the former:, the proposals are essentially for the accelerated
liberalization of the market for [Gazprom] shares: All conditions are ripe for this," the source told
Interfax.
"I think that the state de facto controls more than 55% of Gazprom shares," he said. This, he
said, enabled the government to seek the earliest possible access to Gazprom shares market for
nonresidents.
He said liberalization of the market would be of political as well as economic significance.
"The Russian president has personally promised this to investors, a government commission was
set specially for this in spring 2001, but nothing has happened. It's clear that there's no reason for
any more procrastination," the source said.
Liberalization means that "many of the financial problems of the company will be solved," he
said. "I don't exclude that, as early as in 2003, the price of the shares will double and reach 1.5 to
79
two dollars. For this reason the sale by the state of even 2% of shares would make it possible to
draw very substantial investment into the company for solving its business problems."
Also, short of investment, Gazprom needs a free gas market in Russia, according to the source.
"Only if one has seen and assessed commercial demand for gas can one cite any arguments in
favor of:a tariff policy," the source said.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Russia: Consumer Accounting With Gazprom By Non-Monetary Means Increasing
CEP20021018000269 Moscow Nezavisimaya Gazeta in Russian 17 Oct 02
[Report by Polina Kanevskaya: "Gazprom To Be Paid in Paper; Consumers Settling Accounts For
Gas With Promissory Notes"]
[FBIS Translated Text]
As the all-knowing statistics have determined, Gazprom is not only insisting on a large-scale
increase in tariffs on its products, but is also tightening control over payment for the fuel that has
already been supplied. And the consumer, although he is paying more, is trying to settle
accounts with the aid of barter and various financial surrogates. Moreover, the increase in
volumes of non-monetary form of accounting with the gas monopoly has already taken on
entirely tangible proportions. According to data publicized by Goskomstat [State Committee on
Statistics] yesterday, the volume of products of the gas monopoly paid for in August comprised
100.4 billion rubles (R), which is 9.1 percent more than the month before. Revenues in "live"
money increased by 7.3 percent as compared with July. But this is far from the whole truth
about the way in which consumers settle their accounts with the monopoly.
At the same time, the relative share of promissory notes in the overall volume of payments for
products by consumers increased by 58.2 percent. Mutual offsets increased by 11.1 percent, and
barter--by 3.3 times. On the whole, the relative share of accounting in monetary means at
Gazprom in August declined by 1.5 percentage points as compared with July. The volume of
promissory note accounting increased proportionately.
Meanwhile, Gazprom itself is trying to reduce the volume of funds raised for its own
promissory notes. By the end of the year, the monopoly plans to issue its own loan bonds on the
domestic market for a sum of R5 billion. The final date for the start of the bond offering will be
approved by the Gazprom board of directors after completion of state registration of the emission
with the FKTsB [Federal Commission on the Securities Market]. With this emission--which has
been almost 2 years in the making--Gazprom plans to mark the beginning of development of a
market in its bonds. As the head of the Gazprom press service, Igor Plotnikov, told
Nezavisimaya Gazeta, the emission of domestic bonds is good for the company in that it "makes
80
it possible to diversity sources of raising capital, while at the same time extending the terms and
reducing the cost of this fundraising." Gazprom is always in need of borrowing to replenish its
working capital, but now most major Russian banks which work with the monopoly have already
exhausted their credit standards for a single borrower. And a domestic bond issue allows the gas
monopoly to attract other resources of domestic business.
As Mikhail Zak, an analyst with the Prospekt Investment Company, told Nezavisimaya Gazeta,
this is "a convenient method for the company, which requires huge funds for introduction of that
same Zapolyarnyy deposit." Especially since the effectiveness of such a method of raising funds
on the domestic market has already been proven by the Alrosa Diamond Company, as well as by
a number of metallurgical companies.
[Description of Source: Moscow Nezavisimaya Gazeta in Russian -- daily Moscow newspaper
aimed at an elite audience and controlled by Boris Berezovskiy]
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Russian Far East Energy Development, Gazprom Promissory Note Market Eyed
CEP20021018000286 Moscow Stringer News Agency WWW-Text in Russian 4 Oct 02
[Unattributed article: "The Volume of Gazprom Promissory Notes Is Comperable to the Money
Supply of the Russian Federation"]
[FBIS Translated Text]
An agreement has been reached between Deripaska and Chubays that Rusal will be the
strategic investor for the Bureya hydroelectric power station in the Far East. Previously Chubays
planned that he would complete construction of the Bureya Hydroelectric Power Station JointStock Company jointly with the Ministry of Railways, but with Aksenenko's departure these
plans have fallen through.
The stimulating motive for such an act by Deripaska comes from Rusal's plans to construct a
new aluminum plant in the region. In any event it will not lose out. If it does not build the plant -it will still obtain control over the Far Eastern energy market. This is also a highly promising
idea. After all the joint-stock company has itself admitted that a fully-fledged energy market
cannot be created in socially peculiar Primorye. And this means that the investor who invests in
regional energy today will be able to control the economy of the Far East for 50 years.
So far Deripaska has not been able to gain access today's most popular source of receipts for
the future financing of elections -- Gazprom promissory notes.
At present Gazprom's promissory note program is changing greatly (and the volume of the gas
concern's promissory notes is comparable to the monetary supply in the Russian Federation).
81
Until 2002 promissory notes were handled by Mezhregiongaz, where Deripaska set up his
persistent assistant -- Karklin. The latter, moreover, has long been well acquainted with
Zaostrovtsev. After implementing the promissory note schemes, Mezhregiongaz only shared the
profit with "big Gazprom." Now, however, Mezhregiongaz has been pushed aside from this
program. Gazprom's new, Petersburg leadership is working with certain firms (Veles Kapital,
Kalugaglavsnab and YuNEP). Notably, YuNEP Director General Mikhaylov is the husband of
Mezhregiongaz's planning department head. The greatest turnover is that of Veles: 9 billion
rubles for the first quarter (this represents half of Gazprom's entire current promissory note
program). This scheme has already made Mezhregiongaz's activities unprofitable, which attests
that "promissory note funds" go into a "special program," not associated with Gazprom's needs.
[Description of Source: Moscow Stringer News Agency WWW-Text in Russian -- website
devoted to compromat and exposes of politicians; reportedly supported by former Yeltsin
bodyguard Korzhakov and the Yukos oil company]
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Unclassified
Russian Article Concludes: 'Putin and Gazprom Still Need' Kuchma
CEP20021016000341 Moscow Kommersant in Russian 16 Oct 02
[Report by Petr Netreba: "Gazprom Without Kuchma" -- taken from HTML version of source
provided by ISP]
[FBIS Translated Text]
No particular sympathy for Leonid Kuchma is harbored at either the Kremlin or at the White
House on Krasnopresnenskaya Naberezhnaya Street. Nevertheless, Russia has gotten down to
solving the gas issues in Russian-Ukrainian relations -- the reduction of gas theft, the repayment
of gas debts, and the organization of Russian gas transit -- only after personal talks were held by
Vladimir Putin and Leonid Kuchma. Each issue has been worked on for a long time, and
negotiations have frequently looked strange. In 2000 in Minsk, when it was being decided
whether Ukraine would recognize its $1.4 billion debt for gas, Vladimir Putin had to sit Leonid
Kuchma and Viktor Yushchenko (then still Ukrainian prime minister, but already an oppositionist
to Mr. Kuchma) at the same table, so as to confirm the promises the two Ukrainian leaders had
given separately, but which remained unfulfilled. Then Vladimir Putin supported Leonid Kuchma
politically, and in exchange received the debts, although in installments.
But Russia's main aim is to control the transit export pipeline. The instability of its Ukrainian
segment keeps Gazprom's main partners -- the German Ruhrgas and the French Gaz de France -tense. The ideal solution for Gazprom is for it to obtain ownership of the Ukrainian pipeline
system, in exchange for the debts and future investments into the operation and modernization of
the pipelines. It was just this that was discussed in the memorandum on strategic cooperation of
Russia and Ukraine in the gas sphere signed by Vladimir Putin and Leonid Kuchma in Petersburg
82
on 9 June 2002. Then the presidents ordered their governments to prepare, within strict timeframes, an agreement on a gas consortium to be joined in the future by Germany and France. But
for Mikhail Kasyanov and Anatoliy Kinakh to be able to sign this agreement on 7 October 2002
in Chisinau, Vladimir Putin had to take Leonid Kuchma to the location of the signing in his own
plane. Simultaneously, an agreement of the same kind, on the same topic, was also signed by the
Russian Gazprom and the Ukrainian national company Naftogaz Ukrainy.
The documents have come out vague, and the decisive battle over who will control the pipeline
is only getting warmed up. Vladimir Putin has for the time being agreed to wait a bit on the
privatization of the Ukrainian pipelines, and Anatoliy Kinakh promised that in the event of a
negative conclusion regarding its economic feasibility, the consortium would not be created.
Asked by Kommersant to assess the future consortium if Leonid Kuchma is forced to resign,
those at Gazprom yesterday only responded on condition of anonymity: "The problem of ensuring
the reliability of the Ukrainian gas transport network is objective. Any responsible politician will
have to solve it, and to seek resources in the billions. Not that much time now remains for solving
this large-scale issue, and it will be a great shame if this project, which is already proceeding with
relative difficulty, looses momentum." And so, Vladimir Putin and Gazprom still need Leonid
Kuchma.
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]
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Gazprom plans 50 percent rise in gas prices in 2003 to boost investment
CEP20021014000223 Moscow ITAR-TASS in English 1401 GMT 14 Oct 02
[FBIS Transcribed Text]
MOSCOW, October 14 (Itar-Tass) -- Russia's gas concern Gazprom will need to invest at least
188.1 billion roubles in its operations in 2003, its senior official said.
In order to secure such investment, the company will have to raise gas prices by 50 percent next
year, Gazprom deputy board chairman Alexander Ananenkov said at the conference "All-Russia
Week of Oil and Gas".
At the same time, he quoted Gazprom estimates indicating that a 50 percent gas price increase
will cause electricity prices to grow by not more than 6 percent, the Prime-Tass news agency said.
Ananenkov also said that Gazprom needs to expand its gas distribution network in order to boost
extraction. The network's capacity has decreased by 59 billion cubic metres in 2002.
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
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83
Russia: Latest Gazprom Projects Seen as Part of Plan To Break It Up
CEP20021004000067 Moscow Nezavisimaya Gazeta in Russian 03 Oct 02
[Article by Artem Chetvertnov: "The Order To Sell Has Arrived. Gazprom's New Loans Are a
Hidden Form of Redividing the Concern's Property" -- taken from HTML version of source
provided by ISP]
[FBIS Translated Text]
Gazprom has developed an interest in culture and sport. The advertising and news proclaim
loudly that the concern will bring us Geringas and La Scala, will give money to the Olympic
Committee and the Russian Formula-1 driver, will sponsor the "Royal Hunt" exhibition and the
Venture Fair...
But Gazprom is not only interested in culture and sport. Amid yesterday's various important
news items the report that the Indian Government is examining a project for laying a gas pipeline
on the bottom of the Arabian Sea passed almost unnoticed. The project involves the Indian state
gas corporation and its Russian colleague -- Gazprom. The gas pipeline is to run for 1,500 km
and its cost will be $2.3 billion. Construction will take five to seven years.
All this is very reminiscent of another Gazprom project -- Blue Stream, where the pipeline was
also supposed to be laid on the sea bed, though in this case it is a less distant sea -- the Black Sea.
The project has been under way for eight years now. When the time came that the Turkish
partners wanted to inspect the Krasnodar sector of the pipeline it suddenly emerged that it had
been washed away by force majeure in an extremely well-timed flood. (But that is only 300 km,
give or take a few. The Indian project will need a flood approximately five times more powerful.
In view of the desert character of the Arabian site it would be more convenient to attribute the
misfortune to sandstorms.)
Gazprom's involvement in projects to utilize money has recently taken on the scale of the
Arabian deserts, in fact. However, it is naive to think that what lies behind this is the banal plan
of a Soviet construction-site supervisor: get hold of bigger sums and "utilize" them in such a way
that there is plenty for yourself. The story of the gas concern's latest borrowings opens the door
to other theories that are more like conspiracy theories.
Literally within the last month the Gazprom leadership has concluded high-profile agreements
with two Russian banks that have strong financial and -- most important -- political potential.
The banks could participate in Gazprom's programs to the tune of $1-1.5 billion each.
Nobody knows the terms on which the new credits will be attracted from the new creditors. It
should be recalled, for instance, that Gazprom's previous leadership used to borrow money
against future export earnings. That is to say, it basically deprived the concern and the country of
income in future periods (as a result the state itself later had to top up its own main feeding trough
-- which is absurd). However, for all that, Gazprom still slipped the government money for
pensions -- it urgently and easily repaid part of the huge tax arrears following intensive requests
84
and pressure... In short, the financial relations were interesting.
Against what assets will the credits be attracted now? If we develop the conspiracy theory we
can suggest: against shares. The good old system from the days of primary accumulation could
also very well come into play -- issue credit to a half-dead state enterprise and then take
possession of it in exchange for the debts. (True, formally this process used to be the fate of
some little provincial state plant. Nobody has yet ventured to apply this mechanism to such a
large state corporation.)
In any event, under these scenarios Gazprom might well change owner, or rather be scattered
among various owners, who at the right moment will turn out to be "in on things" at the concern.
To that end the money received must be squandered in the right way. On lavish sponsorship
programs, on growing and unfulfilled commitments to third-party investors from somewhere like
Turkey or India, and so forth.
On examining this scenario we can hardly see it as based on the malicious intent of the loan
issuers alone. Who knows, maybe this fate -- being chopped up for debts -- has been decreed
from above for Gazprom. And even the loan issuers have been specially selected. (Or else they
got hold of the information and then it was their own idea.) It is quite possible that the selling off
of Gazprom has already begun and that that is what Miller's team came to do.
It is important that under this scenario the question of demonopolization of Gazprom will be
resolved, so to speak, by creeping economic means, without any administrative efforts that might
provoke strong resistance. Nobody will even notice.
Nobody noticed when the average life of Railways Ministry leadership personnel was suddenly
reduced sharply. When the surviving top managers at the Railways Ministry suddenly started
refusing to fulfill the orders of the new minister -- and that in a semi-military organization (see
the item "Iron Custom" [by Yevgeniy Solovyev in Nezavisimaya Gazeta 3 Oct] on this topic)... I
would like to write that nobody will notice when YeES [Unified Energy System of Russia] is
divided, but my typewriter will not obey me -- after all, that process is already being talked about.
Who knows, maybe the history textbooks will say that the breakup of YeES was carried out most
openly and legally compared with the division of other important monopolies.
However, Gazprom's involvement in the Arabian project might not mean any of these things. It
is true that the Indians need gas. And it is advantageous to us.
[Description of Source: Moscow Nezavisimaya Gazeta in Russian -- Daily Moscow newspaper
aimed at an elite audience and controlled by Boris Berezovskiy.]
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'Oligarch' Involvement, Kremlin Interest in Gazprom Breakup Rumored
85
CEP20021002000191 Moscow Kommersant-Dengi in Russian 01 Oct 02
[Yelena Kiseleva report: "Gazprom Will Be Torn Into Three Parts"]
[FBIS Translated Text]
There's no need to explain how milch cows are treated in normal countries. With us they would
probably be allowed to go for meat. If we are to believe the rumors, this is how the authorities
intend to treat the milch cow of the Russian budget--Gazprom. Would the budget benefit from
this monopoly being broken up, I wonder?
The rumors that the authorities intend to break up Gazprom have been stirring up the oil and
gas community for two weeks now. The gas monopoly, it is rumored, will be broken up into three
parts--extractive, gas-transportation, and marketing. This idea is not new, as a matter of fact. Five
years ago it was actively promoted by the World Bank with the aid of Anatoliy Chubays, a
federal government official at that time. But it did not carry on account of the resistance of the
gas lobby led by Viktor Chernomyrdin, prime minister at that time.
This time everything is, seemingly, in earnest: the Kremlin has taken a serious interest in the
plans to divide up Gazprom. Local gossip-mongers are ascribing their authorship to Sergey
Pugachev, the senator from Tuva. He himself, it has to be said, makes no secret of his interest in
Gazprom's financial flows. The ex-banker Pugachev recently reached agreement with Aleksey
Miller on wide-ranging cooperation (financial, of course, with the participation of
Mezhprombank, which he continues to control).
The intrigue surrounding Gazprom is developing surprisingly quickly. Until recently only
Gazprom's top managers and the upper stratum of the administration knew about the plans to
divide up Gazprom. But a couple of weeks ago rumors about this went beyond the tight circle of
initiates. They say that it has reached the point where Gazprom's security service has even
launched its own inquiry to find out who leaked confidential information.
You don't have to go to a fortune-teller to find out which of the three parts of Gazprom will
enjoy the greatest popularity. Everyone wants to control the gas pipe--the counterpart of
Transneft. If the rumors are to be believed, interest in the latter is being displayed, aside from the
ex-banker Pugachev, by Mikhail Khodorkovskiy and Mikhail Fridman. It is being said in the
Kremlin, though, that the oligarchs need not trouble themselves. If Gazprom is divided up, the
gas pipe will probably remain in the power of the state.
About competitors, incidentally. We should always be ready for them taking extreme action. It
is said that the Alpha Group is preparing an attack on Gazprom... from America. It is here, it is
rumored, that the latest corruption scandal with the participation Gazprom's chief partner--Itera-will be starting in the very near future. The choice of location is no accident, incidentally: the
head Itera is registered in the state of Florida. The intention is, it is rumored, to accuse the
"sweethearts" of having created a criminal organization for the removal of Gazprom assets. I
don't know about criminal but it is a fact that a whole 130 Iteras have been created worldwide.
They say that Alpha has decided to hire one of America's most influential lobbying firms. Its
top managers were recently seen in New York, if we are to believe the rumors, in the company of
a well-known specialist in Russian criminal matters--ex-FBI officer Robert Levinson. He, I recall,
is known for his participation in the abortive case against the authoritative businessman Sergey
Mikhaylov.
86
Six months ago the co-owners and top managers of TNK [Tyumen Oil Company], which is a
part of Alpha, were themselves in a similar situation, incidentally. They (there are among the
high-ranking "tankmen" many US citizens) were being sued in an American court on a charge of
racketeering and the creation of a criminal international network. So it is not inconceivable that
the "tankmen" will surrender Itera in exchange for a dismissal of the prosecution in the United
States, by no means from a desire to get the better of Gazprom.
No less interesting rumors are stirring the orderly ranks of our defense industry. They say that
Rosoboroneksport has decided to register a middleman in Greece (Greece is the sole NATO
member that purchases weapons in Russia). This is to be handled, it is rumored, by a local broker,
the Palestinian Fuad Zayat, and Mikhail Vorobyev, former deputy CEO of the Antey concern.
The piquancy of the situation is that Mr Vorobyev was this spring at Rosoboroneksport's
prompting dismissed from Antey. At the April session of the Military-Technical Cooperation
Commission Rosoboroneksport First Deputy CEO Sergey Chemezov publicly demanded his
resignation, accusing him of having made a mess of the Greek contracts. In actual fact, though,
Rosoboroneksport, it is rumored, simply wanted to promote Antey on the Greek arms market.
And, to close, sports news. Last week all of Moscow was discussing the Mayor's Association
Football Cup 2002 competition, which took place 7-14 September. Its winner, rather. It was once
again, something that is now traditional, the Moscow Government team. They say that on the eve
of the final, in which teams of city hall and Vneshtorgbank met, the captain of the latter was
approached by fixers: "We hope you understand that first place is already taken. Let's think
together about how we can get out of this situation." Whether the bankers proved to be slow on
the uptake or whether this was how luck would have it, the result of the hard-fought contest was a
4:4 tie. Of course, the bankers could have tried even harder and lost, but such a sacrifice was not
required. According to the Olympic system adopted at the tournament, it is sufficient for the
winner to have won the overall event.
[Description of Source: Moscow Kommersant-Dengi in Russian -- Weekly magazine devoted to
economic and business issues, published by the Kommersant publishing house.]
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NTV Chief Yordan, Eurofinance President Cited On Gazprom-Media Stock Sale Deal
CEP20021001000198 Moscow Izvestiya in Russian 28 Sep 02
Reference:
1. Russia: Politicians, journalists seen generally supportive of Gazprom media deal
CEP20020927000192 Moscow Interfax English 1315 GMT 27 Sep 02
[Report by Mila Kuzina: "Gazprom-Media Will Be No More" -- taken from HTML version of
source provided by ISP]
87
[FBIS Translated Text]
In a solemn ceremony yesterday [27 September], a portion of shares in Gazprom-Media, a
holding company that includes all the former companies of Vladimir Gusinskiy, was sold.
Gazprom chief Aleksey Miller has signed an agreement to sell 49 percent of the media holding
company to a commercial bank Eurofinance. A price of the deal has not been cited. It is known
that the bank intends to invest $100 million in mass media and assumes an obligation to
reschedule Gazprom-Media's debts worth a huge sum of almost $1 billion.
The new shareholders have decided together with Gazprom to create, based on Gazprom-Media,
a new holding with a different name. Indeed, the old one was not too good. It is strongly
associated with a great deal of financial and political scandals. Yesterday, NTV Deputy General
Director Rafael Akopov jokingly offered to name the new formation as Euro Gas Media.
Rumor that NTV, TNT, Sem Dney, the Trud newspaper, and other media from Gazprom-Media
will be sold has been circulating for more than one year now. Gazprom repeatedly declared that
it regarded media as its non-core business and that it intended to sell it.
As Gazprom-Media General Director Aleksandr Dybal said, Eurofinance "contacted Gazprom on
its own several months ago." "There were simply no other worthy buyers. There was, of
course, talk that someone wanted to buy NTV and someone TNT. Eurofinance came up right
away with a plan for further restructuring of all the company's debts," Mr. Dybal has explained.
"Earlier, I did not work with Eurofinance," Boris Yordan, the NTV general director and board of
directors chairman, has added. "Their appearance came as a surprise, a pleasant surprise."
Boris Yordan himself declared many times readiness to buy Gusinskiy's media legacy. This is
why he came to head NTV and then Gazprom-Media. People in Gazprom say that Mr. Yordan's
desire gradually wore away. This happened after it became known about multimillion debts of
the holding company. Asked by Izvestiya why he himself did not buy a portion of the Gazprom
shares, Yordan replied: "I do not have $100 million." Now, for the work done at GazpromMedia, Boris Yordan was given 5 percent of the NTV shares and 5 percent of shares in the entire
media holding company. Yet, this parcel does not have voting power, while 10 percent of the
voting NTV shares will go to the channel's "creative staff."
Asked why his bank bought a media business burdened with such high debts, Eurofinance
Chairman Vladimir Stolyarenko confidently replied: "It is a strategic investment into the
dynamically developing Russian media market. We hope for a major increase in capitalization
of the new media holding company." Messrs. Miller and Stolyarenko have assured that they will
not meddle in editorial policy of the mass media from the holding company because "their
independence increases capitalization."
In Aleksey Miller's words, the sale of shares to Eurofinance is just the first stage in GazpromMedia's restructuring. Miller has not ruled out sales of more shares from the Gazprom-owned
controlling stake. For his part, Vladimir Stolyarenko has announced his bank's intention of
"consolidating the Gazprom assets" (which means, increasing over time a stake in the new media
to the controlling level).
Speaking about the Eurofinance ownership structure, Mr. Stolyarenko has declared that his bank
is not connected with any major financial corporation: "Nobody holds more than 20 percent of
the bank's shares." According to Izvestiya's information, this declaration is not quite correct, to
put it mildly. The register of shareholders says that 19.98 percent of the Eurofinance shares is
owned by Vneshekonombank and 9.97 percent by Vneshtorgbank. As Vneshtorgbank is
88
currently finishing the process of taking over Vneshekonombank and is going to gain control over
the latter's commercial assets, one can confidently state that almost 30 percent of Eurofinance
practically belongs specifically to Vneshtorgbank. The situation will become even more
interesting if you recall that since the beginning of this past summer Eurofinance has been
negotiating to merge its business with a London-based financial institution named Moscow
Narodny Bank. As much as 88 percent of that Russian foreign-based bank is owned by the
Central Bank. The process of the Central Bank withdrawing from capital of Russian foreignbased banks is to end within the next two to three years, and then the bank will almost certainly
go to Vneshtorgbank. Thus, behind Vladimir Stolyarenko's back one can see the much more
powerful back of Vneshtorgbank President Andrey Kostin.
In addition, the deal partners do not conceal that they would like to increase radically the
capitalization of the new holding company. This requires very powerful financial resources,
which a bank of Eurofinance's scale hardly has.
[Description of Source: Moscow Izvestiya in Russian -- One of Russia's most prominent dailies;
controlled by Vladimir Potanin although Lukoil owns a minority share.]
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Gazprom Management Reorganization Viewed
CEP20020926000241 Moscow Vedomosti in Russian 23 Sep 02
[Report by Irina Reznik: "New Faces at Gazprom" ]
[FBIS Translated Text]
Vedomosti learned that the Chairman of the Board of Gazprom, Aleksey Miller intends to change
the structure and composition of the management of the gas monopoly. Director General of
Gazeksport Aleksandr Medvedev, head of the Gazprombank Yuriy Lvov, and Chief of
Gazkomplektimpeks, Vladimir Leviyev should be members of the executive organ, but the
number of executives will be increased by a third. By the way, the Council of Directors still must
approve this plan. After last year's series of resignations of top Gazprom managers, the executive
corps of the company decreased by a third. Now, as a source close to Gazprom management told
Vedomosti, Miller intends to increase the size of management from 14 to 21 persons. In the words
of the source, Deputy Chairman of the Department for Gas Extraction Boris Nikitin will leave the
company. The head of his department, Vasiliy Podyuk, also a former representative of
"Vyakhirov's company", will take his place in management. In addition, a Vedomosti informant
said that Aleksey Miller intends to bring the Director General of Gazkomplektimpeks Vladimir
Leviyev, the head of Gazprombank Yuriy Lvov and the Director General of Gazeksport
Aleksandr Medvedev into management.
89
Gazkomplektimpeks, the enterprise for the purchase of equipment, which was led by Vyacheslav
Sheremet under Rem Vyakhirev, was one of those black holes into which millions of dollars
flowed from the monopoly in a practically uncontrolled fashion.
The role of Gazkomplektimpeks is increasing [in 2003 Gazkomplektimpeks is slated to get $2.2
billion]," said a Gazprom employee. "Previously only a fourth of the purchases of equipment for
Gazprom went through this structure, while the monopoly's "affiliates" independently purchased
from whom they wanted. Now all of this will be centralized. In a year or two Gazkomplektimpeks
should be purchasing up to 80% of the equipment. Leviyev will have control over issues of
material-technical provision for Gazprom. The appointment of Aleksandr Medvedev to the
management of the monopoly, where there is already one "export boss"- Deputy Chairman of the
Board Yuriy Komarov, a Vedomosti informant attributes to "a strengthening of the gas export
direction."
The head of Gazprombank, Yuriy Lvov will be responsible for the mutual relations with banks
and possibly will get a portion of the present powers of the Deputy Chairman of Gazprom Boris
Yurlov. As several sources familiar with Gazprom affairs explained to Vedomosti right off, Lvov,
as well as his predecessor, hoped for a place in the Gazprom Council of Directors, but he was
promised only a place in management. Kirill Seleznev, head of the Department of Marketing and
Processing of Gas and Liquid Hydrocarbons and Konstantin Yuychenko, head of the Gazprom
Judicial Department, will also become new members of management.
A Vedomosti informant in the Presidential Administration is certain that the new appointments
mean "a serious shakeup among the top managers of the monopoly." He recalled that in carrying
out personnel changes in the autumn of 2001, Miller, wishing to "preserve the continuity of
authority" brought new people into the management without removing the previous managers. As
a result, for a few months the same functions in Gazprom were carried out by two people at the
same time: for example the new Gazprom head bookkeeper Yelena Vasilyeva copied the
experience of the old one, Irina Bogatyreva, while the head of the Department of Investment
Yuriy Goryaninov transferred his affairs to Mikhail Akselrod from St. Petersburg.
"Having undertaken a second personnel revolution, Miller decided to follow the same path,"
explained the source.
It is noteworthy that Miller decided to leave Nikolay Guslistyy, the former "Vyakhirev
lieutenant" in the management. "It is odd that they left Guslistyy in the Gazprom management,"
said Aton analyst Steven Dashevskiy. "Miller had enough political resources for the return of
assets, but for good operation the monopoly still needs an effective and consolidated team of
managers, which has not existed up to now. Letting Guslistyy remain in such a situation means
strengthening the growing disenchantment among investors."
[Description of Source: Moscow Vedomosti in Russian -- Business paper published jointly with
The Wall Street Journal and Financial Times; reportedly friendly with Kremlin.]
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90
Source-Date: 09/20/2002
Russia's Gazprom Introduces Regulations to Raise Investment Transparency
CEP20020920000355 Moscow Nezavisimaya Gazeta in Russian 20 Sep 02 P3
[Report by Natalya Melikova: "New Order at Gazprom"]
[FBIS Translated Text]
Far from everyone at Gazprom can answer the questions of where money goes, and how
efficiently it is spent. Now the gas monopolist has decided to put its finances into order. This is
just how we can assess the Regulations on Forming and Realizing Investment Programs signed
yesterday by Gazprom managing board chairman Aleksey Miller. Neither under the company's
previous management, nor under its present management, has there ever been a similar document
to essentially establish the mechanisms for the spending of funds, and for control over it. This
event is also noteworthy in that Gazprom, criticized for non-transparency and for opposing
reform, is the first of the natural monopolies to take a step toward the government, which is
striving to make their investment programs more transparent.
Those that the company itself explain that the document was created to identify priority
projects to be financed in first order. As Nezavisimaya Gazeta was told by Lyudmila Selivanova,
Aleksey Miller's press secretary, such projects now include completing construction of the
Goluboy Potok [Blue Stream] gas pipeline, as well as opening up the Trans-Polar Field in the
Yamalo-Nenetsk Autonomous Okrug. According to Selivanova, the document also provides for a
means to "stretch out" financing over a specific period. Projects to be financed in this specific
way include the construction of the Yamal-Europe gas pipeline.
Those at the company expect the regulations signed by Miller to make its financial flows more
transparent. And stricter control over the utilization of funds should lower the company's losses.
The document will make it possible to answer the questions of where funds need to be invested,
how much, and within what time-frame -- Selivanova says. Furthermore, it means a departure
from the mechanism of constantly "rolling over" funds without a specific goal, as was frequently
the case until recently.
Gazprom's policy of eliminating years-old improper practice is dictated not only by the need to
put its cash flows into order. The company's very financial foundation -- which, to put it mildly,
could be characterized as not very sound -- demands that the monopoly's management take urgent
measures. Gazprom has essentially constructed a credit pyramid: in order to cover the interest on
its long-term credit, the company is constantly forced to take on short-term credit. It furthermore
cannot be ruled out that the new document, pursuant to the intent of the company's management,
should eliminate all opportunities for capital to escape into so-called non-profile assets.
Moreover, the personnel shakedown in Gazprom has caused people to simply cease to
remember who is responsible for what, and internal discipline has significantly weakened. The
document signed by Aleksey Miller just exactly proposes to make internal control over the work
of subdivisions stricter. The preparation of project documentation and the realization of every
production cycle should now be performed pursuant to the strict demands of the new regulations.
The document also sets time-frames for the development and implementation of investment
projects, and identifies the company's sub-units responsible for this work. This is why analysts
perceive Aleksey Miller's attempts to impose order within his own enterprise as nothing other
91
than the beginning of building up a new procedure for making decisions identifying the gas
concern's strategy and tactics.
[Description of Source: Moscow Nezavisimaya Gazeta in Russian -- Daily Moscow newspaper
aimed at an elite audience and controlled by Boris Berezovskiy.]
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Russia: Gazprom to double capitalization in two-three years
CEP20020925000112 Moscow Interfax in English 0752 GMT 25 Sep 02
[FBIS Transcribed Text]
MOSCOW. Sept. 25 (Interfax) - Gazprom plans to more than double its capitalization, from $23
billion to $50 billion, in the next two or three years.
"Our aim is to raise capitalization from $23 billion to $50 billion in two or three years," Boris
Yurlov, a deputy CEO, told the conference on sustained economic growth in Russia organized by
Brunswick UBS Warburg.
This will be achieved by improving financial results and by liberalizing the Russian gas market,
Yurlov said. Gazprom also believes that better corporate transparency and structure, and a more
aggressive information policy will help achieve this goal. Gazprom's capitalization was $12
billion-$13 billion in 2001.
The company's draft 2003 budget calls for cost-cutting to the tune of 30 billion rubles. In the
first half of 2002, Gazprom reduced costs by 10 billion rubles.
Gazprom plans to borrow 120 billion rubles or $4 billion in 2003 - 70% of it long-term and the
rest in short-term loans and notes.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
Russia: Gazprom needs increasing investments to sustain gas production
CEP20020925000076 Moscow Interfax in English 0848 GMT 25 Sep 02
[FBIS Transcribed Text]
MOSCOW. Sept. 25 (Interfax) - Gazprom needs investments of 900 billion rubles of $4 billion
annually over the next five years to sustain gas production of 530 billion cubic meters (bcm) per
year.
This year, the company plans to produce 520 bcm of gas and, starting in 2003, to keep
production at the 530 bcm level, Boris Yurlov, a deputy CEO, told the conference on the Russian
92
economy organized by Brunswick UBS Warburg.
The company aims to continue operations at the Medvezhye, Urengoi and Yamburg fields at a
low capital cost, and to develop new onshore fields in the Yamal and East Siberia and offshore in
the Arctic, which will require considerable investment.
Gazprom itself will provide most of the funds as it generates more profit. "We would like to see
our profits double in 2003 compared with 2001," Yurlov said.
In addition, Gazprom expects to raise 30 billion rubles this year and 60 billion rubles in 2003 by
recovering debts.
The planned increase in gas tariffs as approved by the government is 20% next year, but
Gazprom wants an increase of 40%. This year, Gazprom is expecting a domestic market loss of
$2 billion.
This year, Gazprom has curtained its promissory note program by half. The company plans to
switch to project financing. It is considering several major projects, among them the YuzhnoRusskoye gas field. Project financing will greatly reduce corporate risks for Gazprom.
As for the liberalization of the gas market, Gazprom has drafted a government resolution to
allow the company to sell 10 billion cu m of gas on market terms this year. Yurlov said the draft
had so far taken six months to approve.
He recalled that it would cost 237 billion rubles to upgrade the gas transportation system, as per
a program approved by the executive board.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
Russian government not planning to sell Gazprom, UES shares in 2003
CEP20020920000070 Moscow Interfax in English 0738 GMT 20 Sep 02
[FBIS Transcribed Text]
MOSCOW. Sept 20 (Interfax) - The Russian government is not planning to sell shares in gas
giant Gazprom or electricity monopoly Unified Energy System in 2003, Deputy Prime Minister
and Finance Minister Aleksei Kudrin said.
There is no need to sell Gazprom or UES shares in order to raise budget revenues, Kudrin said at
a round table on the draft federal budget for 2003.
The government wants to maintain controlling stakes in these companies while they are being
restructured, Kudrin said.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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93
Yusufov Statement on UK Gas Reform Could Signal Demonopolization of Gazprom
CEP20020917000241 Moscow Kommersant in Russian 17 Sep 02
[Report by Irina Rybalchenko under the "Gas Market" rubric: "Energy Ministry Bids Farewell to
Gazprom in the British Manner" -- taken from HTML version of source provided by ISP]
[FBIS Translated Text]
Igor Yusufov, head of the Russian Federation Ministry of Energy, believes that Russia should be
guided by British experience when it comes to the liberalization of the gas sector. This report
was released yesterday by the ministry's press service. Given that the British gas market is
completely liberalized this statement could mean that the Ministry of Energy has officially come
out in favor of the demonopolization of Gazprom.
Mr. Yusufov made the statement that the British experience of restructuring the gas sector could
be used in Russia during a meeting with Joan MacNaughton, director general of the UK
Department of Trade and Industry's Energy Group. Ms. MacNaughton promised to share that
experience and noted the role of the state in this process.
Analysts viewed Mr. Yusufov's statement with great interest. "The minister's statement is more
political in character. If the Ministry of Energy is advocating the British model for the
development of the gas market this means that it is de facto supporting the idea of the
demonopolization of Gazprom and is advocating equal access to the gas pipeline," a spokesman
for ExxonMobil, the US oil and gas company, claims.
The significant difference between the gas market in Britain and the market in other European
countries is that there is an unlimited number of suppliers working in it. For comparison's sake,
the gas network in France is only 20 percent opened up. The reform of the gas market in Britain
began in the late eighties when the state-owned British Gas was split up into separate components
-- those responsible for transport and for production and sale -- and consumers can now buy gas
at unregulated prices.
Until yesterday no federal ministry had ventured to make such high-profile statements about the
restructuring of the gas market. And Mr. Yusufov's comment could mean that the White House
has now made its choice. The first steps could follow in the next few months: According to an
unofficial report the government decree on the creation of a gas commodity exchange should be
signed by the fall (this project will cost approximately $300,000). Let us recall that before the
end of the year Gazprom plans to sell 10 billion cubic meters of gas in the commodity exchange
and in 2003 5 percent of the volume of gas output could be sold at auction.
Within Gazprom itself people have reacted completely calmly to the statement by the head of
the Ministry of Energy. "So long as gas prices are regulated by the state the preconditions for the
creation of a free market do not exist," Stanislav Tsygankov, chief of Gazprom's foreign relations
department, stated to Kommersant. And he stressed that the British gas market model is not
entirely appropriate to Russia: For example, because of the free access to the gas pipe there are a
great many speculators operating in the British market who do not produce gas but merely buy it
and sell it on. "Furthermore, since liberalization Britain, which previously had its own gas, is
now forced to import it," Mr. Tsygankov said, summing up.
94
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]
Gazprom Meets With Auditors Over Concerns
CEP20020916000020 Moscow Kommersant in Russian 13 Sep 02 P11
[Article by Irina Rybalchenko: "Gazprom Calls the Auditors on the Carpet"]
[FBIS Translated Text]
Yesterday the Gazprom chief Aleksey Miller met with Keith Roden, controlling partner of the
Department of Auditing and Consulting Services of the PricewaterhouseCoopers Audit Company
(PwC). At the meeting the preparation of the interim financial report of Gazprom for the first half
of this year was discussed. This is a key issue for Gazprom now - in October the concern plans to
conduct a road show for the release of securities in the USA, and it is important that these
measures be carried out without incidents. We recall that Gazprom is planning to float securities
worth $750 million for a 10-year term. Already at the end of August Aleksey Miller stated the
following: "The procedure for issuing securities on the American market is more complicated
than in Europe, however Gazprom is ready to work in the new format." The complexity stems
from the tougher demands of American investors concerning the financial reporting of the issuing
company.
Yesterday Aleksey Miller invited PwC's representative Keith Roden (Gazprom's auditor) to
Gazprom. The deputy chief of Gazprom Boris Yurlov and the head bookkeeper Yelena
Vasiliyeva participated in the meeting. They discussed the degree of readiness of the interim
financial report for the first half of the year, as well as the issue of preparing a report according to
Russian and international standards for 2002. Probably the Gazprom chief had quite a few
questions for the auditor: in summing up the meeting he announced that he intends to hold
another working meeting by the end of September, this time with Richard Paterson, head of the
PwC Global Service.
Aleksey Miller has cause for concern. We recall that at the end of May another Russian company
- TNK, whose auditor was also PwC, was forced to recall an already floated Euro security. As it
turned out the New York office of PwC discovered inexact points in the auditor's conclusions of
the TNK financial report (Kommersant wrote about this).
Yesterday Gazprom financial operations in the domestic market were made public-on August 26,
Gazprom floated bonds worth 5 billion rubles. Analysts have already called this operation the
largest bond program of any Russian company in 2002. Within the scope of this program there
were three types of bonds the aggregate face value of which totaled 5 billion rubles, with terms of
between 19 and 21 months. The lead organizer was the AKB [Commercial Joint Stock Bank]
Doveritelnyy I Investitsionnnyy Bank and the co organizers were Veb-Invest-Bank and
Transkreditbank.
However that was not the only news from Gazprom. The head of the concern managed to meet
yesterday with Yuriy Neyelov and Aleksey Chernyshev, governors of the Yamal-Nenetskiy
95
Autonomous Region and the Orenburg Oblast. Mr. Neyelov asked the Gazprom chief to keep the
tax payments into the regional budget steady - in the words of the governor the transfer of 10.6
billon rubles by affiliated companies of the firm allowed petroleum products to be brought into
rayon districts with limited navigation times. Aleksey Miller promised to think about that until
the end of October.
Issues of gasification, the development of the Orenburg Gas Chemical complex as well as a
possible increase in the price of gas for industrial consumers were discussed with Mr.
Chernyshev. The results of the talks were laconically placed in a Gazprom press release:
"Aleksey Miller and Aleksey Chernyshev came to an agreement about coordinating work with the
government."
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]
Unclassified
Russia: Gazprom Seeking Money To Repay $7 Billion in Outstanding Loans
CEP20020909000242 (Internet) Gazeta.ru WWW-Text in Russian 06 Sep 02
[Report by Nikolay Anin: "Gazprom Having Money Problems" (Internet Version - WWW)]
[FBIS Translated Text]
Gazprom financiers have notably stepped up their activity in recent times. It seems that every
day, there is another announcement about impending deals on attracting funds. And this is no
accident. It is just that Gazprom, as usual, needs a lot of money. Yet, at the present time, the
company does not have a team which would be capable of attracting it quickly and inexpensively.
Gazprom Chairman of the Board Aleksey Miller has encountered what might well be his most
serious problem in all the time of his management of the concern. In the nearest time, the
company will have to pay out around $7 billion in repayment of prior loans. And, it appears,
Gazprom does not have that kind of money, since it supplies 70 percent of its products to the
domestic market, in fact subsidizing consumers.
Previously, great hopes had been pinned on a Eurobond loan. But now, due to the shake-ups
on the American and European stock markets, the issuance of such securities would be rather
imprudent. It is no accident, for example, that Alfa Bank rejected the plans to this effect.
As yet, Gazprom has not officially rejected the issuance of Eurobonds. Furthermore, Miller
himself announced in recent days that the concern intends to perform the previously planned
emission of 10-year Eurobonds for the sum of $750 million. In his words, the "road show" in the
USA will begin in October of 2002. Aside from this, Gazprom is considering the possibility of
additional placement of bonds in the sum of $400 million by the end of 2002. Nevertheless, the
company is not giving any additional information on the parameters of the emission, which has
96
not yet officially been approved by the board of directors.
At the same time, Miller is conducting intensive consultations with various bankers and
financiers on the subject of direct crediting.
Some of the negotiations have been crowned with success. Thus, the French Societe Generale
Bank has announced that the credit previously granted to Gazprom would be increased to $325
million. (At that time, the discussion centered around $250 million). The interest rate on the
loan will comprise LIBOR + 3.65 percent, and the term of repayment will be 2008.
The interest of the French is understandable. The credit is secured by a long-term Gazprom
contract on export of gas to the Czech Republic. And, as the history of the Societe Generale
credit to the ALROSA company (which never materialized) shows, French bankers like to credit
Russian corporations for export proceeds. We cannot rule out the possibility that there may be
some offshore subsidiary of the French bank involved in the deal of Societe Generale with
Gazprom, through which all of the financial operations associated with fulfillment of the Czech
contract would pass.
As we know, in the case with ALROSA, such a scheme did not pass due to the intervention of
the federal authorities. But Miller, judging by all, managed to insure himself. Parallel with
Societe Generale, he signed an agreement on strategic partnership with Mezhprombank.
After losing out in the struggle over Slavneft, the financial flows of the Russian gas monopolist
may become a fairly good consolation prize for Senator Sergey Pugachev, the influential and
ambitious owner of Mezhprom. It is characteristic that Pugachev participated in the meeting
with Miller along with Mezhprombank Chairman of the Board Sergey Veremeyenko.
Naturally, from a purely financial standpoint, Mezhprom is unable to do for Gazprom even a
tiny bit of what Societe Generale can do. But, having promised Pugachev access to the concern's
accounts, Miller will automatically acquire an influential ally in the Kremlin.
After all, despite the fact that the initiative to appoint Aleksey Miller to Gazprom emanated
directly from the president, Putin has many reasons to be unhappy with his protégé today.
Putin's liberals, who have grouped themselves around First Deputy Prime Minister Aleksey
Kudrin, are clearly not thrilled with Miller. It is no accident that the mainstay bank for the
concern, Gazprombank, is practically not participating in any way in the resolution of the
concern's financial problems. And Miller himself, in opting for an alliance with Pugachev, is
clearly infringing upon Gazprombank's interests. In this connection, it is appropriate to note that
Gazprombank is headed up by one of the closest associates of Kudrin--Yuriy Lvov.
Also indicative under the current conditions is the inaction of the CB [Central Bank], which, as
we know, significantly helped Gazprom at the end of last year by organizing crediting of the
concern through Sberbank and Vneshtorgbank.
However, at that time the Bank of Russia was managed by Viktor Gerashchenko. The current
head of the CB, Sergey Ignatyev, is not capable of such maneuvers. That is, unless he gets the
go-ahead from Kudrin. And he, judging by all, is keeping quiet.
It is difficult for Miller to establish constructive interaction with the fiscal authorities (Minfin
[Ministry of Finance] and the CB) also because of the replacement of the head financier of
Gazprom. Previously, this office was held by Vitaliy Savelyev, who is close to the Kudrin
97
team. But at the beginning of the summer, Boris Orlov was appointed to this post. Prior to
coming to the concern, he had worked at the Presidential Affairs Administration (UDP).
By the way, considering the historically close ties of the UDP and Mezhprombank, it would be
logical to presume that it was specifically the new financier of Gazprom that facilitated the
rapprochement of Miller with Pugachev.
Be that as it may, now Miller can count on the support of such figures close to Pugachev as
Putin's spiritual advisor Archimandrite Tikhon and FSB [Federal Security Service] Deputy
Director Yuriy Zaostrovtsev. The only question is how this support will be transformed into real
investments.
[Description of Source: (Internet) Gazeta.ru WWW-Text in Russian -- Website reportedly
financed by Yukos oil company and often critical of the government.]
Russia: Gazprom CEO Miller Outlines Company's Short-Term Plans
CEP20020830000116 Moscow Kommersant in Russian 30 Aug 02 P 11
[Report by Irina Rybalchenko: "Gazprom To Borrow in USA"--taken from html version of source
provided by ISP.]
[FBIS Translated Text]
Holiday
Yesterday in the central office of Gazprom, they celebrated the Day of Oil and Gas Sector
Workers. During the interval between the ceremonial part and the festivities, Gazprom
Chairman of the Board Aleksey Miller told about the concern's short-term plans. They include
conducting a "road-show" in the USA on emission of bonds in the sum of $750 million,
cooperation with independent gas producers, and expansion on the spot market of the European
Union.
"The procedure of entering the American securities market is more complicated than in
Europe, but Gazprom is prepared to work in a new format," Aleksey Miller announced
yesterday. And he explained that the discussion centers around placing bonds in the sum of $750
million with a term of 10 years. At the same time, the Gazprom head did not specify for what
purposes the money raised would be used.
The market perceived this news with pessimism. Thus, an analyst for the NIKoil Company,
Boris Gensburg, believes that the time for placing bonds on foreign markets has been
inappropriately selected. "Of course, foreigners have a good appetite for Gazprom, but in view
of the present-day market conditions, the bonds may be placed at a reduced price," he insists.
However, Gazprom also has other plans for expansion on foreign markets. Thus, according to
98
Mr. Miller, under conditions of liberalization of the European market, the question of accessing
the end consumer has been raised. "The first steps in this direction have already been taken.
This concerns deliveries to Italy and Germany. But this question must also concern other
members of the EU [European Union] as well," he specified. At the same time, "in Brussels, no
one is denying that long-term contracts are the basis of gas supply," explained the head of
Gazprom.
As for the Russian gas market, Gazprom intends to hold negotiations with all independent gas
producers so as to develop a unified position. "Negotiations will be held prior to review of the
investment program and the budget of Gazprom in government at the end of November of this
year," the head of Gazprom summarized.
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]
.
Russian economy minister comments on forthcoming Gazprom reform
CEP20020821000039 Moscow Interfax in English 0820 GMT 21 Aug 02
[FBIS Transcribed Text]
MOSCOW. Aug 21 (Interfax) - During the reform of Gazprom it is not planned to make such
serious changes as during the reform of Unified Energy Systems of Russia and the Railways
Ministry, Economic Development and Trade Minister German Gref said.
He said that there is not yet a legislative base to reform Gazprom and at the moment there is no
active work being carried out on a concept.
Gref noted that Gazprom has a problem with hypertrophied exports and the impossibility of
liberalizing exports until export and domestic prices are balanced.
"I think that by the end of this year we will decide on a succession of action, but in this area it is
not planned to make such serious changes as in Unified Energy Systems of Russia or the
Railways Ministry," Gref said in an interview with the newspaper Vedomosti on Wednesday.
The minister said that during the reform of Gazprom it is necessary to first of all separate the
transport component, start exchange trading in gas, release prices for the end consumer and
establish equal access to the pipe. "Ultimately, this is all," he said.
Gref noted that every reform of a natural monopoly is politically sensitive and equally as
complicated economically. "Our reforms have no equivalents in the world in terms of scale,
depth, and the technological backwardness of the industries being reformed, any rush here may
lead to irreversible consequences," he said.
"However, we should note that Gazprom will never be fully transparent if it is to participate on
the market. The same applies to UES and the Railways Ministry and any other monopoly at a
regional and federal level - there is no way of forcing these to be fully transparent," Gref noted.
[Description of Source: Moscow Interfax in English -- non-government information agency
99
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
Polish Gas Monopoly Privatization May Interest Gazprom
CEP20020816000228 Moscow Vedomosti in Russian 15 Aug 02
[Report by Irina Reznik: "Poland Sells the Pipeline" - taken from html version of source provided
by ISP]
[FBIS Translated Text]
Yesterday the Polish government approved a plan for the privatization of the gas monopoly
PGNiG. The state will retain a controlling stake - the remaining shares will be offered to
strategic investors and placed on the Warsaw Stock Exchange. Gazprom is already exhibiting
keen interest in the Polish privatization.
The PGNiG monopoly is Eastern Europe's largest gas production and transportation company. It
owns gas transportation networks and distribution companies in Poland. In addition it owns a
48-percent stake in EuroPolGas - the operator of the Yamal-Europe project. Gazprom holds a
further 48 percent in this project and a 4-percent stake belongs to the Polish firm Gas-Trading,
which in turn is 43.4-percent owned by PGNiG. Annually Poland consumes about 12 billion
cubic meters of gas (3.7 million cubic meters of this are its own production). A further 7.6
billion cubic meters (94 percent of all imports) comes from Russia. A total of 470 million cubic
meters per year is imported from Eastern Germany.
As a PGNiG representative told Vedomosti, on Tuesday the Polish government approved a plan
for the privatization of the Polish gas monopoly. In his words, a package of shares in the state
company will be put up for sale by the end of 2004. The size of the stake in the holding that is to
be privatized has not yet been determined, but the Polish government intends to retain 51 percent
of PGNiG. A source close to the Polish government has told Vedomosti that one possible option
being examined involves the sale of 30-40 percent of PGNiG to a strategic investor, while a
further 10 percent might be placed on the Warsaw Stock Exchange. Before the end of 2002 the
holding will be deprived of its main asset - the six regional gas distribution companies [GPS] that
distribute gas within Poland. It is assumed that the GPS will be transferred to a specially created
100-percent subsidiary of PGNiG and put up for sale to strategic investors over a three-year
period. Controlling stakes in these companies will remain the property of this subsidiary. "We
have to invest considerable funds into the reconstruction of the GPS but these investments will
pay off - after the liberalization of the European gas market they will operate at a large profit",
believes Troyka Dialog analyst Valeriy Nesterov. A senior representative of Gazprom has told
Vedomosti that the monopoly has not yet reached a final decision as to whether or not it will
participate in the Polish privatization. "But it goes without saying that this is very interesting",
he added. "Gas transportation networks are a priority for us; the GPS are another matter", says
Vedomosti's interlocutor.
100
Last year Gazprom exported 43.8 billion cubic meters of gas to Europe through Poland. This
year it plans to supply 47 billion cubic meters of gas.
"It would be surprising if Gazprom did not show interest in the Polish privatization", says
Nesterov. "It is true that the Poles will not sell cheaply. It is worth remembering the sums that
have been involved in the privatization of other Eastern European companies - the Czech
Transgas and the Slovak SRR gas transportation company. Therefore Gazprom is unlikely to
make this purchase alone. It is quite possible that the monopoly will act in a consortium with
Gas de France and Ruhrgas. Especially since these companies have already announced their
interest in PGNiG".
Unlike Gazprom, Russian oilmen have not yet become interested in the Polish gas market. A
representative of one large oil company told Vedomosti that the privatization of PGNiG is
unlikely to interest the oilmen, since the export of gas from Russia will probably remain
centralized over the next few years.
[Description of Source: Moscow Vedomosti in Russian -- Business paper published jointly with
The Wall Street Journal and Financial Times; reportedly friendly with Kremlin.]
THIS REPORT MAY CONTAIN COPYRIGHTED MATERIAL. COPYING AND
DISSEMINATION IS PROHIBITED WITHOUT PERMISSION OF THE COPYRIGHT OWNERS.
Russia: Gazprom Board Member Fedorov on Personnel Changes in Company, Status of
CEO Miller
CEP20020816000272 Moscow Vremya Novostey in Russian 14 Aug 02
[Interview with Gazprom board member Boris Fedorov, conducted by correspondent Aleksey
Grivach: "Boris Fedorov: 'I Am Very Much Concerned About Miller's Fate'"; date and place not
given--taken from html version of source provided by ISP.]
[FBIS Translated Text]
Boris Fedorov, who has retained his seat on the Gazprom board of directors, has in recent times
not only begun to criticize the management much less, but generally to speak out publicly about
the work of the concern. Our Vremya Novostey observer, Aleksey Grivach, asked the
independent Gazprom director to share his views on the current problems of activity of major
Russian companies.
[Correspondent] You have become less critical in your assessment of the situation at
Gazprom. Do you associate the positive changes with Miller's arrival or, rather, with
Vyakhirev's departure?
[Fedorov] As an objective person, I make my judgments based on the changes which are
occurring. If the pilfered assets are returning, if businesses outside of our profile description are
101
being sold, if we are being told of financial effectiveness and of a strategy of development, and if
attempts are being made to restructure indebtedness on more advantageous conditions--is this not
positive? Under Vyakhirev, there was a situation whereby nothing was done on any of the
aforementioned directions. Today, the situation has qualitatively changed: They are fighting
against Stroytransgaz, returning SIBUR, and have sold the NRB. It is another matter that we
need to create a stronger team. Not to change the people in the top management after a few
months of work, as was the case with Siyenko in Gazeksport (Oleg Siyenko, who replaced Rem
Vyakhirev's son Yuriy in the post of the company's general director, worked there for less than 5
months--editor). We cannot make such mistakes. It is too important of a direction.
[Correspondent] Were there any surprises for you at the Gazprom shareholder's meeting?
[Fedorov] The complement of the board of directors was retained. I am referring to state
representatives and independents. There were no surprises. Those who monitored the events
could see perfectly well that Fedorov was absolutely not nervous, because he knew how many
votes he had. As for the management, as expected, the representatives of the old team
disappeared from the board of directors. There were certain doubts about whether Vyakhirev
would actually leave for good. But ultimately, these seats were occupied by Miller and his
people.
[Correspondent] Did you expect that specifically those people would be elected from the
management (on the new board of directors, the management is represented by Chairman of the
Board Aleksey Miller, Deputy Chairman of the Board Aleksandr Ananenkov and head of the
board apparatus, Mikhail Sereda)?
[Fedorov] Anenkov is in fact the first deputy chairman of the board. What can be surprising
about his selection? According to the code of corporate management of Gazprom, the
management may be represented on the board of directors by only two people, but the company's
management had enough votes for three seats. Several months ago, I asked how this question
would be resolved, and the reaction to it was rather nervous: Supposedly, everything would be
within the scope of the law. As a result, Mr. Sereda, who is not formally a member of the board,
became the third representative of management.
[Correspondent] How do you appraise the fact that such ambitious members of the
government as Minister of Energy Igor Yusufov and head of the FEK [Federal Energy
Commission] Georgiy Kutovoy were not elected to the board of directors?
[Fedorov] Evidently, this is a question of succession. Honestly speaking, I did not expect
any drastic changes.
[Correspondent] Dmitriy Medvedev, first deputy head of the Kremlin administration, once
again heads up the Gazprom board of directors. At the same time, he is often criticized for the
fact that liberalization of the market in the company's shares, which was undertaken by the work
group under his leadership, never came to pass...
[Fedorov] I believe that Medvedev's commission fulfilled its mission. I am not entirely
happy with its recommendations from the standpoint of content, but that is another matter. The
problem is that specific decisions on the basis of these recommendations have not yet been
adopted. But this is already a question for the government, and, of course, for the management.
The recommendations were presented, but no one in government focused attention on this topic,
because it does not bear direct relation to the reform. At the same time, according to the idea,
102
this should worry Gazprom itself most of all. After all, we are talking about increasing
capitalization and investment attractiveness. But in connection with the latest changes in the
management, it is unclear what position it holds. Vitaliy Saveyev (former deputy chairman of
the board of Gazprom in charge of finances--editor) understood that this was necessary, but we
cannot say that about the new financier. I get the impression that the company's management is
not sufficiently defending and promoting this idea. Perhaps it would make sense for the
president to instruct Medvedev to conclude the process of liberalization, to grant him the
appropriate powers and authorities.
[Correspondent] How do you appraise Savelyev's departure?
[Fedorov] The man worked for less than a year at his post. He had barely delved into his
work--and here was another change. This appears strange, to say the least. The directors
received no explanation for this. After all, he was not fired for some errors or omissions, but, as
is usually the case with us, he wrote a resignation "of his own volition." Vitaliy Savelyev had
developed a good financial program. In my opinion, the dismissal was associated with the fact
that Gazprom as yet has no team spirit and lacks the necessary level of cohesion.
[Correspondent] And what were your impressions of the new head of the financial
department, Boris Yurlov?
[Fedorov] I am not personally acquainted with him. Furthermore, I know very little about
him. In broad economic circles, he is known much less than his predecessor. Aside from that,
as yet we have not been presented anything to replace Savelyev's program. And the absence of
clarity for investors always leads to concern. These questions will undoubtedly be present on the
future agenda of the board of directors.
[Correspondent] How stable is Gazprom's financial position today?
[Fedorov] I have repeatedly stated that the level of gas prices within the country does not
correspond to the tasks facing Gazprom. The largest reserves of gas in the world are, of course, a
good thing. But, in order to extract them, billions of dollars are needed. And as long as
Gazprom sells a significant part of the fuel which it extracts at a loss to itself, [these billions] will
not be forthcoming. Undoubtedly, the company will fulfill its investment program for this year.
But is this what leads us to the future? It is aimed at stabilizing production. Yet there is no
discussion of any serious increase in volumes in the nearest time. Excuse me, but I cannot
consider an increase from 512 billion cubic meters of gas per year to 520 to be an increase as
such. Gazprom has no money for increasing production. Whatever the company borrows on the
markets goes primarily for re-financing the huge debt. The worst thing about the domestic tariffs
is their uncertainty. Gazprom must be given a plan for increasing tariffs for a term of 5 years.
For example, during this time prices would grow by 15 percent in the real expression annually,
after inflation. Then it would be possible to at least somehow make plans.
[Correspondent] Aleksey Miller is constantly surrounded by rumors of resignation, and these
rumors are heated up by his illnesses and vacations. Is this normal, or will the "aggressive
environment" sooner or later have an effect on his positions?
[Fedorov] I am very much concerned about the fate of Miller himself, because there are too
many unpleasant rumors surrounding his name. As they say, may God grant him good health,
because, if the leading personage of such a company is always sick, this has a negative effect on
his ability to manage. I believe that Miller has had a positive effect on the situation at
103
Gazprom. But he needs to be a tougher leader.
[Correspondent] After your personal contact with the head of Gazprom, did you get the
impression that he has the qualities to be tougher?
[Fedorov] If his health permits, then undoubtedly he does. By his character, by that which he
implemented this year, this is within his powers.
[Correspondent] What, in your opinion, are the prospects of SIBUR? Why was Gazprom
able to return the seemingly lost assets with relative ease, but when the "time of peace" came and
it was necessary to build a normal business, the process ground to a halt?
[Fedorov] To raid, to take away, to sue--that is one sphere of activity. Another sphere is,
having returned the assets, to try to make an attractive business out of them. The main task for
the present day, in my opinion, is to hammer together a working holding company out of
SIBUR. Because it will not do to invest $350 million and a great deal of reputation, and then to
leave it all.
[Correspondent] Does Gazprom have sufficient financial and organizational capacities to
make a Russian BASF out of SIBUR, or will it gradually be sold off piece by piece to oil
producers?
[Fedorov] In regard to the sale--the question is for how much and when. We must act
carefully. Let us take that same NTV. Although I harbor no sympathies for Mr. Jordan, I get
the feeling that some semblance of a holding company is being created there. A business
strategy is being built. However, I believe that, in any case, the media assets should be sold
before the elections, while the price on them is highest, and not the other way around. When
they say "after," this is already a political factor. In the case of SIBUR, there is uncertainty.
However, the best variant would be to create a holding company which would at least operate, so
as to be able to sell it for decent money. Not to the Russian oligarchs, who will not buy anything
at an expensive price, but to that very same BASF. But this takes time, skilled managers, and
investments. In my opinion, Gazprom should have enough resources for this.
[Description of Source: Moscow Vremya Novostey in Russian -- daily paper created in 2000 by
disgruntled correspondents from Vremya MN; reportedly has links to the Presidential
Administration.]
Doubling of Gazprom Capitalization 'Founded on Myth'
CEP20020806000393 Moscow Nezavisimaya Gazeta in Russian 30 Jul 02 pp 1, 3
[Article by Polina Kanevskaya: "An Investor Trap; the Gazprom capitalization bubble may burst
at any moment" -- taken from html version of source provided by ISP]
[FBIS Translated Text]
On the eve of the Gazprom annual shareholdings meeting the company's management joyfully
announced that over the previous year the company had increased its capitalization two-fold. This
fact is surprising in itself, but it is also surprising because analysts and journalists made virtually
no mention of it in their commentaries. After all, strictly speaking there have been no real
104
economic grounds for such an increase in the market price of Gazprom shares. Let us recall what
has been happening both within the gas monopoly and around it: at the beginning of last year
there were forceful statements of discontent from all sides with the Vyachirev team and in May
there was a change of management.
After his appointment the new chairman of the board Aleksey Miller "went underground" for
almost four months to study the situation, and September brought the start of a purge of the gas
monopoly's management cadres. Then people began to reproach the new team for indecisiveness
and an inability to get anything done. The year culminated in scandals involving the removal of
assets and rumors about Miller's imminent retirement. Many of Gazprom's partners are now
claiming that chaos and internal tension are on the increase within the company. So how could
such a growth in capitalization have occurred?
The reply to this question consists of three parts. First, one year ago investors had great faith in
Miller's team and it looked as though it would be necessary to dismiss Vyachirev and turn
Gazprom into a completely different company -- a company that was open and comprehensible in
market terms. Second, the government promised to break down the barrier between the internal
and external markets in the company's shares. As a result investors rushed to buy up "domestic"
Gazprom securities, which would increase in value in the event of market liberalization. And
third, information exists to the effect that the gas monopoly has itself made titanic efforts to buy
up its own shares via front companies in order to raise their value. It is quite possible that
Gazprom's own resources were used for this.
Ultimately the company's management was able to present itself very favorably to shareholders
on the eve of the annual meeting. Nevertheless, if we can ignore this fact the following
conclusion presents itself: the reality is that the two-fold rise in the gas monopoly's capitalization
is founded on myth, and this will become increasingly clear with the passing of time.
Investment companies have already found themselves in a complicated situation. There are more
people wishing to sell Gazprom shares than there are people rushing to acquire them. The market
has now got close to a point beyond which the price of the monopoly's securities will begin to
fall. Investment companies will be faced with the task of explaining this to their portfolio clients.
It is worth noting that since Gazprom made changes to its management team only one serious
investor -- the German concern Ruhrgas -- has increased its stake in the monopoly's capital. And
this company is one of Gazprom's strategic partners and a major purchaser of Russian gas. It is
concerned with ensuring reliability of supplies and has never worried about the market price of
the shares.
Private investors now find themselves in a ridiculous situation. Eighteen months ago they
instigated the publication in the Financial Times, the Wall Street Journal and their Russian
subsidiaries of articles claiming that President Putin would only show loyalty to reforms if
Vyakhirev was removed and the Gazprom share markets were united. Now, however, nobody on
the domestic market believes in either Miller or in liberalization.
The majority of investment analysts now admit that the initial expectations placed on Miller's
work in Gazprom were unjustifiably high. And that essentially all the talk about liberalizing the
market in the monopoly's shares proved to be a deception. For the next two-three years we can
forget all about a unification of the share markets. Nobody is going to make any radical changes
in this sphere before the presidential elections -- and all sober-minded analysts and investors, who
know the situation from the inside, understand this very well. But the only way to save the
105
financial pyramid of Gazprom capitalization is to attract increasing numbers of new clients. In the
West there is still a belief that a new team plus the amalgamation of share markets "is equivalent
to" an increase in the exchange rate. So there is only one way out for Gazprom and the investment
companies: they have to try and attract as many share purchasers as possible in the West.
At the same time all the serious players on the Russian gas market know that Aleksey Miller is
indeed very seriously ill. In fact he is so ill that he may have to leave the company. It is easy to
suppose (if the hopes placed on foreign buyers are not justified) that the collapse of the increasing
market-value pyramid of Gazprom's shares may coincide with Miller's retirement. At the very
least the speculators who make money from gas securities are counting very heavily upon this.
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Russia: Gazprom executive says reshuffling in Gazexport due to restructuring
CEP20020806000115 Moscow Interfax in English 0735 GMT 6 Aug 02
[FBIS Transcribed Text]
MOSCOW. Aug 6 (Interfax) - The dismissal of Oleg Siyenko from the leadership of Gazexport,
the foreign trade subsidiary of Gazprom, is related to his policy of restructuring exports, said
Stanislav Tsygankov, head of the Gazprom foreign relations department.
"Gazprom is a gigantic, well-functioning mechanism with a certain system of relations with
European partners, among others. Siyenko probably started revising everything that was
developed over the years too energetically," he said in an interview with Kommersant daily,
published on Tuesday.
Tsygankov said the Gazexport leadership took certain steps to contact end users in
circumvention of traditional partners (Ruhrgas, Gaz de France, Wintershall and ENI).
"And this by no means meets their interests. Stability is important for Western partners," he said.
Tsygankov also mentioned the export of liquid hydrocarbons as another serious problem. In his
opinion, Siyenko tried "to take this business away from other companies for the benefit of
Gazexport, and Gazprom management didn't like that."
He said that though the reduction of the number of mediators in gas exports would increase
Gazprom profits, the company is also interested in cooperation with Western gas companies.
"For instance, in a consortium with Germany, Gazprom will take part in running the Ukrainian
gas transportation system taking Russian gas to Europe. Together with the French Gaz de France
and German Ruhrgas Gazprom owns a stake in the Slovak gas transporting company SPP; the
consortium acquired 49% of it, and Gazprom has an option to get one-third of the stake in a year
and a half, so our interests are mutual," Tsygankov said.
Speaking of a possible candidate for chief of Gazexport, he said the company "should be led by
a political figure who would be well- known to the Western partners of Gazprom."
"The duties of the head of Gazexport are currently performed by Gazprom deputy board
chairman Yuri Komarov, and I don't know whether he will take the post, or someone else,"
106
Tsygankov said.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Kommersant: Putin, Gazprom CEO 'Probably' Discussed Personnel
CEP20020805000057 Moscow Kommersant in Russian 03 Aug 02
Reference:
1. 1.
[Report by Irina Rybalchenko: "Vladimir Putin Summons Gazprom Chief From Leave" -- taken
from HTML version of source provided by ISP]
[FBIS Translated Text]
Russian President Vladimir Putin summoned Gazprom CEO Aleksey Miller from leave yesterday
[2 August]. According to official information, during their meeting they discussed gas prices and
the issue of Gazprom's preparation for the winter heating season. But according to unofficial
information, they discussed upcoming personnel reshuffles within Gazprom and its structures.
According to figures from the Ministry of Energy, total gas production in Russia in JanuaryJuly 2002 was 347,132 billion cubic meters, which is 3.5-percent (11.7 billion cubic meters)
higher than the same indicator last year. Some 44.59 billion cubic meters of gas were produced
in July. Total Gazprom production in the first seven months of the year reached 303.41 billion
cubic meters (the figure for July being 38.63 billion cubic meters).
"Aleksey Borisovich was told yesterday that the president wanted to meet with him. He
(Aleksey Miller -- Kommersant) was on leave in the Moscow region at the time and, naturally,
accepted Putin's offer," Igor Plotnikov, head of the Gazprom Press Service, explained to
Kommersant yesterday. According to the information from the company press service, Vladimir
Putin and Aleksey Miller discussed the questions of preparations for the winter, the results of
Gazprom's work in the first half of the year, the prospects for developing new gas fields, and gas
price increases.
It is not clear why all of this had to be discussed at this particular time and why Aleksey Miller
had to be recalled from his leave, which will be over in two weeks' time -- there are at least two
months to go until the heating season starts, and the questions of gas price rises and the
development of new fields are not urgent.
Of far more importance for the Russian economy today are the prospects of attracting foreign
investment -- specifically into the gas sector. But Mr. Miller was not present Thursday during the
visit to Gazprom by the delegation headed by US Energy Secretary Spencer Abraham (as
107
reported by Kommersant).
Instead, Deputy CEO Aleksandr Ananenkov (who, incidentally, also reported to shareholders at
the annual meeting, where Aleksey Miller was absent through illness) held talks with the guests.
It is worth noting that no specific statements were made on the results of the discussion of gas
issues. Kommersant was told by Gazprom that it does not know any details of the meeting. The
Presidential Staff Press Service was also silent. News agencies merely quoted the Gazprom
chief's comments on the current state of relations with Sibur, which Mr. Miller has called poor.
"A new board of directors (of the Sibur company -- Kommersant) with Gazprom representatives
in the majority has now been elected. New managers of the company have been appointed.
Sibur's main assets have been returned to the state, and a business plan for the next five years is
currently being drawn up," the Gazprom chief added. Vladimir Putin's rejoinder to the effect that
the rate of the population's incomes growth should be higher than price rises in general and rises
in prices of energy sources and gas in particular was also quoted.
A ranking Kommersant source at Gazprom assumes that the meeting most probably discussed
personnel matters. We would recall that last month two key figures -- Oleg Siyenko, general
director of the Gazeksport Limited Company (Gazeksport is a Gazprom subsidiary tasked with
gas sales to EU and East European countries), and Deputy CEO Vyacheslav Sheremet, the last
representative of former Gazprom chief Rem Vyakhirev's team -- were dismissed at the same
time. According to Kommersant's information, Mr. Siyenko paid for his excessive autonomy -his attempts to optimize the company's work and to make its export policy more open ran
contrary to the interests of the Gazprom leadership. As far as Mr. Sheremet, who was in charge
of financial matters at Gazprom, is concerned, his contract, which expired several months ago,
was not extended. He was effectively removed in the wake of his arrest [zaderzhaniye] in the
criminal case with former Sibur President Yakov Goldovskiy 8 January 2002. And yesterday's
meeting probably discussed possible successors to these dismissed top managers. Gazprom and
the Presidential Staff are for the time being refraining from commenting officially on the subject.
Kommersant will be monitoring developments.
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]
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Russia: Gazprom chief, US Energy Secretary discuss cooperation
CEP20020801000257 Moscow Interfax in English 1538 GMT 1 Aug 02
[FBIS Transcribed Text]
MOSCOW. Aug 1 (Interfax)- During their meeting in Moscow on Thursday, U.S. Energy
Secretary Spencer Abraham and Alexander Ananenkov, the acting chairman of gas giant
108
Gazprom's executive board and a member on the company's board of directors, discussed the
development of cooperation in the energy and gas industries between corresponding Russian and
U.S. companies.
In a press release, Gazprom said that Abraham forwarded an official invitation to Gazprom to
take part in a U.S.-Russia oil and gas summit scheduled for early October 2002 in Houston,
Texas. This summit is expected to become "a new phase in the development of gas cooperation."
This forum might also address key issues such as the application of state-of-the-art technologies
in gas production and transportation, investments in the gas sectors of Russia, the U.S. and other
countries in addition to joint projects involving the two countries' oil and gas companies and
supplies of Russian liquefied gas to the United States, according to the press release.
Ananenkov briefed the U.S. energy minister on the main avenues of Gazprom's activities,
including a program aimed at developing a single gas network in Siberia and the Far East and a
program for the development of oil and gas deposits on the Yamal peninsula. The parties also
discussed options for working with independent gas producers in addition to the domestic gas
pricing system.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Intelligence Online Details Gazprom's 'Robust Performance,' Russia's Oil Strategy
EUP20020726000404 Paris Intelligence Online WWW-Text in English 26 Jul 02
[FBIS Transcribed Text]
The world's leading gas producer, Gazprom, is working to achieve Russian president Vladimir
Putin's goal of competing with the Gulf states.
The Kremlin's strategy has made progress despite some glitches springing from the past.
Overall, Gazprom has been making headway in the 18 months since its pro-Yeltsin management,
accused of robbing the group, was thrown out and replaced by executives loyal to president
Vladimir Putin (the Russian government owns 38.5% of the group). The new management under
Alexei Miller has just achieved its goal of producing 520 billion cu.m. of products in 2002 and is
counting on net earnings of 63.5 billion rubles in the current financial year.
That robust performance can only give a boost to the Kremlin's desire to take advantage of
energy opportunities arising out of the Sept. 11 terror attacks, and particularly following an
agreement signed with U.S. president George W. Bush during his trip to Moscow in May.
Putin is now determined to see Russia form part of a common energy pool with the European
Union and is calling on Brussels to do away with restrictions on energy imports from non-EU
nations.
But achieving such expansion means overcoming a number of obstacles. For instance,
Gazprom will need to build new gas pipelines and invest in modernizing older ones. With regard
the pipeline between the Siberian gas field of Yamal and Western Europe, Gazprom plans to
109
acquire the Polish firm PNGig in order to ensure funding for three compressor stations. Once
built, they will increase the capacity of the pipeline, opened in 2000, from 20 billion cu.m./year to
33 billion in 2003.
An accord between the Russian and Polish governments provide for the Poles to take a $150
million stake in the venture.
In Western Europe, Gazprom teamed up with Gaz de France and Ruhrgaz this month to acquire
a 49% holding in the Slovak firm SPP for $2.7 billion. SPP has a delivery capacity of 90 billion
cu.m./year. But on the eastern side of the CIS Gazprom is also bolstering its position. Early this
month it acquired 15% in a consortium that will manage China's biggest gas pipeline, a 4,000 km
line running to Shanghai from the troubled province of Zinjiang.
As for resources, the new gas fields to which Gazprom has access guarantee its future even
though funding for some of the fields will come from abroad. For instance, France's TotalFinaElf
has just begun talks to join a consortium formed by Conoco, Norsk Hydro and Fortun that will
exploit the Chtokman field in the Barents sea. It has an identified annual production potential of
around 70 billion cu.m., probably for 30 to 40 years. But production won't start until 2010 and
development costs of the field are estimated at $20 billion, of which $7 billion in the mediumterm.
To help finance its extensive modernization program, Gazprom has just borrowed $250 million
from Societe Generale guaranteed against future production over a six year period. The terms
depend on the loan also being partly guaranteed on future deliveries from the Czech importer
Transgaz, based on a long-term export contract for natural gas that Transgaz signed previously
with Gazprom.
According to observers, the fact that Societe Generale is putting up the entire loan reflects
Russia's return to the good graces of Western banks. Still, not all of the negative factors in
Gazprom's operations have been eliminated. For instance, the local price of Russian gas remains
below world prices in order to jibe with the government's anti-inflation policy. This has reduced
money available for upgrading equipment.
There are also problems dating from Gazprom's ?bad old days.? According to judicial sources,
the former management team close to Rem Vjehirjev has succeeded in siphoning off between $2
and $3 billion per year through a complicated raft of offshore firms that remain operational. The
murder of a Gazprom executive by professional hitmen in Novgorod on July 20 makes it plain
that organized Russian crime still wants its part of the Gazprom cake.
INTELLIGENCE ONLINE N° 434
[Description of Source: Paris Intelligence Online WWW-Text in English -- Internet subscription
service run by the French Indigo Publications press group (root URL: http://www.indigonet.com/) devoted to providing political and economic intelligence ]
110
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Russia: Gazprom's profits to fall in 2002
CEP20020726000124 Moscow Interfax in English 1112 GMT 26 Jul 02
[FBIS Transcribed Text]
MOSCOW. July 26 (Interfax) - Gazprom's profits in 2002 will fall, company executive
Alexander Kruglov told journalists on Friday.
He said that the main reason for the drop in profit is a drop in gas prices on the external market.
Kruglov noted that while in the first quarter 2001 the average price for gas in Europe was $120
per 1,000 cubic meters, in the first quarter this year this had fallen to $92 per 1,000 cubic meters.
The executive did not say by how much profit would fall. However, he noted that the expected
drop would not be critical for the company.
Gazprom experts said on Thursday that a drop in the company's profit was likely.
Gazprom unconsolidated net profit in 2001 amounted to 71.9 billion rubles, up 62% from 2000.
Kruglov said that Gazprom's financial situation might be improved by resolving the problem of
accounts receivable with buyers of gas. The largest reserve in this area is the CIS, particularly
Ukraine and Belarus, he said.
Gazprom is currently involved in talks with Ukraine on a method for payment of gas debt
amounting to $1.4 billion. According to Kruglov, the company is not currently satisfied with
Ukraine's proposal to pay the debt in the form of Eurobonds. However, he said that Gazprom has
not totally rejected this idea, and that the financial conditions for supplying the company with
Naftohaz Ukrayiny Eurobonds needs to be discussed.
Kruglov also said that at the moment the company is completing preparation of an international
report for 2001. The need to include information on SIBUR activity has caused some delay with
the publication of this report.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Russian shares drop sharply, Gazprom down over 11 percent
CEP20020724000091 Moscow Interfax in English 1015 GMT 24 Jul 02
[FBIS Transcribed Text]
MOSCOW. July 24 (Interfax) - The drop in price for liquid Russian shares had become very
sharp by midday Wednesday on the heels of a record drop in U.S. stock indices on the previous
111
day.
By 13:00 Moscow time, prices for blue chips were down 3%-7.8%, with many shares returning
to the price level of last year. Gazprom shares saw the largest drop - plummeting over 11%.
Gazprom shares on the St. Petersburg Stock Exchange, traded through RTS terminals fell 11.9%
to 23.83 rubles, passing all lower resistance levels.
The RTS index fell 5% to 333.36 points, easily falling below the psychologically important level
of 350 points.
Dmitry Druzhinin, chief analyst with the Prospekt investment company, said that the Russian
market has long resisted falling foreign stock indices, the decline was not as sharp as in the U.S.
or Europe, mainly due to domestic demand.
"However, the patience of market participants has ended, sales have increased sharply and not
only domestic investors are selling - but non-residents also," he said.
As regards Gazprom, the market has remembered the company's recent negative report for the
first half, indicating a drop in net profit of over 35% year-on-year. In addition, investors' hopes
that Gazprom shares would have the most growth potential in the oil and gas sector have started
to shatter. These expectations could have been realized if reform had continued in the company
and its share market had been liberalized. However, all that was promised was not fulfilled," he
said.
According to Trinfiko expert Yevgeny Shtange, shares are now being sold throughout the
market and the plummet in Gazprom share prices may be due to insider information, which the
market will learn in two to three days. "It is likely that something is happening concerning the
company, some negative event, which will come to light in the future," he said.
In addition to Gazprom, other companies to see a major drop in share price were Lukoil (-6.5%),
Sibneft (-11%), Surgutneftegaz (-7.8%) and Yukos (-6.7%).
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Russia: Gazprom CEO Miller Dismisses 'Last' Vyakhirev Team Player Sheremet
CEP20020719000158 Moscow Kommersant in Russian 19 Jul 02 P 9
[Unattributed report: "Vyacheslav Sheremet Dismissed"]
[FBIS Translated Text]
Kommersant has learned that Aleksey Miller, chairman of the Gazprom Joint-Stock Company
management board, signed an order yesterday regarding the dismissal of Vyacheslav Sheremet,
one of his deputies. Mr. Sheremet is currently on a planned vacation and there is every indication
that he will not be returning to the company in August when his vacation is over.
So far Gazprom has provided no official announcement on this dismissal but the dismissal is
more than expected . Vyacheslav Sheremet is the last and most important player in the team of
Rem Vyakhirev, the former Gazprom CEO (now adviser to Dmitriy Medvedev, deputy chief of
the Presidential Staff and chairman of the Gazprom board of directors). At one time Mr.
112
Vyakhirev even considered him as a possible successor. According to Kommersant's
information, Gazprom's contract with Vyacheslav Sheremet came to an end a few months ago,
however, the question of extending his contract was not even discussed by the Gazprom board of
directors. In all probability, it was decided not to dismiss Mr. Sheremet in order to avoid a
scandal with the former Gazprom boss.
The manager's dismissal will have no impact on Gazprom's affairs. Vyacheslav Sheremet, who
oversaw the Company's financial affairs, was to, all intents and purposes, barred from any
involvement following his detention under the same criminal case as Sibur former president
Yakov Goldovskiy 8 January 2002 and, according to Kommersant's information, played no major
part in Gazprom's activity after this.
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]
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Unclassified
Russia: Plans to liberalize trade in Gazprom shares submitted for review
CEP20020628000243 Moscow Interfax in English 1250 GMT 28 Jun 02
[FBIS Transcribed Text]
MOSCOW. June 28 (Interfax) - Proposals on liberalizing the trading in Gazprom shares have
been drawn up and submitted to Russia's leadership, Gazprom Chairman of the board Dmitry
Medvedev said at a Friday press conference in Moscow following an annual shareholders
meeting.
Specific decisions on this issue will be made "rather soon," Medvedev said. What is important
now is estimating the consequences of this or that decision on liberalizing the share market, he
said.
The state is not planning to sell any shares from its stake in the concern's charter capital, which
is now over 38%, Medvedev said.
He also said he does not see "anything alarming in the fact that oil companies have been
engaging in the gas business," and "Gazprom should get adapted to new realities."
At the same time, companies operating on the gas market should abide by acting laws and rules
of this market, and Gazprom cannot be put in an initially unequal situation as compared to oil
companies, the chairman of the Gazprom board said.
Touching on the sale of Gazprom's media assets, Medvedev admitted that they are non-core
ones. "Of course they should be sold, but only when it is profitable for the company," he
emphasized. The capitalization of those assets should first be increased to a level that would make
113
it possible to consider their alienation, he said.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Unclassified
Russian Deputy Economic Minister Sharonov Cites Ministry Proposals on Gas Market
Reform
CEP20021218000254 Moscow Kommersant in Russian 18 Dec 02 P20
[Interview with Andrey Sharonov, Deputy Minister of Economic Development and Trade of the
Russian Federation, conducted by correspondent Irina Rybalchenko: "Interview. Andrey
Sharonov, Deputy Minister of Economic Development and Trade;" place and date not given-taken from html version of source provided by ISP.]
[FBIS Translated Text]
Interview. Andrey Sharonov, Deputy Minister of Economic Development and Trade:
"There will be no price leaps."
[Correspondent] The government is planning to discuss liberalization of Russia's gas market.
What is Minekonomrazvitiye [Ministry of Economic Development and Trade] proposing?
[Sharonov] One of Minekonomrazvitiye's main proposals is the development of the system of
trade relations. Today, the gas market is a super-monopolized sphere of activity. Gazprom
takes up a gigantic share of this market--over 90 percent. The remaining 10 percent are
comprised primarily of isolated gas systems, where there is no Gazprom, but there is also no
competition. We are proposing to create an unregulated sector of gas trade already as of next
year, with the mandatory participation of independent producers, so that they would have a real
opportunity to pump their gas through the Gazprom pipeline. Furthermore, Minekonomrazvitiye
is proposing to introduce separate regulation of tariffs on pumping gas for all market participants,
including for Gazprom, as well as gradual liberalization of prices on gas. At the same time, the
rates of liberalization must be different: The socially sensitive group of consumers (housewives,
public-sector enterprises and organizations) must be guaranteed a more gradual increase in prices,
while industrial consumers and power producers would have to change over to market principles
at a faster pace. We have already sent out the draft document to all of the ministries and
departments of this profile: Minenergo [Ministry of Energy], MAP [Ministry on Antimonopoly
Policy], FEK [Federal Energy Commission], Minfin [Ministry of Finance] and Minimushchestvo
[Ministry of Property Relations], as well as to Gazprom itself, with which we had performed
constant coordination.
[Correspondent] What was Gazprom's reaction?
[Sharonov] As yet, I do not know Gazprom's final reaction, but I can say that they were not
114
entirely in agreement with us. Gazprom is speaking out in favor of integrity of the company's
structure. But we, in the course of our in-house consultations, placed the main emphasis on
analysis of resources and potential of Russia's gas market, the system of trade relations, the
existing taxation, state regulation, and the ratio of supply and demand. In other words, we want
to clearly demonstrate that the objective prerequisites for reorganization do exist. It is
specifically such an analysis that brought us to the need for transformations. Aside from this, we
also relied on foreign experience. Today, the question of reforming the natural monopolies has
affected practically everyone: Europe is speaking out in favor of liberalization of the markets in
gas and electrical energy, and in the USA these reforms were implemented not too long ago.
[Correspondent] You said that the creation of market conditions would lead to growth of
tariffs on gas. Does this mean that there will be a drastic price leap already as of next year?
[Sharonov] There will be no [price] leaps. We cannot and should not implement reform in
such a way as to put all of the gas consumers in Russia on the brink of bankruptcy. But we must
develop a strategy of gradual increase, which would take place over the next 2-3 years.
[Correspondent] Independent gas producers insist that today they are not interested in export
of gas, due to the overly high transport tariffs. They are prepared to meet Russia's domestic
demands, which fully corresponds to the interests of Gazprom--it would be able to export more
gas. But for this, they are asking that gas prices be increased by an order. To what degree is this
possible?
[Sharonov] Independent producers cite the threshold of entry into the market at $30-$35 per
1,000 cubic meters. Our position consists of making the domestic and foreign gas markets
equally profitable. For now, this is rather hard to do, because we must ensure access by
independent producers to export according to the principle of proportionality of production. At
the same time, we are speaking out in favor of retaining a single exporter, so as not to create
competition between sellers of Russian gas on the foreign market.
[Correspondent] That is, the structure of Gazeksport-- the Gazprom operator for sale of gas on
foreign markets--will be retained?
[Sharonov] I will not take it upon myself to say which organization will deal with export
questions in the future. For now, I can only presume that, in the nearest time, everything will
remain as it was before. That is, Gazeksport will be the operator for export deliveries. The
main thing is to provide the independent producer with the opportunity to export gas.
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]
Russia: Fedorov says liberalization remains major problem for Gazprom
CEP20020628000144 Moscow Interfax in English 1133 GMT 28 Jun 02
[FBIS Transcribed Text]
MOSCOW. June 28 (Interfax) - Liberalization of the market for Gazprom shares still remains one
115
of the most important and pressing tasks for the gas monopoly, Boris Fyodorov, who was elected
to the company's board at the annual shareholders' meeting, said.
In an interview with Interfax on Friday, the described the situation on the market for the
company's shares as "inadmissible."
"The Russian president more than a year ago gave investors a certain advance and set up a
special commission that reached come conclusions. However, the government did not move one
centimeter towards liberalization in this time," Fyodorov said.
He also stressed that the second most pressing problem for the gas monopoly is tariff policy.
"There should be no revolutionary measures in this area, however the government needs to
realize that delays in reaching a decision harm both Gazprom itself and the federal budget. The
government, together with Gazprom, needs to establish how to bring gas tariffs into line with
other sources of energy over several years, without any shocks," the Gazprom board member
said.
Commenting on the results of the Gazprom shareholders' meeting, Fyodorov said that he is
satisfied.
"I am satisfied with the results of the meeting, which were not unexpected for me. I think that
company management will continue all the undertakings announced earlier and, in particular, will
continue to return illegally removed assets," he said.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Russia: Aleksey Miller to remain CEO of Gazprom
CEP20020628000108 Moscow Interfax in English 1042 GMT 28 Jun 02
[FBIS Transcribed Text]
MOSCOW. June 28 (Interfax)- Gazprom head Alexei Miller will continue to
perform his duties, Dmitri Medvedev, deputy chairman of Gazprom's board of
director, said at a news conference in Moscow on Friday.
"Miller did not attend the shareholders meeting per doctors'
recommendations. However, he voted with a state-owned stake in the morning. The
board of directors did not discuss staff appointments," Medvedev said.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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116
Russia: Gazprom ready to dispose of all non-core assets
CEP20020628000064 Moscow Interfax in English 0843 GMT 28 Jun 02
[FBIS Transcribed Text]
MOSCOW. June 28 (Interfax) - Gazprom is ready to get rid of all its non-core assets, board
member Alexander Krasnenkov told a Friday news conference in Moscow.
The company is energetically working in this direction, he added.
He noted that the issue of selling media assets will be decided before the end of the year.
Krasnenkov said that Gazprom's investments in non-core assets constitute 10% of the company's
balance.
Gazprom's Vice CEO Boris Yurlov, who also spoke at the conference, said that the company
intends to sell non-core assets worth 9 billion rubles in 2002 and 6 billion rubles in 2003.
The sale of non-core assets and reducing costs is part of Gazprom's short-term development
strategy, he said.
Another of Gazprom's short-term goals is to reach a break-even level on the domestic market.
Furthermore, the company needs to plan its tax payments more accurately. In 2001, Gazprom
paid 238 billion rubles in taxes to all budget levels, Yurlov said.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Russia: Gazprom seeks larger share for independent gas producers
CEP20020626000293 Moscow Interfax in English 1427 GMT 26 Jun 02
[FBIS Transcribed Text]
MOSCOW. June 26 (Interfax) - Gas giant Gazprom has called for increasing the share for
independent producers in Russia's gas balance from the current 70 billion cubic meters to 120150 billion cubic meters, deputy chairman Yuri Komarov has said.
Komarov was speaking at the conference titled "Oil and Gas -2002."
He said significant investments are required for gas pipeline systems to make them available to
independent producers. Russian gas exports outside the CIS are expected to increase up to 170
billion cubic meters by 2008, and "today there is no mechanism that would allow making
effective investments in such large facilities as trunk pipelines."
Komarov said liberalizing gas markets will make gas producers more exposed to risks than
consumers. He said that a possible solution to Gazprom's problems might be the establishment of
an effective domestic gas market in Russia that "would create better investment conditions."
117
Asked whether Gazprom may join the Kovykta project, he said this issue is being discussed and
"everything will depend on whether the balance of interests in observed.
Komarov believes that commercial exports of Russian gas to China are unlikely to continue
through the next decade. He quoted Gazprom experts as saying that China has sufficient gas
reserves.
Commenting on the possibility of more fuel supplies to Britain, Komarov said that given
favorable conditions, Gazprom will be able to increase gas shipments up to 2.5-3 billion cubic
meters in the near future. But this will happen only if the British market is ready for it, he said.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Russia: Gazprom plans to increase gas supplies to Europe 5-10 percent in 2003
CEP20020625000213 Moscow Interfax in English 1253 GMT 25 Jun 02
[FBIS Transcribed Text]
MOSCOW. June 25 (Interfax) - Russian gas giant Gazprom plans to increase gas supplies to
Europe 5%-10% in 2003, Andrei Kruglov, head of the Gazprom corporate finance department,
said at the conference Russia: Reform and Market Growth, organized by Renaissance Capital.
He said that an increase in production to 530 bcm per annum in 2003 and improved conditions
on the European gas market are the prerequisites for growth in gas supplies.
As reported earlier, Gazprom exported 126.9 bcm of gas to Europe in 2001 and plans to increase
supplies to 130 bcm in 2002.
After the launch of the large Zapolyarnoye field, production will stabilize at 530 bcm per annum
and will be kept at this level for the coming 10 years, Kruglov said.
He said that Europe will remain a strategic market for the company in the coming years, as the
share of imported gas in total consumption in this region will increase from 55% in 2001 to 70%
in 2020.
Speaking about the Russian market, Kruglov said that Gazprom would supply about 323 bcm of
gas in Russia in 2002.
He also added that at the moment Gazprom is actively involved in talks for the sale of its noncore assets and plans to receive about 9 billion rubles in revenue from these sales in 2002.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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118
Unclassified
Gazprom Share Price Up 276% After CEO Miller's First Year, Gas Prices to Rise
CEP20020611000158 Moscow Nezavisimaya Gazeta in Russian 11 Jun 02 P 3
[Report by Andrey Pushkarev: "The Miller Show. Gazprom Visits the Regions for Proxy Votes"]
[FBIS Translated Text]
The Gazprom management has gone to meet with the company's shareholders. All this week a
delegation from the gas monopoly will be addressing workers at its subsidiary enterprises in
Ukhta, Nadym, Novyy Urengoy, Yugorsk, and Tyumen. All this is being done, and not the first
time either, to share information on Gazprom's work on the eve of the annual meeting and secure
the proxy votes of shareholders working at the monopoly's enterprises. This time the company
management will talk about the most important thing for shareholders in the northern gasextracting regions -- gas prices.
The summing up of last year's results is a report on the work done by Aleksey Miller who
joined Gazprom 1 year ago. This is why people in the company itself are noting in particular that
in the period from May 2001 to May 2002 the monopoly's share price has almost tripled -- it has
risen by 276 percent. In the current year the market price of a share in the gas monopoly has
passed the psychologically important point of one dollar whereas last year the share price
averaged R12.73 or 44 cents. Thus the company's capitalization (or market value), according to
the figures for 31 May 2002, was $26.522 billion (in 2001 it averaged $11.4 billion).
The company's export earnings exceeded $14.5 billion last year and net profit was R71.9
billion. People at Gazprom are noting that thanks to the additional revenue obtained for gas and
savings on current expenditure the company budget ran a surplus of R9 million in the first quarter
of 2002 for the first time in many years. According to the results of Gazprom's work last year it
is planned to pay a dividend of R10.5 million or 44 kopeks per share. Shareholders are due to
approve this item and also Gazprom's financial accounts and the Code of Corporate Governance
during the gas monopoly's annual meeting which will take place 28 June. It was to prepare them
for this that Aleksandr Semenyak, adviser to the chairman of the Gazprom board, Aleksandr
Tsegelskiy, the deputy chief of the securities administration, and representatives of the
Gazprombank went to meet with shareholders. Yesterday in Ukhta they also announced the
"positive changes" that are now taking place in the formation of the company's pricing policy in
the domestic gas market.
The price of blue fuel in Russia is going to rise. And furthermore in the short term it is
expected that the non-regulated sector will expand and that gas trading floors will be created in
the gas market.
119
[Description of Source: Moscow Nezavisimaya Gazeta in Russian -- Daily Moscow newspaper
aimed at an elite audience and controlled by Boris Berezovskiy.]
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Russian gas giant Gazprom to adopt new approach to CIS, Baltic markets
CEP20020610000288 Moscow ITAR-TASS in Russian 1258 GMT 10 Jun 02
[FBIS Translated Text]
Moscow, 10 June: The chairman of Gazprom's board, Aleksey Miller, has entrusted
responsibility for the sale of gas in the countries of the CIS and the Baltic to Gazprom's
subsidiary, Mezhregiongaz, Gazprom has announced.
Previously, supplies of gas to the CIS and the Baltic were the responsibility of Gazprom's
marketing and gas and liquid hydrocarbon processing department, which has been entrusted,
within the framework of the chairman of the board's instruction and in conjunction with
Mezhregiongaz, with the task of preparing a plan of measures to implement this decision.
According to information from Prime-TASS, the transfer of gas supplies for the CIS and the
Baltic to Mezhregiongaz will enable [Gazprom] to concentrate the flows of gas goods on the
territory of the former USSR and to increase the effectiveness of its gas trading in these countries.
"Mezhregiongaz's entry into the markets of the CIS and the Baltic, which are substantial and
important markets, is a serious step. Gazprom annually supplies these countries with 60bn cubic
metres of gas. The company is starting work on an analysis of contractual relations on the CIS
and the Baltic markets, as well as of prospects for their development," board chairman Aleksey
Miller stressed at an executive meeting.
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
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Russia: Gazprom Head Reports Changes in Company Leadership
CEP20020603000020 Moscow Interfax in English 0519 GMT 3 Jun 02
120
[FBIS Transcribed Text]
MOSCOW. June 3 (Interfax) - Gazprom head Alexei Miller has disclosed changes in the
leadership of his company.
"Rem Vyakhirev has requested the company Board of Directors not to include him on the list of
candidates. The new chairman of the Board of Directors will be elected at the coming meeting,"
he said in a Sunday night TV interview.
Miller said that Gazexport subsidiary until recently led by Vyakhirev's son now also has a new
CEO.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Implications of Boris Yurlov Appointment as Gazprom?s Head of Finance Viewed
CEP20020531000008 Moscow Nezavisimaya Gazeta in Russian 28 May 02
[Report by Varvara Aglamishyan: ?Gazprom Replaces Its Financier. Presidential Staff
Strengthens Its Position in Gas Monopoly? ? taken from HTML version of source provided by
ISP]
[FBIS Translated Text]
Gazprom's main financier has been replaced. Yesterday [27 May], company head Aleksey
Miller appointed to this post Boris Yurlov, Management Board deputy chairman in charge of the
company's financial component. Vitaliy Savelyev who occupied the post was dismissed "in
connection with transfer to another job."
Most analysts believe that the replacement is not going to affect Gazprom significantly. After
all, the new deputy chairman for financial issues is not an independent political figure either, and
the company is becoming "more and more state-run." Boris Yurlov's previous job was in the
Presidential Staff where he occupied the post of first deputy administrator of presidential affairs
in charge of financial-economic issues.
According to Gazprom's press service, Boris Yurlov was born in Moscow on 31 March 1948. In
1972, he graduated from the Moscow Engineering and Physics Institute. For many years he
worked in the CPSU Central Committee staff and in February 1992 became a member of the
collegium at the Russian Federation Ministry of Science, Higher Schooling, and Technological
Policy. In 1993-1994, he worked as chief of the Investment Administration, Management Board
deputy chairman, and Management Board chairman of the Russian Bank for Reconstruction and
Development. He occupied the post of chief of the Oneksimbank KB [Commercial Bank]
Investment Administration in 1994-1996. In 1996-1998 he worked at Rossiyskiy Kredit KB. In
1998-2000 he headed the Project Financing Administration at Russia's Sberbank. In fact, for 10
years he was in charge of similar departments in various banks and tackled project and corporate
121
financing issues. Therefore, he is better known in industrial circles than in the banking sector.
In addition, a month ago, when forecasts regarding the upcoming resignation of Sberbank head
Andrey Kazmin were voiced very distinctly, Boris Yurlov was considered one of the main
candidates for the post. However, at the end of April Kazmin was nominated the sole candidate
for the post of Sberbank leader, and the Presidential Staff advised that Central Bank Chairman
Sergey Ignatyev enter Yurlov on the list of candidates for Sberbank's Supervisory Council.
However, these plans are not fated to come true following Yurlov's transfer to Gazprom. At the
same time, the Bloomberg agency pointed out that the recent personnel reshuffle in Gazprom may
be the beginning of the process to replace the incumbent gas concern Management Board
Chairman Aleksey Miller by Presidential Chief of Staff Aleksandr Voloshin. Having said that,
the gas monopoly is not the only structure where Voloshin has been tipped for leadership with
tiresome persistence for years now.
As for Vitaliy Savelyev, the analysts asked by Nezavisimaya Gazeta to comment on his departure
from Gazprom pointed out that the company management could not have any formal complaints
about him. After all, it is Savelyev who was given credit for the stepping up of control over
money flows and investments, the adoption of the company's financial strategy and investment
program for the year, the issuance of bonds, and the implementation of a program for the
development of internal auditing. Troyka-Dialog investment company analyst Valeriy Nesterov
pointed out that the replacement of Gazprom's main financier can be attributed to two reasons.
First, it is possible that the company leadership developed the impression that a more qualified
specialist should work in this post. And the work record of Savelyev, who prior to his transfer to
Gazprom worked as Menatep Sankt-Peterburg Bank Management Board chairman, is not as
impressive as Yurlov's. Second, all the indications are that a purely human factor -"incompatibility of characters" -- played its role also. This happens when major ambitious
players clash, Valeriy Nesterov pointed out.
[Description of Source: Moscow Nezavisimaya Gazeta in Russian -- Daily Moscow newspaper
aimed at an elite audience and controlled by Boris Berezovskiy.]
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Russian Economic Ministry Favors Gazprom Price Increase
CEP20020529000002 Moscow Vedomosti in Russian 29 May 02
[Article by Aleksandr Bekker and Bulat Stolyarov: "Miller Is in Luck" -- taken from HTML
version of source provided by ISP]
[FBIS Translated Text]
The Ministry of Economic Development and Trade has acknowledged Gazprom's special
needs. According to the ministry's calculations, the gas company's rates will have to be raised by
a third in the second half of the year. The additional $500-700 million Gazprom will collect
122
looks impressive in comparison with the zero rate increase for the MPS [Ministry of Railways]
and the 20-percent increase in the YeES RAO basic fee for subscribers that German Gref's
agency is recommending. The railroads and electric companies are upset.
Vedomosti learned about the contents of the Ministry of Economic Development and Trade's
proposals from a source on the government staff, who related the ministry's analysis of the state
of affairs in the three monopolies, and the ministry's proposals, which were sent to the
government on Monday and signed by Elvira Nabiullina, Gref's first deputy. No one in the
ministry would comment on the proposals.
This is the first time Gref's subordinates have conducted a thorough analysis of the current and
capital expenditure patterns of the monopolies.
When they submitted their budgets to Gref's experts, YeES RAO requested a 70-percent
increase in the subscriber fee, which would have provided the holding company with an extra 5
billion rubles for capital investment. By approving a fee increase of only 20 percent, the
government increased the holding company's income by only 3.35 billion rubles, explained
Anatoliy Kopsov, the deputy chairman of the YeES RAO board. He said that this amount would
only be enough for the completion of the work on the Bureyskaya GES [hydroelectric power
plant] and the restoration of the power-engineering sector in Chechnya. The work on the
Irganayskaya GES would have to stop. The documents of the Ministry of Economic
Development and Trade say that raising the service fee by 20 percent will lead to a final increase
of only 2.0-2.5 percent in electricity rates. Brunswick UBS Warburg analyst Fedor Tregubenko
agrees: "The subscriber fee accounts for no more than 10 percent of the rates charged by
regional power engineering systems. Besides, the regional energy commissions are reluctant to
raise rates."
After reviewing MPS expenditures, Gref's agency brought "substantial internal reserves" to the
attention of railroads and refused to raise rail rates. Gennadiy Fadeyev, the head of the Ministry
of Railways, had asked Gref to approve a 12-percent increase, citing the 40-billion-ruble hole in
the MPS budget. That is why MPS Deputy Minister Anna Belova was amazed by the Ministry
of Economic Development and Trade's report. "At working conferences we analyzed our costs
in depth and agreed on a 7.3-percent increase. That is why the contents of the report seem to
question the value of our consultations." Belova feels that the implementation of the Economic
Ministry's proposals will turn railway transport into a "deliberately unprofitable sector."
As for the Gazprom rate hike of 33.5 percent starting on 1 July, the report insists that the
overall increase in rates will not exceed Kasyanov's 35-percent limit for the year. Independent
analysts disagree, however. Stiven Dashovskiy from Aton said that "the cumulative effect will
send the rate increase for the year up to almost 40 percent in view of the earlier 20-percent
increase in February."
According to Dashevskiy's calculations, this will give Gazprom an additional $500-700 million
and will bring domestic gas prices up to the level of profitability. Gazprom's own estimates,
however, put losses in the domestic market at almost $2 billion a year, suggesting that
profitability would require comparable rate increases for the next year and a half. Meanwhile, a
high-level source in the company is satisfied with Nabiullina's current recommendations: "We
are pleased that the ministry accepted our view of pricing practices."
Now the head of YeES RAO, Anatoliy Chubays, will have to wage a battle with the
government over another rate increase in FOREM [Federal Wholesale Market for Electricity and
123
Generating Capacity]. After gas prices rise 33.5 percent, most of the power plants will be
operating at a loss. The calculations of Brunswick UBS Warburg's Tregubenko suggest that the
equitable rise in wholesale rates for YeES RAO now would range from 10 to 15 percent.
Experts are certain, however, that the government is guided solely by political considerations.
This is the opinion of Igor Nikolayev, the head of a department of the FBK Company. Because
of this, there will be no price increases in the power-engineering sector. "The intersectorial
structural report indicates that energy rate hikes would have the most direct inflationary impact,
because the products of the power-engineering sector are used in all branches, and this has a
perceptible effect on the expenditures of the MPS and Gazprom," explained Yevsey Gurvich, the
head of the Economic Advisory Group. The simultaneous rise in gas prices and discouragement
of energy rate hikes, therefore, should have a minimal inflationary impact.
[Description of Source: Moscow Vedomosti in Russian -- Business paper published jointly with
The Wall Street Journal and Financial Times; reportedly friendly with Kremlin.]
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Source-Date: 05/23/2002
Russia: Gazprom, US Secretary of Commerce discuss cooperation on gas
CEP20020523000175 Moscow ITAR-TASS in English 1238 GMT 23 May 02
[FBIS Transcribed Text]
By Andrey Baturin
MOSCOW, May 23 (Itar-Tass) -- Head of Russia's natural gas giant company Gazprom Alexei
Miller and U.S. Secretary of Commerce Donald Evans discussed prospects for Russian-American
cooperation in the gas sphere. The meeting was held in the Marfinsky hall of the Marriott Grand
Hotel in Moscow on the initiative of the American side, Gazprom press service reported
Thursday.
The sides discussed the state of affairs on the world's energy markets, Gazprom's development
strategy and the necessity of a more expanded dialogue between countries-producers and
consumers of energy resources.
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
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124
Russia: Aleksey Miller's First Year as Gazprom Head Assessed
CEP20020521000372 Moscow Rossiyskaya Gazeta in Russian 21 May 02 PP1,4
[Article by Aleksandr Zakharov: "The Quiet Chairman: On 30 May Gazprom Management Body
Chair Aleksey Miller Will Mark His First Year of Incumbency at the Head of the Company" -taken from HTML version of source provided by ISP]
[FBIS Translated Text]
In order to assess the new chair's position it is enough to recall that Gazprom is where large-scale
interests intersect, where the aims of effective management run into the commercial motives of
predatory pretenders to tranches of property, and where the company's strategic course tacks
between market preferences and objectives set by the state. In addition to this, one year ago, the
corporation was objectively in a difficult position: They did not manage to put together
Gazprom's budget without a shortfall, there was not enough money for the investment program
that had been confirmed, valuable assets were hived off, and the old team did not intend to give
the new chair the secrets of managing the enormous gas empire. In this situation, without
shutting our eyes to the numerous problems, it is worth deeming the balance of achievements and
failures of Miller's gradually emergent team as positive.
Despite the persistent rumors that the new company head is inferior to the old one in terms of
experience and business audacity, Miller has proved a powerful, although cautious, player.
Gazprom could not operate on a marketed brand alone and consequently its assets needed to be
expanded and gas extraction needed to be increased.
So sending a political commissar only capable of waving a Mauser and shooting at the ceiling
would have meant completely wrecking the affair. Miller may not have been striking enough in
the eyes of the public -- he was perceived as a representative of a generation of functionaries
created for dreary routine work whose main direction is given from above. But in fact the dull
outward appearance corresponded to the position of someone who had concentrated on weaving
together the knots of the fine and extensive web that he holds in his hands. In that case, the new
Gazprom head should have sensed the situation that was taking shape in the interplay of a large
number of political, economic, and managerial factors.
Economic growth in 2001 was by no means rapid enough to provide an explosive increase in
demand or an opportunity to raise the sale price of gas and in early 2002 it has slowed down still
more, which has practically coincided with a fall in export prices. The state's main requirement
has remained providing Russian consumers with gas at fixed prices so its intervention has
manifested itself almost exclusively in a 50-billion-ruble annual loss. To this figure was added
hundreds of millions of dollars of debt and chronic under-funding of gas field development, the
cost price of the gas of which has inexorably grown in line with the movement to the north. So it
would have been much easier for the new team to simulate furious activity by rolling out a highprofile "restructuring" and raising a campaign blame the previous Gazprom leadership for all
faults and failures. The fact that Miller did not succumb to these temptations has not yet been
sufficiently appreciated -- after all it would have been easiest of all to say "It is impossible to live
like this" and to begin reforming Gazprom with an ax, chopping up what was still alive.
125
The state's interests are obvious. They consist in increasing the corporation's export revenues
that are replenishing the budget. And, on the other hand, in expanding gas supplies to the
domestic market, which needs "blue fuel": A shortfall is already forming but if current
extraction volumes are maintained, a number of estimates have it that by 2010 the shortfall will
grow to 30 billion cubic meters a year.
The gas shortfall is currently being covered partially from cheaper Turkmen gas but the United
States is persistently prodding the Turkmen authorities to reorient themselves toward
transportation through the trans-Afghan gas pipeline. Aleksey Miller's talks with Gurbannazar
Nazarov, Turkmenistan's minister for the oil and gas industry and mineral resources, in Ashgabat
this spring are encouraging but their outcomes still do not guarantee anything. Miller's new team
has gone for revising Gazprom's investment strategy: Money will go into further developing the
Yamal fields, the location of Gazprom's main resource base.
Three of the developed fields are already pretty much exhausted: The Medvezhye field is 70%
exhausted; the Urengoy field is 40% exhausted; and the Yamburg field is 30% exhausted.
Developing this bridgehead will require billions of dollars of investment. It is beyond even
Gazprom's powers to go further down this road alone. Having renounced the proud
"isolationism" of the previous leadership, the new team is not refusing to cooperate with oil
companies: Rosneft, Lukoil, and Surgutneftegaz. With Miller's arrival, the corporation's policy
has become more flexible and pragmatic and legally disputed points are not preventing the
development of cooperation with rivals where they benefit both parties.
The new, very large Zapolyarnoye field, the proven stocks of which come to 1.6 trillion cubic
meters of gas, promises to be a serious source of revenue. Russia's strategic partnership with
China is a new opportunity for Gazprom, one that Miller's team does not intend to let slip, having
in particular secured the company's participation in building the cross-China Zapad-Vostok gas
pipeline from Uyguriya to Shanghai. The second promising area for large-scale investment is
linked to the investments into the gas distribution system and pipelines of the East and the West.
Participating in the privatization of gas pipelines and building new branches will allow revenue to
be derived not only from selling gas but also from transporting it. The work plans include
launching Blue Stream, through which 16 billion cubic meters of fuel a year will go to Turkey
across the bed of the Black Sea, launching the North European route, which will carry gas to
German and on into Europe through Finland and the depths of the Baltic Sea. The question of
participation in the privatization of the Slovak SRR gas transport company in partnership with
Ruhrgas and Gaz de France has already been decided. But it is too early to talk about the state of
affairs having been put right while many plans remain at the draft stage.
It is rather in the field of simply establishing order, with which Miller began, that progress in the
company can be observed. At a conference in Urengoy last fall, V. Putin noted that what was
needed above all was "a detailed inventory of the entire gas sector, an evaluation of the use of the
available resources, and a shedding of ineffective and non-core assets." The analysis that was
conducted unearthed an understatement of the price of exported gas: In Bulgaria, Poland, and
Hungary gas was being sold to intermediary firms at prices significantly below world prices.
The president talked about this with dissatisfaction in Urengoy too, lamenting that in some
European countries Russian gas is being sold a prices 2.5-3 times above Gazprom's export
prices. Putin's question forced the country to listen: "Where is the difference in prices, where is
the money?" Naturally, Miller also listened, as a consequence of which the leadership in
Gazeksport was replaced.
126
An improvement of relations with Ukraine has provided an opportunity to halt the illegal
siphoning off from the pipeline of fuel meant for sale in Western Europe. Putting the YamalEurope pipeline's second line into operation, which Poland to all appearances agrees to, could
solve this problem for good.
People predicted that Miller would fall between the separated stools on which he was allegedly
trying to sit. On one hand, he needed to change the old team, while on the other, he needed to
regain the assets but it was the old managers who knew best how to do that. But Miller did not
fall anywhere -- he found arguments to which the old team could not object. This toughness,
however, is justified by the fact that it yielded fruit, which means it was entirely appropriate in
the situation. Among the fruits is the beginning of reestablishing control over Sibur, Purgaz, and
Zapsibgazprom.
While acting "quietly and toughly" in this direction, Miller has shown himself to be a peacemaker
with Gazprom's longstanding and powerful opponent. In fact, establishing working relationships
with commercial partners also means economies. Realizing the fruitlessness for both sides of the
head-on conflicts between the gas companies and electricity companies, Millar and Chubays have
renounced the "vanity conflict" between Gazprom and YeES Rossi RAO [Unified Energy System
of Russia Russian Joint-Stock Company] that had become chronic like a corn. They agreed that
in response to a one-billion-cubic-meter increase in gas supplies to electricity generating
enterprises in the second quarter of 2002, YeES Rossii will help Gazprom enterprises access the
wholesale electricity market.
This is the state of affairs in Gazprom. It is not yet one of rejuvenation but a breakthrough has
already been made. A new working style has emerged, one geared toward removing unnecessary
conflicts and clearing obstructions in succession. Converting the president's political support
into economic improvements, the tangible indicator of which has become the growth in the credit
rating is Miller's clear contribution. Knowing the new Gazprom management's style, we can
predict that we will not hear any bombastic reports during the company's restructuring.
Meanwhile, over the next year, Miller will have to solve problems that will not prove simpler
than those up to now. He will have to shift from reforming the top ranks to reforming the entire
vertical management axis and from regaining assets to working with them effectively. In
addition to this, Miller will still have to strike a balance between a strategic alliance with the state
and market demands. These are highly complex problems but it would be wrong to categorically
state that they are impracticable.
[Description of Source: Moscow Rossiyskaya Gazeta in Russian -- Government daily
newspaper.]
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127
Russia: Murder of Gazprom Insurance Executive Petukhov Arouses Speculation
CEP20020521000441 Moscow Vedomosti (Internet Version-WWW) in Russian 22 May 02
[Article by Pavel Miledin: "A Dangerous Job"]
[FBIS Translated Text]
General Director Andrey Petukhov of the SOGAZ Insurance Company, who moved from
Rosgosstrakh to his new office just a month ago, was killed at his dacha yesterday. This was an
scandalous incident for the insurance market. Petukhov's last initiative was the merger of
SOGAZ and Gazprommedstrakh.
In contrast to the aluminum and oil industries, the insurance market has always been relatively
peaceful: It has not experienced any gang wars or raids by the special forces. That is why
yesterday's news that General Director Andrey Petukhov of the SOGAZ Company had been
killed at his dacha near Naro-Fominskiy was so surprising. His driver, Marat Statretdinov, was
also killed.
The desk officer on duty at the Naro-Fominskiy Police Department gave Vedomosti the usual
information in cases of this kind: "The call reporting the crime was recorded yesterday at 11:17
in the morning. The caller did not identify himself, and an investigation is under way."
According to Interfaks reports, investigators believe this was a contract murder because no money
or personal items were taken.
Andrey Petukhov was appointed general director of Gazprom's insurance company, SOGAZ, at
the beginning of April this year. Before that he was the financial director of the Rosgosstrakh
Company and left after a change of management. According to Vedomosti's sources, he had
spent the last month familiarizing himself with his new job and building a new team.
"I am shocked. He was a young man (he was 32) with two children, and he was a professional
manager.... I do not remember any other murders of hired managers. He had nothing to give
them but his life," said former Rosgosstrakh General Director Aleksey Golovkov, who had
worked with Petukhov for about two years.
"This is terrible," said Andrey Zernov, the president of the Energogarant Company, which is
affiliated, as SOGAZ is, with the Associated Insurers of the Fuel and Energy Complex. He said
that the only other murder of this kind occurred in 1994, when Energogarant executive Yevgeniy
Minazbekov was killed. "This shook the market severely, but it was in 1994," Zernov remarked.
The insurers Vedomosti contacted believe Andrey Petukhov's death had something to do with
his new job. The new Gazprom administrators hired Petukhov as the director of SOGAZ to
restore order in the company's affairs, "which had become chaotic," an insurer close to the
SOGAZ management explained. A source at Gazprom told Vedomosti that Petukhov was
planning a serious reform of the gas monopoly's insurance business. To this end, a SOGAZ
stockholders meeting decided to increase the company's capital stock with a new stock issue on
his recommendations in April. The securities were supposed to be exchanged for stock in
Gazprommedstrakh, another of the gas monopoly's insurance subsidiaries, wholly owned by
128
Gazprom. The source explained that the merger of the two companies was supposed to stop their
senseless competition. "Petukhov wanted to develop the insurance business in earnest, instead of
fooling around with nonsense like insurance against falling meteorites," the source told
Vedomosti. Vladimir Denga, the company's former general director, was expected to help
Petukhov make all of the arrangements. He was appointed the new executive's adviser.
Off the record, the shocked insurers suggested that Petukhov, in his capacity as a professional
manager and financial analyst, might have discovered some legally questionable operations when
he started looking into the company's affairs. Golovkov agreed: "He dug too deep and
discovered something he was not supposed to find." Vedomosti's source in Gazprom did not
deny that some SOGAZ transactions might have presupposed their future nullification.
[Description of Source: Moscow Vedomosti (Internet Version-WWW) in Russian -- Business
paper published jointly with The Wall Street Journal and Financial Times; reportedly friendly
with Kremlin.]
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Russia: Gazprom announces proven gas reserves worth $40 billion
CEP20020521000278 Moscow ITAR-TASS in Russian 1032 GMT 21 May 02
[FBIS Translated Text]
Moscow, 21 May: Deputy chairman of Gazprom board Vitaliy Savelyev said that as of today the
company's proved gas reserves amount to 18,900bn cubic metres of gas with an estimated value
of 40bn dollars, Prime-TASS [news agency] reports.
Savelyev said that Gazprom owns about 60 per cent of the world's proved gas reserves.
According to Savelyev, Gazprom's total estimated reserves stand at 28,000bn cubic metres of gas.
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
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Russia: Gazprom expects long-term transit agreement to be signed with Ukraine
CEP20020514000319 Moscow Interfax in English 1642 GMT 14 May 02
129
[FBIS Transcribed Text]
MOSCOW. May 14 (Interfax) - Russian gas giant Gazprom expects that a long-term agreement
with Ukraine on the transit of Russian gas will be signed in June, Yuri Komarov, deputy
chairman of the company's board of governors, told the press in Moscow on Tuesday.
The agreement provides for the transit of 106 billion to 107 billion cubic meters of gas a year
across Ukraine and the use of the country's underground storage spaces, he said.
Russia will pay for the transit in cash and in kind with gas.
Since the signing of an intergovernmental agreement between Moscow and Kyiv a year ago, no
unauthorized siphoning of gas has occurred in Ukraine, Komarov said.
Gazprom has not, however, given up the idea of building a gas pipeline circumventing Ukraine,
Komarov said. "We are still considering all the possibilities and options," he said.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Russia: Gazprom Operates at Odds with State Economic Policy
CEP20020416000449 Moscow Vedomosti in Russian 17 Apr 02
[Article by Vladimir Fedorin: "The Number of the Week--$190 Million. Schizophrenia" -- taken
from html version of source provided by ISP]
[FBIS Translated Text]
While Kremlin officials are performing their sorcery on the magic words that Vladimir Putin
will use to wake up the nation and the government on 18 April, the main subject of the Russian
economy is sending out much more effective signals to the other "economic subjects." Unlike
Putin's speech last year, the messages of Gazprom are absolutely unambiguous and have an
immediate impact.
Gazprom devoted its last message to business partners to the timely subject of "Banks and
Credit to the Real Sector." The day before yesterday Mikhail Fomenko, who was sent by
Gazprom to supervise the SIBUR bankruptcy, held the first meeting of creditors. The bankers,
who did all they could to give credit to the "Russian BASF," were not admitted to the meeting.
The borrower, they were told, did not acknowledge their claims. And that means that it is as if
the loans of $190 million, which were given to SIBUR by MDM Bank, Alfa-Bank, DIB, and
Raiffeisenbank, never existed. (Or they did exist, but the borrower will acknowledge them when
it is convenient for Gazprom.) Formally speaking, Fomenko is within his rights. The majority
of Russian anti-crisis managers who are put into major bankruptcies earn their living by carrying
130
out the orders of the creditors who put them in the job. The financiers from Alfa and MDM
know this very well. And now just try to clean up your own mess, the observer will say, valuing
his impartiality.
However, the cynicism that pervades our business community should not overshadow the
obvious. The Gazprom managers too frequently operate on the principle, "If it is not permitted
but you want to very much, you can do it." And this creates enormous problems for the
economic authorities, who are forced to close their eyes to the regular escapades of the
quasiministry of gas industry. The departments who answer for the overall economic climate are
again, as in the first half of the 1990s, losing out to the sector chiefs.
The actions of a corporation under state control are increasingly at odds with the goals of the
economic policy that appears to be declared by that same state. Kudrin argues that the
government will not borrow from the Central Bank? But Gazprom readily does this for it. The
new St. Petersburg team is not able to legally correct the "criminal" errors of past gas industry
generals? But the schemers from SIBUR can be put behind bars, and all hail to legal reform!
Kasyanov assures entrepreneurs that the government will amend the ugly bankruptcy law? But
after all, he still has not done it, and that means that the law, which is full of holes, can be used
one last time in the state interest.
Business is reacting appropriately to the bifurcation of the state personality. In January, for
the first time in the last three years, the banks reduced their credit portfolio. The sensible banker
is not going to extend credit to the real sector when the specter of universal equality is again
stalking across Russia. The specter of an economy in which all are equal before Gazprom.
[Description of Source: Moscow Vedomosti in Russian -- Business paper published jointly with
The Wall Street Journal and Financial Times; reportedly friendly with Kremlin.]
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Russia's Gazprom prepared to accept gas from independent producers
CEP20020415000129 Moscow Interfax in English 1103 GMT 15 Apr 02
[FBIS Transcribed Text]
MOSCOW. April 15 (Interfax) - Gazprom is ready to accept from 50 billion cubic meters to 60
billion cubic meters of natural gas per annum into its transport system from independent
producers, Boris Posyagin, director of Gazprom central distribution department, said Monday
during a meeting with members of the Federation Council.
He said that this year Gazprom companies will produce an estimated 515 bcm - 520 bcm of gas
and that the capacity of the company's pipelines amounts to 600 bcm.
According to Gazprom forecasts, in 2010-2020 independent producers will produce 150 bcm -
131
170 bcm of gas per annum.
"We are ready to accept gas into our system with pleasure," he said, adding that at the moment
22 independent companies supply gas into the Gazprom transportation system.
Posyagin also stressed that last Saturday Gazprom stopped siphoning gas from underground
reservoirs to be supplied to consumers, due to the end of the winter heating season.
However, he noted that in the past days there was a surge in gas consumption. In connection
with this Gazprom plans to limit supplies to consumers, as it is necessary to start pumping gas
into underground reservoirs, Posyagin explained.
He also said that in October this year the first gas should be transported through the Blue Stream
gas pipeline from Russia to Turkey.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Moscow Daily: Importance of Gazprom Slovak Acquisition 'Hard to Exaggerate'
CEP20020315000103 Moscow Rossiyskaya Gazeta in Russian 15 Mar 02 P 5
[Report by Yekaterina Vasilchenko: "Gas 'Attack' on West"]
[FBIS Translated Text]
Russia's Gazprom concern has strengthened its positions in Europe with one stroke of the pen.
It was announced in the Slovak capital Bratislava yesterday [14 March] that the Russian
concern has acquired 49 percent of the Slovak gas company. Gazprom's partners in this tender
were a German and a French company. The consortium offered the Slovak Government around
$2.7 billion for the stake.
Rossiyskaya Gazeta was told by informed sources at Gazprom that a contract had been
concluded for the transportation of Russian gas until 2008. For their part, the German and French
partners are major purchasers of Russian gas and, consequently, for them participation in the
project is a guarantee of uninterrupted supplies.
The importance for Russia of the success of this "gas attack" on Slovakia is hard to exaggerate.
Almost a year ago Mikhail Kasyanov, during a visit to Poland, had agreed to build the so-called
"Peremychka" gas pipeline across the country's territory, making it possible to dispatch gas for
export while bypassing Ukrainian territory, which had recently become an unreliable route. It is
proposed to send up to 60 billion cubic meters of gas a year through "Peremychka," which will
run via Slovakia -- so in the very near future that country could become the leading route for
Russian gas exports.
132
[Description of Source: Moscow Rossiyskaya Gazeta in Russian -- Government daily
newspaper.]
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'Political Subtext' Suggested in Tax Police Audit of Gazprom Operations
CEP20020313000199 Moscow Nezavisimaya Gazeta in Russian 13 Mar 02 P 3
[Report by Varvara Aglamishyan: “Another Blow Against Gazprom. Tax Police Seeking to
Increase Capital’s Budget Revenue”]
[FBIS Translated Text]
The tax officials are threatening to launch criminal proceedings against Gazprom. Viktor
Vasilyev, chief of the Federal Tax Police Service for Moscow, announced the claims against the
gas monopoly yesterday. According to him, the Federal Tax Police Service's administration for
the capital city plans to make the final decision on whether or not to institute criminal
proceedings against the gas concern before the end of March.
Staffers of the capital's No. 40 tax inspectorate and the Moscow tax police completed their audit
of Gazprom in February this year. As a result, Vasilyev claims, they succeeded in exposing
infringements committed by the gas monopoly. Furthermore the extent of the damage inflicted
on the state, in his words, goes beyond the limits of a few tens of billions of rubles. A follow-up
investigation is being carried out at the moment on the basis of the certificate of audit. Among
the infringements committed by Gazprom the leader of the capital's tax police named the
unjustified reduction of earnings from the sale of gas, the sale of gas at below-market prices, and
also the fact that the cost price of gas supplied to compressor stations was not included in the tax
base.
Gazprom itself meanwhile has officially rejected the statement by the leader of the capital's tax
police. The company has announced that Gazprom's operations for 1999, 2000, and the first half
of 2001 have indeed been subject to an audit. But as Vitaliy Savelyev, deputy chairman of the
company's board, has stressed, "publicizing the results of an unfinished audit is not only not
ethical but can also cause significant harm to Gazprom's business reputation in both the domestic
and foreign capital markets." Furthermore the stock market has immediately confirmed the
correctness of his words: The gas monopoly's share price has fallen by 3 percent.
In the opinion of analysts who have been questioned, the Federal Tax Police Service's actions
could have a quite definite political subtext because the documents that had been audited have a
bearing on the previous Gazprom leadership's activity. In the opinion of Dmitriy Druzhinin, an
analyst with the Prospekt Investment Company, however, the capital tax police's "attack" on
Gazprom has another subtext too. Gazprom is registered in Moscow and pays its taxes here. Last
year the 35 percent profit tax was shared in the following way between the center and the region
133
where the company "resides": 11 percent went to the federal budget, 24 percent went to the
budget of the Federation component. This year the rules have changed. Out of the 24 percent
profit tax the regions will now get 16.5 percent and the federal budget 7.5 percent. Thus the
actions of the capital's tax police are entirely logical too. If you bear in mind that the gas that
Gazprom transfers to another corporate body, albeit its own "subsidiary," has to be taxed the
profit tax will increase. And therefore payments to the Moscow budget will rise too.
Meanwhile it emerged yesterday that Gazprom has completed the work of raising an unsecured
loan to the tune of $150 million. The loan was organized via the branch of Deutsche Bank in
London. Furthermore this loan was received at very preferential rates, as sources within
Gazprom itself note. In the context of these borrowings it may be presumed that the problems
with the Federal Tax Police Service will not improve Gazprom's credit rating. And as a result the
company will be forced to think seriously about the recent statements by Governor Neyelov, who
urged companies working on the territory of the Yamalo-Nenetsk Okrug to register there.
[Description of Source: Moscow Nezavisimaya Gazeta in Russian -- Daily Moscow newspaper
aimed at an elite audience and controlled by Boris Berezovskiy.]
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Russia: Gas giant Gazprom facing possible prosecution for massive tax evasion
CEP20020312000075 Moscow ITAR-TASS in Russian 0956 GMT 12 Mar 02
[FBIS Translated Text]
Text of report by Russian news agency ITAR-TASS
Moscow, 12 March, ITAR-TASS correspondent Svetlana Alikina: The tax police has found
evidence of Gazprom's failure to pay taxes, and the question of instigating criminal proceedings
against this joint-stock company will be decided before the end of March. Journalists heard an
announcement to this effect today from Viktor Vasilyev, head of the Moscow directorate of the
Federal Tax Police Service.
The irregularities discovered in the course of a scheduled audit also include unjustified
underreporting of profits from the sale of gas, the exclusion from the tax base of the cost of gas
left for compressor stations' own needs, and the sale of natural gas below the market price. "This
has cost the state several billion roubles," Viktor Vasilyev said. Pre-investigation procedures are
currently being followed. Only after their completion will a decision be taken on whether to
institute criminal proceedings.
134
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
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Russian Independent Gas Producers To Pay 20 Percent More For Access To Gazprom
Pipeline
CEP20020221000207 Moscow Nezavisimaya Gazeta in Russian 21 Feb 02 P3
[Article by Varvara Aglamishyan: "Kutovoy Separates Pipeline From Gas; Re-Sellers To Pay For
Transport of Blue Fuel"--taken from html version of source provided by ISP.]
[FBIS Translated Text]
Yesterday, the Federal Energy Commission adopted what may truly be called a "Solomon's
decision." The cost of pumping gas through the Gazprom pipeline system would be increased
for companies which are not associated with the monopoly. However, it is not the independent
producers who will have to pay, but the wholesale buyers of gas. Oil producers and Gazprom
representatives were very unhappy about such a decision of the FEC [Federal Energy
Commission].
The tariff on gas transport services for independent producers will be increased by 20 percent
as of 1 March 2002, and will comprise 12 rubles (R) for transport of 1,000 cubic meters of the
raw material for a distance of 1,000 kilometers. The discussion centers around pumping the raw
material within the country, and its delivery to Belarus. The export tariff will remain the same-$0.8. At the same time, the head of the Energy Commission, Georgiy Kutovoy, announced an
innovation which was revolutionary in its essence: The transport component should not be
included in the price charged by independent gas suppliers. In other words, wholesale buyers of
the blue fuel will have to pay double for gas obtained from independent producers. According to
Georgiy Kutovoy, the money for transport must go directly to Gazprom, and it will be the task of
the oil producers and other producers of gas to find a buyer who would be willing to pay their
prices, and to deliver the fuel to the main pipeline.
Today, independent producers provide approximately 12 percent of the total volume of gas in
Russia. Casing-head gas from oil drilling alone accounts for around 30 billion cubic meters
annually. Part is burned off in the torches, part is pumped back into the ground, and part is
refined and either pumped into the Unified Gas System of Russia or used by the oil producers
themselves for electrical power generation. As representatives of the LUKOIL Oil Company
announced at the FEC governing board meeting, if transport prices are raised, it will generally
become unprofitable for oil producers to supply gas to the Gazprom pipeline. After all, the cost
of its production for oil producers comprises R600-R700 per 1,000 cubic meters, while the
average wholesale price is at the level of R415. Under the tariffs which are in effect at the
135
present time, independent producers cannot supply gas for a distance exceeding 200-250 km-they simply cannot find a buyer. And representatives of Rosneft stated that it would be more
logical to create economic incentives, so that Gazprom would buy this gas from oil producers at a
price which would ensure at least some profitability. However, Gazprom believes that it is
primarily necessary to increase the tariffs on the gas itself. And today, this is the only type of
fuel which is affordable in price for all consumers. The decision of the FEC not to increase
prices on the export transport of gas evoked particular dissatisfaction of monopolists. However,
Georgiy Kutovoy believes that Gazprom has nothing to worry about: "With their volumes and
prices, the oil producers will not reach Europe." Nevertheless, the FEC intends to return to the
methodology of computing gas tariffs in May of this year.
Investment company representatives polled by Nezavisimaya Gazeta were rather favorably
inclined toward the FEC decision. As the chief analyst for IK [Investment Company] Prospekt,
Dmitriy Druzhinin, noted, "now the transport component will become more transparent, and there
will be significantly fewer opportunities for tampering with gas prices." In his words, the FEC
decision is also positive from the standpoint of consumers. After all, now they will know how
much transport costs, and will themselves be able to choose their suppliers.
We will also note that, for many years now, the regional gas distribution organizations have
been the weakest link in the Russian system of gas provision. The "mini-monopolists," like
black holes, suck up the money which ultimate consumers pay for gas, but often go no farther
than this. In many regions, the networks of the gas distribution enterprises are in a sad state, but
repair is not performed, citing "poverty" as the reason. Moreover, Gazprom's attempts to
"absorb" the oblast gas provision organizations or to create joint enterprises with the regional
authorities have not significantly improved this situation.
[Description of Source: Moscow Nezavisimaya Gazeta in Russian -- Daily Moscow newspaper
aimed at an elite audience and controlled by Boris Berezovskiy.]
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Scandal Over Capital Diversion From Gazprom Subsidiaries Viewed
CEP20020221000045 Moscow Rossiyskaya Gazeta in Russian 19 Feb 02 P 10
[Article by Leonid Mikhaylov: "The Daughters Robbed Their Mother Before She Even Knew It"
-- taken from HTML version of source provided by ISP]
[FBIS Translated Text]
Even six months ago, nobody could suppose that Vyakhirev's managers from Gazprom would
intentionally or unintentionally make so many blunders in their work that this would even attract
attention on the part of investigators. All of their failures have been laid bare now by a scandal
that broke out over Gazprom's subsidiaries: OAO [open joint-stock company] Zapsibgazprom and
136
AK [joint-company] Sibur.
The leadership change at the Russian gas monopolist Gazprom proved to be a major test for the
present team of its managers led by A. Miller. And it is not the point that the gas giant is not so
simple to manage. It turned out that one should also have a good knowledge of the ownership
structure of Russia's largest company. So, it is a review of assets that the new managers did first
thing after they came in. Immediately, they encountered some facts that made them call for
investigators. But let me start at the beginning.
In the past, the companies Zapsibgazprom and Sibur were formed with active participation of the
former OAO Gazprom management. Notably, transferring assets and injecting hefty funds into
the purchased holding companies were widely used practices at that time. Gazprom, too,
displayed its generosity. Specifically, OAO Zapsibgazprom, which laid gas mains to rural areas
not only in Tyumen Oblast but also in other Russian regions, received from Gazprom the rights
(license) to develop the South-Russian gas deposit, whose reserves are estimated at 810 billion
cubic meters of gas and which became the principal gas asset of this company. In 1998, Zapsib,
as was reported in the press, received from Gazprom a subsidy of $450 million.
Sibur, a major gas processor, was also blessed. A sizeable portion of Gazprom capital flowed
into this company as well. At that time, to all appearances, the previous management of the gas
monopolist thought more about expanding its empire. It has turned out now that the assets
presented to the subsidiary companies were diverted to third companies. Paradoxically, that was
possible largely thanks to the existing gaps in the law on natural resources, which even allow for
legally taking over a license from a company. The present law governs only the registration of a
license agreement: A company may transfer its license only to a structure in which it holds a
controlling stake. Yet, the law does not address subsequent operations with the license.
In short, as the readers have already guessed, as a result of elaborate schemes, the license for the
South-Russian gas deposit, which was transferred earlier to Zapsibgazprom, and the Sibur assets
went into the hands of structures that have very little to do with Gazprom. How did it happen?
The heads of Zapsibgazprom and Sibur, V. Nikiforov and Ya. Goldovskiy, respectively, diverted
the assets conveyed to them from Gazprom to third companies -- the "granddaughters" of
Gazprom, which were still under control back then. In other words, at that time Gazprom still
retained its control over the assets that it transferred. Later, however, as a result of an additional
emission of shares by the "granddaughter" companies, Gazprom's control over them was virtually
reduced to zero.
The point is that an additional issue of shares automatically reduces the proportion of the
"mother" company in the new amount of securities. To maintain this proportion, the latter
should buy more shares, or invest more capital in the "daughter" structure. Following an
additional emission of shares conducted by Zapsibgazprom in August of 2000, Gazprom wold
have to fork up only 51.3 million rubles [R] for the shares to retain its controlling stake. It was
small change for Gazprom. But the old managers... did not find this amount of money. As a
result, Gazprom's share in Zapsibgazprom's authorized capital dropped, as newspapers reported,
from 51 percent to 33.9 percent.
Then, it was time to let the "granddaughters" live on their own. In February of 1999, as some
mass media reported, Zapsib reduced to 51 percent its own share (by deciding not to buy
additional shares) in its daughter company Severneftegazprom (Gazprom's "granddaughter"), to
which, by the way, the license to develop the South-Russian gas deposit was handed over.
137
Already in May of 2001, the latter conducted a new emission, as a result of which Zapsib's stake
fell to 11 percent. The "granddaughter" became out of reach for Gazprom, which lost also the
license.
An additional stock issue was conducted also by Sibur. The company, as was reported in the
press, issued more than 6 trillion of ordinary shares, which could have cut Gazprom's stake in this
company by one-third. Notably, Sibur planned to conduct two more such issues, as a result of
which Gazprom's stake would have fallen to 3-5 percent. To keep its control over that company,
Gazprom had to fork up already several billion rubles. Yet, also this time the gas monopolist
decided not to make such dubious investment and almost lost practically everything that was once
a part of the former USSR Ministry of Petrochemical Industry. Thus, the property of OAO
Zapsibgazprom and AK Sibur went to OAO Severneftegazprom and OAO Sibur-Tyumen,
respectively.
Meanwhile, Gazprom was well capable of nipping this entire scheme with its shares in the bud,
particularly that Gazprom management Board Deputy Chairmen V. Sheremet and A. Pushkin
were members of the Sibur Board of Directors. In 2000, Sheremet even officially headed the
board of directors of that company. Did they not notice that its main assets were diverted into
the enterprises that were not controlled by Gazprom? This despite the fact that according to a
declaration by B. Fedorov, a member of OAO's board of directors, Gazprom invested hundreds of
millions of dollars in the petrochemical company and that without Gazprom's participation Sibur
would have negative capital. Did they not notice that Sibur President Ya. Goldovskiy and Vice
President Ye. Koshits, as well as Zapsibgazprom Chief V. Nikiforov were, as it were, pulling the
blanket to their side? It is hard to believe this, you should agree. It is equally hard now to
reproach the General Prosecutor's Office for arresting on 8 January 2002 V. Sheremet, Ya.
Goldovskiy, and Ye. Koshits, although some are making such attempts. Zapsibgazprom General
Director was dismissed, while N. Belousov, the first deputy to the former Tyumen Oblast
governor, was appointed acting general director. At least, there is hope that the assets diverted
from Gazprom will be returned to it.
This is specifically the problem with which the team of A. Miller is preoccupied with today.
First, the team should establish what exactly assets of Gazprom's subsidiary companies were
diverted and whether they can be recovered. Second, if they can actually be recovered, how can
this be done?
At this point, there are two methods. The first one is that a criminal embezzlement case can be
instigated against a subsidiary company's leader. This method would allow for finding out, with
the help of relevant bodies, what happened to the diverted property and returning it to its
legitimate owners. But will the people detained as part of this criminal case want to cooperage
with the investigators? Do they still control the "evaporated" property? Or, maybe this control
has already been seized by the structures on which the formal owner has no power?
The second method is to initiate bankruptcy proceedings. This method allows for contesting all
the deals transacted by the bankrupt company over the past year.
And it is not an accident that specifically the bankruptcy procedure was applied right away to
OAO Zapsibgazprom -- the company's assets, particularly the South-Russian gas deposit, were
diverted in the past year and this circumstance eliminates the need to open a criminal case.
As for Sibur, a criminal case was immediately instigated against its management -- apparently in
the hopes that the assets would be recovered this way. For now, however, those hopes are
138
illusory, even though the control over Sibur has been reinstated at least on paper: Gazprom has
annulled all the deals made as part of the "Goldovskiy emission" last May. In any case,
Gazprom management, as Gazprom Management Board Deputy Chairman A. Ryazanov declared
to journalists recently, was forced to initiate bankruptcy of Sibur, whose total debt to the gas
company has already reached R29 billion. Ryazanov also said that the issue of Sibur bankruptcy
proceedings will be examined in the city of Salekhard on 11 March.
[Description of Source: Moscow Rossiyskaya Gazeta in Russian -- Government daily
newspaper.]
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Russia: Gazprom share values fall as doubts over reform take hold
CEP20020213000265 Moscow Interfax in English 1143 GMT 13 Feb 02
[FBIS Transcribed Text]
Text of report in English by Russian news agency Interfax
Moscow, 13 February: Gazprom shares became cheaper by 1.5 per cent on the Moscow Stock
Exchange and by 1.2 per cent on the St Petersburg Stock Exchange as of 1300 [Moscow time] on
Wednesday [13 February], which reflected the Russian market's response to a 5.5-per-cent slump
of ADRs on these shares in the West.
This sharp ADR fall was the reaction of Western trading floors to reports by Western media,
which quoted Russian Deputy Economy Minister Andrey Sharonov as saying that no steps will be
taken in the near future to restructure Gazprom, which, in the view of traders, is in fact a halftruth.
At the same time, Sharonov said during parliamentary hearings on the concept of the
development of the gas market in Russia at the beginning of this week that the fundamental
position of the Russian government is "to finalize the concept first and only then to make specific
proposals on the possibility and necessity of the gas sector's restructuring".
"In this connection, the separation of a gas transportation company from the Gazprom structure
is a subject about which it is too early to say yes or no," Sharonov said.
As a result, the Russian stock market's reaction to the latest news on Gazprom restructuring was
more restrained as compared to the Western trading floors, where investors interpreted the
Russian official's statement as a message on slowing down restructuring and postponing it
indefinitely.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
139
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Russia: Gas giant Gazprom anticipating big downturn in profits
CEP20020211000077 Moscow Interfax in English 0900 GMT 11 Feb 02
[FBIS Transcribed Text]
Russian gas giant anticipating big downturn in profits
Text of report in English by Russian news agency Interfax
Moscow, 8 February: Gazprom is forecasting profit in 2002 of R9bn, company deputy CEO
Aleksandr Ryazanov said during parliamentary hearings on a concept to develop the Russian gas
market on Monday [11 February].
He did not state exactly what profit was in question. Gazprom expects net profit of R79bn for
2001. The company's net profit increased almost 100 per cent from R32.603bn in 1999 to
R60.748bn in 2000.
According to Ryazanov, the company's investment programme this year should amount to
R140bn. The deputy CEO noted that the current situation with domestic gas prices, even with an
increase from 15 February, does not ensure company profitability.
"At the current gas price, the energy security of Russia falls into question," he announced.
He said that 60 per cent of all company investment is aimed at restoring fixed assets and less
than 40 per cent - on maintaining the gas distribution network, with what is left over being spent
on geological exploration work.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
.
Gazprom Cadre Purge Gaining Momentum
CEP20020121000244 Moscow Nezavisimaya Gazeta in Russian 21 Jan 02 P3
[Article by Polina Kanevskaya: "Beating of Vyakhirev's Cadres Continues; Some Already Jailed,
Others Still Only Losing Posts"--taken from html version of source provided by ISP.]
[FBIS Translated Text]
The cadre purge in Gazprom is gaining momentum. And now, one more representative of the
140
"old" team of managers of the gas monopoly, Valentin Nikishin, has been "sent off to
demotion." Now, instead of Mezhregiongaz, he will head up the Mostransgaz company. For
many years, this structure has been continuously managed by the oldest member of the
Vyakhirev-Chernomyrdin team, Aleksandr Kozachenko. Judging by all, he simply dropped out
of the game in the new Gazprom cadre re-shuffling. Now, Mezhregiongaz will be headed by
Nikolay Gornovskiy, a graduate of the Mining Institute who, by "accidental" coincidence, is also
from Leningrad. We will note that, at one time, Valentin Nikishin had been intended for the
position of the ex-head of Gazprom, Rem Vyakhirev. However, these hopes were not meant to
be. Just as the hopes for a quick release from custody of the two managers of the Gazprom
"subsidiary"--the SIBUR Petrochemical Company--were also not meant to be. One might say
that Nikishin has been lucky for now. After all, methods of the Prosecutor's pressure on
unsuitable managers are more traumatic than a demotion.
The General Prosecutor's Office of Russia has indeed filed charges of abuse of official duties
against the president of that structure [SIBUR], Yakov Goldovskiy, and Vice-President Yevgeniy
Koshits. The charges were filed in accordance with Article 201, Part 2 of the Criminal Code of
the Russian Federation (abuse of official duties by a person fulfilling managerial functions in a
commercial or other organizations). The measure of suppression employed against the accused
remains the same: They are being held in custody.
We may recall that the criminal case was filed on 7 January. The grounds were Gazprom's
suspicions about the withdrawal of assets of the SIBUR Company for an overall sum of R2.6
billion. The next day, the General Prosecutor's Office detained three persons: Goldovskiy,
Koshits, and SIBUR Chairman of the Board of Directors and First Deputy Chairman of the
Gazprom Governing Board Vyacheslav Sheremet. Then again, the latter was released from
custody on 11 January under written warrant in which he promised not to leave. "Withdrawal of
assets" of SIBUR is understood as the transfer of the main gas processing enterprises in West
Siberia to ownership of the SIBUR-Tyumen Company, which was in no way associated with the
Gazprom "subsidiary," as well as the sale of these GPZ [gas processing enterprises] without
Gazprom's knowledge. On the eve of the New Year, a deal was concluded on sale of the Surgut
Gas Processing Plant to Surgutneftegaz, and LUKOIL and the Tyumen Oil Company aspire to
acquisition of the Lokosovskiy and Nizhnevartovskiy GPZ. Aside from this, according to certain
data, at the beginning of the year the redemption of the third emission of SIBUR shares was
undertaken, but was halted by the General Prosecutor's Office in time. This emission would
have eroded Gazprom's share in the petrochemical company.
At the present time, SIBUR has considerable indebtedness to Gazprom--which, according to
the decision of the company's board of directors, must be secured by liquid assets. The overall
debt, including guarantees of the gas monopoly on credits, exceeds R20 billion, while the direct
indebtedness is R13.7 billion. The gas monopoly had adopted the strategic decision to retain
control over SIBUR already at the end of last year. However, a study of the petrochemical chain
showed that the "subsidiary" is in fact an empty shell. Real control over the assets turned out to
be under the personal control of the head of SIBUR, Yakov Goldovskiy. At the beginning of
December, he promised that outside structures, which own SIBUR's enterprises, would be able to
guarantee Gazprom return of its property. Goldovskiy will have to fulfill this promise while in
custody.
According to the deputy chairman of the board of the gas monopoly, Aleksandr Ryazanov, at
the present moment a moratorium has been imposed on the sale of SIBUR's gas processing
plants. After filing of the criminal case, the Gazprom leadership sent official letters to the state
agencies of the regions, asking that registration of deals with property and securities of SIBUR's
141
subsidiary enterprises be suspended.
[Description of Source: Moscow Nezavisimaya Gazeta in Russian -- Daily Moscow newspaper
aimed at an elite audience and controlled by Boris Berezovskiy.]
Unclassified
UES
CEP20020930000117 Moscow Interfax in English 1048 GMT 30 Sep 02
[FBIS Transcribed Text]
MOSCOW. Sept 30 (Interfax) - The Board of Directors and top management of the Unified
Energy Systems (UES) never proposed selling important core assets, UES CEO Anatoly Chubais
said at the Friday board meeting during a telephone conference for shareholders.
In response to a question about the company's moratorium on asset sales, he said that it was
prompted by rumors of asset sales while in fact, only two deals were concluded, namely those for
the Solikamsk and Shakhty heating stations, the share of which does not exceed 0.05% in core
assets.
Chubais confirmed that the moratorium will remain in force until a mechanism is developed
with the involvement of minority shareholders to duly evaluate assets assigned for selling and
distributing returns. The working group discussing this issue, among others, has been invited to
report the first results to the board in two months.
Chubais also commented on the board's decision regarding a program to improve liquidity. He
added that the issue concerning the transformation of the ADRs of UES and its subsidiaries into
ADRs of new companies formed in the process of restructuring is a priority issue. Since it is
closely connected with the company's restructuring, the working group was invited to draft its
recommendations for the ADR program.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Unclassified
Russia: CEO Chubais calls for moratorium on sale of core UES assets
142
CEP20020925000096 Moscow Interfax in English 0657 GMT 25 Sep 02
[FBIS Transcribed Text]
MOSCOW. Sept 25 (Interfax) - A moratorium should be imposed on the sale of the core assets
of Russian electricity monopoly Unified Energy System, and on the distribution of options to buy
them, UES chief executive Anatoly Chubais said on Wednesday.
The moratorium should remain in place until "a mechanism for the fair appraisal of the
company's assets is adopted by both majority and minority shareholders," Chubais said at a
conference organized by Brunswick UBS Warburg.
He said UES is halting a deal with Russian Aluminum on the completion of the Boguchany
hydroelectric power station. UES had planned to take a loan of $10 million from RusAl, using the
power station's shares as collateral.
"We will not offer any shares in exchange for loans," Chubais said, remarking that this deal
caused a negative reaction among market participants.
The moratorium on the sale of assets is a part of a "new stage in the policy of the company's
management." In general the position of company management in the course of UES' reform, as
outlined by Chubais on Wednesday, is composed of seven main principles of relations with
shareholders.
These principles include refusing to mortgage shares and the proportional distribution of shares
in the course of restructuring. Others include: maintaining the liquidity of the shares of UES and
its subsidiaries during and after restructuring; preserving the priority of improving financial and
operational indicators throughout the restructuring period; and a significant review of dividend
policy in the interests of shareholders, Chubais said.
He also said UES management wants a fair assessment of assets if they are transferred to the
state in the course of restructuring. "There can be no transfer of assets to the state at below market
prices," Chubais said, adding that the government's position on UES reform "coincides with the
position of company management."
Chubais said he was prepared to communicate more intensively with shareholders, and invited
them to take an active part in work on the strategic plan for restructuring the company. He
proposed setting up a working group that would include himself, representatives of minority
shareholders and the consortium of Alfa Bank and Merrill Lynch that is advising the company.
This group would fine-tune the strategic plan for restructuring (3+3 program) taking into account
the interests of all parties, including minority shareholders.
Among the problems that have arisen in the course of UES restructuring and caused the
company's stock price to fall has been "insufficient consideration of the views of minority
shareholders on reform, and lack of communication with shareholders on the goals and motives
of the reforms, and the policy of management," Chubais said, adding that these shortcomings
were the fault of UES leadership.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
Unclassified
UES should be ready to synchronize operations with Western grids by April 2004
CEP20020924000038 Moscow Interfax in English 0817 GMT 24 Sep 02
143
[FBIS Transcribed Text]
MOSCOW. Sept 24 (Interfax) - Russia's Unified Energy Systems (UES) will be ready to
synchronize operations with Western power grids by April 2004, chairman of the board of the
dispatcher service of UES Viktor Pauli told journalists.
He said UES chief Anatoly Chubais has set this deadline to guarantee all conditions for
synchronizing operations with the West.
Pauli said Russia should reach technological readiness for this goal before the autumn and
winter peak in 2003.
Chief of the UES scientific policy and development department Yuri Kucherov said that
synchronization is a mutual process and an agreement with the other side is necessary. He
stressed that the synchronization date has not been set, but remarked that "Russia can synchronize
the operation of its energy system in a few months."
Kucherov said UES can synchronize operations with Finland and several other West European
countries.
He quoted Western expert estimates that Russia will have to spend some $80-100 million to
upgrade about 50 units and automated systems in the framework of preparing for synchronized
operations.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Russia: Official says uncertainly main factor behind decline in UES capitalization
CEP20020920000139 Moscow Interfax in English 0915 GMT 20 Sep 02
[FBIS Transcribed Text]
MOSCOW. Sept 20 (Interfax) - Legislative uncertainly, and uncertainty on the market, are the
main factors behind reduction of the capitalization of Russian power monopoly Unified Energy
Systems (UES), deputy chairman of the company's executive board Yakov Urinson has said.
"It scares off investors when deputies either suggest setting charges a year in advance or want to
cancel five-year restrictions on the share of foreign investors in UES's charter capital that they
imposed themselves," he said in an interview with Gazeta newspaper.
"The greater the uncertainty, the greater the risks. It was a welcome sign when the government
provided a clear and detained explanation of the course of reform, by spelling out all its plans
through March 2004. Investors received a clear picture and a full understanding of the process's
advantages and disadvantages," Urinson said.
He said this led to company shares going up. "Then the State Duma started discussions on a
package of bills. As the package is increasing, capitalization in falling," he said. Urinson added
that "should the reform be suspended, this would inevitably lead to a further decline in the
company's capitalization."
He noted that there is a close link between the electricity market and the gas market. "One thing
is when an investor, who builds or purchases a power plant, knows that he can buy gas on the
144
market. The other thing is when an investor has to apply to Gazprom to purchase and deliver it,"
he stressed.
Commenting on required investments in the Russian electricity sector, he said 'this will depend
on fuel prices."
"In order to become a competitive player in the electricity production sector, we will require
$30-$50 billion in investments in the network, distribution and production throughout 2010," he
said.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
Russia: UES chief welcomes Western strategic investors
CEP20020204000015 Moscow RIA-Novosti in Russian 1941 GMT 4 Feb 02
[FBIS Translated Excerpt]
New York, 3 February: Strategic investors may come to the Unified Energy System of Russia
[UES] as early as this year, UES chief executive Anatoliy Chubays told correspondents on
Sunday [3 February] in New York where he is participating in the World Economic Forum's
annual session.
Investments in securities and financial markets are not what the UES and the whole Russian
economy basically need, Chubays said. "We badly need direct strategic investments in our power
stations, in power generating facilities," he pointed out.
People who are discussing energy problems at the forum are company leaders and potential
strategic investors, Chubays said.
[Omitted: more about the importance of the World Economic Forum]
"So far we cannot boast about achieving a concrete result [in attracting strategic investments],
but preparatory work is in progress," he said.
[Omitted: more about the importance of strategic investments]
Answering a question by a RIA correspondent about the situation with non-payments [in the
Russian energy sector], Chubays stressed that "we are proud of the fact that from 1 January
[2002] the company [UES] has no debts to [Russian gas monopoly] Gazprom, nuclear power
stations and the public sector, which happened for the first time in many years". "We ceased to be
debtors, we put the company's financial affairs in order and have prepared for restructuring," he
said. Chubays specially stressed that "it is impossible to attract foreign investors to a company
bogged down in debts".
[Description of Source: Moscow RIA-Novosti in Russian -- government information agency, part
of the state media holding company]
Unclassified
145
Russia: Energy Commission approves UES investment program
CEP20020116000414 Moscow Interfax in English 1531 GMT 16 Jan 02
[FBIS Transcribed Text]
Text of report in English by Russian news agency Interfax
Moscow, 16 January: The board of the Russian Federal Energy Commission on Wednesday
approved the 2002 investment programme of Unified Energy Systems (UES) at R16.7bn.
Commission chairman Georgiy Kutovoy told the board meeting that this year funds for the
investment programme will be raised in the old way - from the public. He added that this will
possibly be the last time because such fund raising has been strongly criticized.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Unclassified
Russian Website: Reforms Postponed Until After Elections
CEP20021231000133 Moscow Grani.ru WWW-Text in Russian 30 Dec 02
[Article by Ivan Goryayev: "Results Summed Up"]
[FBIS Translated Text]
Let us begin our New Year review with foreign policy, which is being spoken of as a succession
of victories which have finally led Russia into the family of Western peoples. So where is
Zakayev? How are we to travel from Kaliningrad Oblast to Russia and Europe? How is NATO
living, looking at Smolensk through its binoculars? How are relations with Iraq, where
Washington threatens to try out a "nuclear scenario?" And with Iran, which certainly does not
like the US bases in Central Asia and the hypocritical delays in supplies of equipment for the
nuclear power station in Bushehr by the Ministry of Atomic Energy and Energomash? What will
happen if Viktor Yushchenko, the pro-US contender for the post of president, does actually take
power in Ukraine? Russian Foreign Minister Igor Ivanov, with his eternal false smile which
looks as though it is about to slip, is not answering these questions.
Domestic policy? There are "successes" here. Scarcely had General Gennadiy Troshev been
dismissed and the premier replaced to disrupt the balance of forces in Groznyy before there
followed the bloody act of terrorism 27 December. The FSB [Federal Security Service] and the
MVD [Internal Affairs Ministry] let the suicide squad terrorists into the government center just as
146
Barayev's terrorists had been allowed into Dubrovka. What does Putin actually control apart
from a dozen meters of Kremlin corridor?
Yeltsin's Family beat off the "onslaughts" by the lightweight "Chekists" and markedly
strengthened its positions. It took Slavneft. It forced Putin to assign administrative reform to the
government apparatus. (The president looked rather comical when in retaliation against Mikhail
Kasyanov who on the eve of the New Year had presented the forthcoming reorganization of the
government on his own terms, he suddenly reassigned this administrative reform to the
Federation Council). It acquired the apparatus and monetary assets of United Russia. It is
compelling the head of state to accept its services as general producer in his forthcoming
presidential campaign in order to share with him the programmed March triumph.
Economic growth? Yes, it is there. It was 4 percent in 2002 as against 5 percent in 2001.
Through oil exports and the increase in the number of breweries. Reforms? Oh, yes. Private
ownership of land? Of course. In those regions where it has been allowed, it exists. Where it has
not been allowed, it does not exist. Neither contradicts federal law. Pension reform? By all
means. The accumulative part of pensions accumulated by the Pension Fund is being invested
solely in Finance Ministry state bonds. But so far there are too few bonds to "absorb" the billions
of the Pension Fund. No matter: They will issue a few more. They must. The government has
been tasked with building up the internal debt at the pensioners' expense.
Banking reform? That is making headway too. To the benefit of the oligarchs the government
has submitted to the Duma a draft law on insuring bank deposits. This code cancels out Central
Bank guarantees for Sberbank deposits, where 85 percent of citizens' money is concentrated. But
in exchange it extends to all commercial banks the almost worthless ARKO [Agency for the
Restructuring of Lending Organizations] guarantees. Reforms of the natural monopolies? Only
of the Ministry of Railways and then without any tough deadline commitments. As for Gazprom,
they are afraid even to touch it. Because it has emerged that it is one step away from bankruptcy.
And 70 percent of export profits go to service the company's $14.2 billion debts.
But then we have RAO YeES [Unified Energy System of Russia Russian Joint-Stock
Company], the world's largest energy company whose market capitalization under Anatoliy
Chubays exceeds by only 50 percent the capitalization of the MTS [Mobile Telesystems] mobile
communications company. The erratic, convulsive passage of the draft laws on electricity
industry reform through the Duma corridors is directly linked to the role played by the "electricity
switch" at the future elections. It depends on whose company, Chubays's or that of the "family"
alliance, is first in line for the privatization of generating capacities. That is the true content of
the intrigues over the reorganization of the RAO YeES.
Finally, tax reform. Here there is just one achievement -- income tax of 13 percent. And that is
all. Any talk of tax reform, of lowering the single social tax to 20 percent of the labor
remuneration fund, for instance, are utterly unfounded. Because turning wages money into cash
via offshore companies costs just 4-5 percent. No one will ever be able, with the visible
liberalization of the currency regime, to compel major corporations to pay 20 percent instead of
4-5 percent. Everyone realizes this, but they continue to play at reform. But they must not lay or
else they will not only have to introduce strict financial control over the capital operations of
banks and major companies but also to block the practice of transfer price formation in export
industries. And that will mean the death of the class of oligarchs and their satellites.
All reforms have been postponed until after the elections. And meanwhile the White House is
simply sharing out financial flows with the oligarchs and most influential governors. Sharing
147
them delicately and thoughtfully to ensure that it does not end up losing out with budget
commitments and foreign debt payments and to ensure the oligarchs and governors have the
opportunity to help the president win the forthcoming elections.
[Description of Source: Moscow Grani.ru WWW-Text in Russian -- Internet site controlled by
Boris Berezovskiy.]
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Unclassified
Website Views Russian Energy Reform Postponement's Political Aspects
CEP20021231000091 Moscow Gazeta.ru WWW-Text in Russian 23 Dec 02
[Report by Ivan Chelnok and Andrey Litvinov: "Anatoliy Chubays Stops the Country"]
[FBIS Translated Text]
After the Duma's decision not to examine the electricity industry reform this year, shares in RAO
YeES [Unified Energy System of Russia Russian Joint-Stock Company] immediately plunged
over 3 percent. Yet, if we are to believe presidential adviser Andrey Illarionov, Anatoliy
Chubays's chief critic, the market's reaction should have been the opposite.
Monday's Duma Council session decided not to examine the package of draft laws on the
reform of the electricity industry in the final days of the fall session -- 24 and 25 December.
People's Deputy leader Gennadiy Raykov on this occasion explained the decision by the
deputies' desire to wait for the approval of the law on regulating the natural monopolies' tariffs at
the Federation Council, scheduled for 27 December. The deputies will thus not manage to
examine Chubays's reforms at this session.
The New Date for Discussing the Energy Reform Package is 23 January 2003. But it too can be
seen as hypothetical
According to Duma speaker Gennadiy Seleznev, the precise date will be set at the first Duma
Council session after the winter vacation. Here the deputies have so far "failed to reach a
compromise on some government amendments," the lower chamber speaker stressed.
Speaking last Wednesday at the All-Russia energy congress, RAO YeES head Anatoliy
Chubays explained the difficulties in the laws' passage through the Duma by the actions of a
group of major and politically influential businessmen who are impeding the progress of the
energy reform in order to cause the company's shares to drop and to buy them up as cheaply as
possible.
Gazeta.Ru has already written that according to unofficial reports he is talking about Russkiy
148
Alyuminiy head Oleg Deripaska, Aleksandr Mamut, chairman of the Troyka Dialog investment
company board of directors, and Chukotka Governor Roman Abramovich, who has not lost his
interest in Business -- that is figures traditionally linked to the old Kremlin "family."
Indeed, in the two days after the previous decision by the Duma leadership to postpone the
examination of the package of laws on energy reform, the RAO's capitalization declined by $220
million and the state's losses, taking into account its share in the company's capital, were $110
million. On the other hand it did indeed become easier to buy up shares (whoever it was that did
so).
Once again, the energy holding company's shares showed a negative reaction to the new
deferment. On Monday they had become 3.19 percent cheaper by the end of the trading session
at the RTS [Russian Trading System].
That is, if we are to use Chubays's logic, in one day the state lost about $86 million. In other
words the market obviously sees the postponement of the reform to the spring session as a
political and not a technical deferment. The examination of what is commonly seen as a finished
package of documents has been deferred for the third time in the past month and there is no proof
that 22 January the package will be examined, still less adopted.
It is worth noting that one of the chief critics of the present RAO YeES management, the
president's economic advisor Andrey Illarionov, has long been insisting on deferring the energy
reform. But the market is certainly not behaving in accordance with his instructions. Illarionov
asserts that investors so dislike the plan of reforms proposed by the RAO itself which (albeit with
small amendments) was the basis of the package of draft laws discussed by the Duma, that the
reform's approach leads to a decline in the company's shares and deferments or setbacks on the
path of reform (for instance sharp criticism of Chubays) leads on the contrary to a rise in prices.
Today's behavior of the RAO shares refutes Illarionov. And there is no reason to doubt that
Andrey Illarionov is a qualified economist with a fine knowledge of the stock market's
psychology. There would also seem to be no grounds for suspecting him of colluding with the
buyers of the cheaper RAO shares.
But documents in Gazeta.Ru's possession allow us to suppose that the presidential aide's
position for the past 18 months has been part of a more complex political game.
After becoming the president's advisor Illarionov came up against the need to create his own
media image. He did not resolve that task on his own. The media plan for "A. Illarionov's image
positioning" ordered from the PRopaganda PR firm in the summer of last year and now in
Gazeta.Ru's possession, immediately after the government's approval of the current version of the
reform blueprint will directly set the task of showing Andrey Illarionov as the most skilled
"liberal economist of the new era" and Anatoliy Chubays as a very bad manager. The main thesis
is that capitalization collapsed under Chubays.
Gazeta.Ru has asked Yuliya Mishkinena, Andrey Illarionov's press secretary and at the same
time head of the PRopaganda department for work with VIP clients, to comment. She said that
she "is on very good terms with the presidential staff information administration and it was their
personal request to work with him (Illarionov). No one paid us for this campaign."
It is worth saying that the leading Russian media's real coverage of Illarionov's activity last
summer does not fully accord chronologically with the "media plan" although the tone of the
149
items in a number of central publications accords quite accurately with its premises.
However that may be, it emerges from the words of Andrey Illarionov's press secretary that the
presidential staff in one way or another tried to promote the disruption of the energy reform,
supporting its critic Illarionov with the aid of professional PR men.
The fact that the RAO YeES reform long ago became a political issue is no secret. Its aspects
that are comprehensible only to professional energy officials are scarcely discussed in the media.
But something else is implied -- that Chubays is leader of the Union of Right-Wing Forces and a
potential Russian presidential candidate at the 2008 election. Illarionov, on the other hand, is
close to influential members of the notorious "family."
And indeed in unofficial conversations the deputies admit that they have received instructions
from the Kremlin to "waste Chubays": Essentially the reform of the RAO YeES is not much
more radical than the reform of the Ministry of Railways, which proceeded virtually without a
hitch
At the same energy forum Anatoliy Chubays described the situation sharply: "In the next few
days everything will fall into place -- either a decision will be adopted on the reform or the
country will be brought to a standstill."
Most likely the consequences of the Duma Council decision will not appear immediately.
Because for the next two weeks the country will come to a standstill for a completely different
reason -- the New Year holidays. And the Duma Council will next discuss the energy industry in
2003.
The "media plan" is worth citing separately.
"We must proceed between the Scylla and Charybdis of 'kvas patriotism' and blind deference to
the West. A reference to Illarionov's position";
"Thoughts on the position of Kasyanov and his cabinet. The thesis that there are few dynamic,
vivid, and bold people in the government who know how to defend their position as Illarionov
does."
"For the ironic belittlement of Chubays's image use can be made of stickers (showing Chubays
with the slogan 'don't stick your fingers in the electric socket!') and leaflets and comic strips (with
a diagram showing 'Chubays's Evolution' to illustrate the degree of his political and human
degeneration in the past decade)."
[Description of Source: Moscow Gazeta.ru WWW-Text in Russian -- Website reportedly
financed by Yukos oil company and often critical of the government.]
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Unclassified
150
Russian Industrial Policy, Industrial Lobbying, Vehicle Industry Blueprint Eyed
CEP20021230000323 Moscow Vedomosti in Russian 30 Dec 02
[Article by Vladimir Fedorin: "Commonplace Lobbying" -- taken from HTML version of source
provided by ISP]
[FBIS Translated Text]
The half-forgotten phrase "industrial policy" has risen from the ashes this year. Despite its
illiberal flavor, the phrase has taken root and has even acquired a respectability that it lacked in
the reckless Yeltsin years.
Kasyanov's tact must be given its due. Regardless of pressure from propagandists of industrial
policy, the premier has not taken these words into his vocabulary. And so has saved himself and
ministers from a lobby drift in the form of hare-brained schemes of "how to boost industrial
sector x for a billion dollars of budget money (or from tax breaks or another way)."
So industrial policy has remained an instrument for internal use -- by ministers themselves and
the oligarchs in with them. Two poles of gravity (excluding the Agriculture Ministry) for
lobbyists have formed in the government. The needy and burdened -- vehicle manufacturers,
machine-tool builders, and weavers -- mainly congregate at the Ministry for Industry and
Science. Although it is true that entirely solvent clients have appeared this year too -metallurgists (the government passed a blueprint for the development of the sector this summer)
and timber enterprises (the cabinet passed their blueprint in fall).
The second pole is the Ministry for Economic Development. Sturdier lobbyists come to German
Gref's department -- retail oligarchs counting on cracking down on foreign competitors with the
liberals' help and blue-chip companies that want to save money on dividend payments but present
authorship of the amendments to the law on the joint-stock company to young ministry whiz kids.
The oligarchs' trade union even devised its own blueprint for industrial policy this year in order to
take individual lobbying under the aegis of industrial policy down a unified path. To the RUIE's
[Russian Union of Industrialists and Entrepreneurs] honor, the document balances indecent
proposals to the state (like supporting not individual sectors but individual companies) with
prescriptions of an opposite nature (that individual concessions not be given in any
circumstances). So the RUIE seems to have simply given its most insistent members an
opportunity to play at industrial policy with the state independently.
There is a hope that the results of the first truly big game will serve as a good lesson to the
oligarchs. Bureaucrats and vehicle lobbyists spilt so much ink over the blueprint for developing
the vehicle industry with its idea that is as simple as ABC -- protecting Zhiguli and GAZ [Gorkiy
Motor Vehicle Plant] vehicles from foreign competition. And what has it resulted in? They
have adopted the blueprint and raised duty on old foreign-made vehicles but our vehicle industry
is seeing in the New Year with halted production lines -- VAZ [Volga Motor Vehicle Plant],
GAZ, and Izhmash are at a standstill. So it is better not to spend money on investments and
human capital (bureaucrats). Invest better in the main thing, like the zinc plating of the chassis,
151
for example.
[Description of Source: Moscow Vedomosti in Russian -- daily business paper published jointly
with The Wall Street Journal and Financial Times; reportedly friendly with Kremlin]
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Unclassified
Unclassified
Postponement of Economic Reforms Until Second Half of 2004 Seen
CEP20021227000121 Moscow Nezavisimaya Gazeta in Russian 26 Dec 02 PP1, 3
[Article by Natalya Melikova: "A Commercial Break is Declared in the Economy -- Structural
Reforms in 2003 Will Be Replaced by Campaign PR" -- taken from HTML version of source
provided by ISP provider]
[FBIS Translated Text]
The authorities are temporarily abandoning implementation of large-scale economic
reorganization. NG's sources in the Kremlin and the government confirm that structural reforms
in the economy will be postponed -- at least until the completion of parliamentary and
presidential elections. This means that the authorities are opting for immediate political tasks
while putting aside ambitions with regard to an economic breakthrough.
The main content of the state's economic policy in 2003 will be not reforms but PR for itself.
The famous thesis that the economy in our country is half advertising is destined to be
implemented to its fullest next year.
Life will not stop in the country for this period, of course. The Duma will continue work on
economic laws. Several substantial draft laws are to be considered during the spring session (for
example, "On the Regulation of Foreign Currency" and "On Nationalization"). And in the
summer the deputies will smoothly proceed to the last draft (for this Duma) of the budget. The
1999-2003 version of the lower house of the parliament will not take up key issues for the
country's economy -- the reforms of the natural monopolies and of housing and municipal
services.
The reforms of the natural monopolies are too broad to influence the country's economy alone.
152
They affect the vital interests of the political and economic elite. The reform of the energy
industry, for example, is in general more of a political issue than an economic one. If Chubays
loses the confrontation, it will be reflected not so much in the RAO as in his own image as a
heretofore successful manager and lobbyist. This, of course, can only hurt the party of which he is
cochairman.
The housing and municipal-services reform may, in general, detonate a social explosion. Any
changes in this area could destabilize the situation in the country if they cause too much pain to
the poorest segment of the population. No one is likely during the election season to run the risk
of possibly wrecking whatever social stability there is, even if the price of stability is the
conservation of stagnant phenomena in the country's economy.
The authorities have no chance left for economic innovations and experiments in 2003.
Nevertheless, they must offer something to voters as an economic policy. In so doing, they will
have to tout not so much achievements (let's be honest, there aren't any special ones) as their
work to fulfill large-scale and ambitious tasks.
The theme of the economic part of the election campaigning conducted by the party of power
will most likely be the fight against bureaucracy and corruption. This topic should prove to be the
most beneficial. After all, using Chechnya as an campaigning ram for the second time in a row
will not work. But bureaucrats can be blamed for, among other things, the economic stagnation,
whose signs are more and more evident as the new year approaches.
This vector of the authorities' activities was graphically evident already this year. Recall how
the president berated the government for its tardiness in paying wages to budget-covered
employees, and recently, against the background of an air traffic controllers' strike, he again
harshly criticized the Cabinet for not being overly meticulous in fulfilling social commitments. It
is worth recalling both the Kremlin's initiatives to protect citizens against dishonest bureaucrats,
which the Human Rights Commission, in particular, will deal with, and the opportunity afforded
to small and medium-level businessmen to complain (true, through the Internet), but still to the
presidential administration.
In addition, the authorities will traditionally demonstrate their efforts in improving people's
living standards. For example, if one believes sociological polls, the low level of wages in Russia
is the No. 1 problem for the vast majority of the country's population. As NG has already written,
the authorities hold the trump they need up their sleeve: at the end of 2003 wages for budgetcovered employees will be increased by 30 percent.
While the media start reporting on the fight against bureaucrats, work will proceed in
government offices and the major economic centers on a future economic strategy for the
country's development. The time is approaching for the scholarly economic elite to build plans for
the post-election future.
The international and domestic background for a new attempt to carry out structural reforms,
however, will be much worse than it was for the Kasyanov government. A favorable oil market is
highly unlikely, and all of the economy's internal diseases will become even more chronic.
The starting point for a new attempt to begin large-scale reforms, analysts believe, will be the
second half of 2004. After that it will be too late. The election campaigns of 2007-2008, when the
elite will face the serious problem of transferring power to a successor, will loom on the horizon.
Besides, Vladimir Putin himself is most likely not too interested in stepping down as a president
153
of "unfulfilled hopes."
Then again, according to a NG source in the government, only a powerful jolt can make the
economic elite carry out reforms that are radical but essential for the country. This jolt could be
either an economic crisis or a resignation by the government.
[Description of Source: Moscow Nezavisimaya Gazeta in Russian -- Daily Moscow newspaper
aimed at an elite audience and controlled by Boris Berezovskiy.]
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Unclassified
Putin aide upbeat on 2003 Russian budget, criticizes energy sector reform
CEP20021225000073 Moscow Ekho Moskvy Radio in Russian 1207 GMT 25 Dec 02
[FBIS Report]
The Russian federal budget for 2003 is much better than those for the last years, Russian
presidential economic adviser Andrey Illarionov told Ekho Moskvy radio speaking live on the air
on 25 December.
Speaking to radio's editor-in-chief Aleksey Venediktov, Illarionov mooted a lot on economic
problems facing Russia stating his well-known point of view on the issue. He urged an
emergency fund to be set while oil prices are still high in order to resolve the problems. In the
passing, he slammed the Russian government for an overoptimistic approach to the world oil
prices in its estimates and named BP, among other oil majors, as making their forecasts on the
basis of the price of 16-17 dollars per barrel.
It will take some 25 years for Russia to reach the level of the economic development of Portugal
if the country does not accelerate its current economic growth, Illarionov said. He gave an
example of Kazakhstan, Ukraine and Lithuania, where the rates of economic growth are higher
than that in Russia.
Speaking about the foreign economic investment to Russia, Illarionov said that it went down 10
per cent in 2002 against the last year. This is a symptom of deteriorating tax situation in Russia,
he said. However, the main problem is to reduce the state expenditure, he added.
Illarionov said that Russian natural monopolies should be reformed and this is a must. Pointing a
finger at his main adversary, power grid boss Anatoliy Chubays, he said that the Unified Energy
System of Russia's (UES) other expenses budget line went up 1.5bn dollars this year and this is
taxpayers' money. Electricity tariffs are growing quicker than fuel oil prices, and the public has
the right to ask why is it so, he added. Illarionov slammed the proposed energy sector reform as
pursued by the UES.
No further processing is planned.
154
[Description of Source: Moscow Ekho Moskvy Radio in Russian -- influential and independent
radio station known for its fast breaking news coverage and interviews of politicians]
Unclassified
Russian parliament postpones power reform discussion till spring session
CEP20021223000074 Moscow Interfax in Russian 0813 GMT 23 Dec 02
[FBIS Translated Text]
Moscow, 23 December: The council of the State Duma at its sitting today decided to reschedule
the discussion of the package of laws on the electric power industry reform to the spring session,
Aleksandr Zhukov, chairman of the Duma's Budget Committee, told journalists after the sitting
had ended.
The discussion of the package has been postponed by a month and will take place in the Duma
in January next year, he said.
[Description of Source: Moscow Interfax in Russian -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
Unclassified
Special Interests Accused of Delaying Russian Electric Power Reforms
CEP20021218000315 Moscow Kommersant in Russian 18 Dec 02 P 14
Reference:
1. Russia: Chubays Says YeES' Reform Plan Has No 'Unresolved Issues'
CEP20021211000325 Moscow ITAR-TASS English 1628 GMT 11 Dec 02
155
[Report by Alena Kornysheva: "The Duma Has Congratulated RAO YeS Rossii"]
[FBIS Translated Text]
Postponing the Review of the Energy-Reform Package
Yesterday in the Radisson-Slavyanskaya Hotel RAO [Russian Joint-Stock Company] YeES
[Unified Energy System] Rossii marked the energy holding company's tenth anniversary with the
conference "RAO YeES -- An Open Company." Even the Duma celebrated the event yesterday,
but in its own way: a review of the package on energy reform will not take place on 18
December. The deputies will name 23 December as the new date.
RAO YeES head Anatoliy Chubays immediately admitted that "RAO YeES is still not liked by
all in Russia, but in any case, there is no longer anyone indifferent to power engineering problems
in Russia." With these words he turned the podium over to the chairman of the RAO YeES board
of directors and, as Mr. Chubays expressed it, "jointly" to the head of the President's
administration, Aleksandr Voloshin. Mr. Voloshin praised the holding company for its year-toyear growing openness and economic success (elimination of barter and nonpayments, and also
stably supplying the country with light and heat), after which he expressed sympathy regarding
the intractableness of the Duma, which postponed the date for the second reading of the electricpower draft laws. "Not only the state, as the main stockholder, is interested in the reform of RAO
YeES, but all of the public. Therefore, for us the quality of reform is no less important than its
speed, although delaying the passage of laws does not at all mean the cancellation of reform."
But the science head of the Higher School of Economics, Yevgeniy Yasin, apparently did not
know this. He spoke in favor of the speediest passage of the package, thanks to which RAO YeES
should become "a locomotive on the leading edge of market reform in Russia." In his opinion,
electric-power reform should pull along with it the long awaited liberalization of the natural-gas
market, reform of ZhKKh [housing and municipal services], and other transformations. The vicespeaker of the Federation Council, Aleksandr Torshin, also believes it essential to speed through
the energy package. And the deputy head of the Duma group "Peoples' Deputy," Anatoliy
Aksakov, assured Mr. Chubays that "everything will be normal."
Then a break was called, during which it was discovered that the Duma council had already
made its own decision. Deputy Minister of Economic Development and Trade Andrey Sharonov
was the first to respond to this news. "We still have hopes that the deputies will review the draft
laws in the their second reading on 24-25 December," he said. As a reason for the postponement,
the deputies formally pointed out that several of them had received the latest edition of the laws
literally days before and wanted to analyze them more thoroughly. Mr. Sharonov noted that the
most severe critic of the draft laws, the OVR [Fatherland-All Russia] faction, was satisfied with
the amendments. Commenting on Mr. Voloshin's statements, the deputy minister noted, "If we
put quality and the time period of reform on the same level, then quality, of course, is
preferential; however, in the given case the quality of energy reform could suffer from dragging
out the period as well as could the trust of investors in the authorities and their commitment to
conducting reform."
Naturally, Mr. Chubays also could not ignore another postponement of the date. "Work on
draft laws in the Duma has already taken eight months, and it always proceeded with difficulty,
but the laws will be passed; the course of history is irreversible," the head of RAO YeES said
with pathos. He added that nowhere and at no time have such reforms gone smoothly, because
"the creation of a transparent market for electric power unavoidably eliminates privileges and the
administrative resource." In the conference lobby yesterday, even the names of those whose
156
interests obstruct the passage of the energy laws were mentioned: Mr. Deripaska and Mr.
Abramovich. Kommersant's source suggested that they are intentionally putting off the period of
reform in order to continue to use cheap energy at a preferential price. Therefore, the theory is not
to be excluded according to which putting off the reading until spring will automatically put off
RAO YeES reform for several years, since it is simply senseless to count on the deputies passing
unpopular reforms in an election year. Other conjecture was also heard yesterday: dragging out
the reform will lower the market value of RAO shares (they fell almost seven percent in the last
two days), which the aluminum people will not fail to use because it is generally recognized that
they are buying up the energy holding company's shares.
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.].
Unclassified
World Bank says most difficult reforms still ahead for Russian government
CEP20021220000325 Moscow Interfax in English 1518 GMT 20 Dec 02
[FBIS Transcribed Text]
MOSCOW. Dec 20 (Interfax) - A senior World Bank official believes that despite the progress
made in recent years, the most difficult reforms are yet to come for the Russian government.
Summing up this year's results, Christof Ruehl, the chief economist at the Bank's Moscow
office, told journalists on Friday that 2002 became the fourth consecutive year of successive
economic growth that could exceed 4%.
However, he said many important and most difficult reforms are still on the government's longterm agenda. First and foremost, they concern state management reform, natural monopoly
reforms, and a banking reform, Ruehl said.
He blamed some slowing down in the rate of implementing these reforms not only because of
the upcoming parliamentary and presidential elections, but because of a number of other weighty
reasons. These reforms are very complex, especially from a technical point of view, said Ruehl.
In addition, he said, they inevitably cause resistance on the part of many influential business
groups since they set new competition standards, which greatly differ from the current ones.
Ruehl said that opposition to reforms from big businesses is typical for many sectors of Russia's
economy, which stands out for the significant concentration of capital.
At the same time, he stressed that a considerable slowdown in the pace of reforms or halting
them makes it increasingly difficult to carry them out with every passing year.
On the whole, Ruehl believes that Russia's economy has used up the window of opportunities
for reforms that opened up after the 1998 crisis. However, in order to attain sustainable growth in
the long- term, Russia needs to further diversify the economy, reduce dependence on the oil
market, and cut government staff.
[Description of Source: Moscow Interfax in English -- non-government information agency
157
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Unclassified
Russia: Yabloko leader discusses reforms within energy, housing sectors
CEP20021220000160 Moscow Radio Rossii in Russian 1230 GMT 20 Dec 02
[FBIS Report]
The guest on the latest edition of Radio Russia's "Persona Grata" interview programme was
Grigoriy Yavlinskiy, the leader of the Yabloko party. The programme, which was broadcast at
1230 gmt on 20 December 2002, was presented by Vitaliy Ushkanov.
Yavlinskiy's main topic was the progress of reform in the energy industry and the housing and
municipal services sector. He expressed his displeasure at the current state of these reforms,
which, he claimed, "had not been properly thought through". The individuals responsible for
driving through the required changes were guilty of asking Russians to accept a bitter
compromise: "You will live badly, but it won't last long". Yavlinskiy added that many of the
changes were being scuppered by "incompetence and selfish interest", with the result that the
Russian people were paying far too heavy a price for reform.
Yavlinskiy reserved some of his harshest criticism for Unified Energy System of Russia (UES),
the company which operates Russia's national electricity grid. Russians, Yavlinskiy complained,
were being forced to pay too much for their electricity, while the company's top managers
feathered their nests with luxury cars and private jets. This had led to a ridiculous situation Russians were being charged more for electricity than export customers abroad.
The housing and municipal services sector, according to the Yabloko leader, is also guilty of
charging too much for what it provides. While the people who ran the sector were insisting that
domestic users pay 100 per cent of the cost of services, Yavlinskiy argued that customers should
know what they were getting for their money. None of the providers were accountable or
transparent to their customers. Indeed, Yavlinskiy claimed that the sector was being driven into
the ground deliberately. As soon as it collapsed, opportunists would move in and reap the benefits
of privatization.
Yavlinskiy argued that Russians need to learn how to subordinate the country's government to
their own needs. Government officials were competent people, often more able than their
European counterparts, but were taking advantage of the complete absence of checks and
balances. Placed in a similar situation, Yavlinskiy suggested, European governments would also
succumb to greed and self-interest.
The Yabloko leader concluded by stating that Russians should be given the life, prosperity,
security and respect which they deserved.
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158
Unclassified
Document ID: CEP20021218000312
Russian State Duma Delays Decision on Power Industry Reform
CEP20021218000312 Moscow Nezavisimaya Gazeta in Russian 18 Dec 02 P 3
Reference:
1. Russian Duma deputies disagree on when to schedule energy debate
CEP20021217000225 Moscow Russia TV RTR Russian 1400 GMT 17 Dec 02
[Report by Ivan Rodin: Deputies Ready To Fulfill Any Order"--taken from html version of source
provided by ISP.]
[FBIS Translated Text]
Reform of the electrical power industry has sharply exacerbated the struggle between
groupings in the President's Administration and the government.
This week, the State Duma will not discuss the packet of laws on reform of the electrical power
industry and vote on it in the second reading. Yesterday's Council of the lower house adopted
the decision to postpone all of these draft laws from 18 December to an unspecified time. Then
again, this same Council decreed that it would once again discuss the prospects of the energy
laws on 23 December.
We may recall that, the day before, after the Coordinating Council of the four centrist factions
had agreed with the People's Deputy initiative group to postpone discussion of the laws, some of
the leaders of the "foursome" spoke out much more categorically. For example, Gennadiy
Raykov stated that the people could greet the New Year calmly, without worrying about the
results of the second reading. He also noted that, to all who had expected some kind of colorful
show to take place on 18 December on Okhotnyy Ryad, we may boldly say: The spectacle will
not take place. On Monday evening, Raykov insisted that his group would not participate in the
voting on the electrical energy packet until the draft law on state regulation of tariffs on thermal
and electrical energy (which at the present time has been rejected by the Federation Council) has
been adopted in its final form. The head People's Deputy told our Nezavisimaya Gazeta
correspondent that it will probably not be possible to coordinate this document--which provides
for one-time ratification of tariffs before the budget for the following year--with both the
government and the upper house before the end of the year. And therefore, in his opinion, we
may presume that the entire energy packet is also being put off until the next Duma session.
We must note that the other centrist leaders were either less categorical, or refused to comment
altogether. Yesterday, they finally began expressing cautious predictions about the fact that,
perhaps, the last week of December would after all become the time when the plan for reform of
RAO [Russian joint-stock company] YeES Rossii--and along with it of this entire Russian sector-will at last take on some final and, most importantly, legal outlines. The heads of the Unity and
OVR [Fatherland-All Russia] factions, Vladimir Pekhtin and Vyacheslav Volodin, allowed
159
themselves such predictions. However, the leader of the Russia's Regions group, Oleg Morozov,
still specified that any variant is possible--voting on the laws in December, and their
postponement until January, and even more distant times for the second reading.
In lobby discussions, many deputies are speaking out much more simply: Everything will
depend on what decision the Kremlin makes, after all. As our Nezavisimaya Gazeta
correspondent managed to determine, the next few days will be filled with numerous meetings
with Aleksandr Voloshin and various deputy prime ministers and ministers. We might add that
rumors began to emanate from the SPS [Union of Right-Wing Forces] faction yesterday to the
effect that, perhaps, German Gref and Aleksey Kudrin will in the nearest time make abrupt and,
most importantly, public statements to the effect that the Putin administration, which is trying to
deal with the economy together and parallel with the government, is thereby bringing the country
no benefit whatsoever. Rather, it is doing it harm. Then again, as yet such rumors have not
found confirmation from other sources.
Thus, the prediction once expressed by Nezavisimaya Gazeta--that postponement of the reform
of the electrical power industry until after the elections is entirely probable--still retains its current
importance. In any case, deputies are demonstrating amazing flexibility at the present time:
They are ready to fulfill any order of the supreme authorities, even despite what may be written in
the laws on privatization of one of the major Russian natural monopolies.
[Description of Source: Moscow Nezavisimaya Gazeta in Russian -- Daily Moscow newspaper
aimed at an elite audience and controlled by Boris Berezovskiy.]
THIS REPORT MAY CONTAIN COPYRIGHTED MATERIAL. COPYING AND
DISSEMINATION IS PROHIBITED WITHOUT PERMISSION OF THE COPYRIGHT OWNERS.
Russia: YeES CEO Chubays Comments on Power Industry Reform -- GRAPHICS
CEP20021217000272 Moscow Ekspert (Internet Version-WWW) in Russian 16 Dec 02
[Interview with Anatoliy Chubays, chairman of the board of RAO YeES Rossii, conducted by
correspondent Nikita Kirichenko: "Goal of Reform is Appearance of Strategic Investors"
(Internet Version-WWW) --correcting to add graphics to text]
[FBIS Translated Text]
On 18 December, the State Duma is to review the packet of laws on reform of the electrical
power industry in the second reading. On the threshold of this event, Chairman of the Board of
RAO [Russian joint-stock company} YeES Rossii Anatoliy Chubays has agreed to answer
questions for Ekspert.
160
[Correspondent] On what do you base your assurance of the fact that, if reform of the
electrical power industry does not lead to a reduction in tariffs, then it will at least have a decisive
effect on the slowing of their growth?
[Chubays] The real situation in the country is developing in such a way that, in the next 2.5
years, growth of tariffs is absolutely inevitable, regardless of whether the reform will take place
or not. Internal contradictions have built up in the sector, which are developing according to
their own laws and will be manifested prior to the reform. I will cite one example, which is
called the "problem of access by major consumers to FOREM [Federal Wholesale Market for
Electricity and Generating Capacity].
Here is the essence of the matter. One of the existing internal contradictions in the power
industry is "cross subsidization." There are several types of cross subsidization--for heat,
electrical energy, inter-regional, and so forth. But perhaps the most acute of these is cross
subsidization of the population and industry. It is a fact that a kilowatt-hour consumed by a
large industrial consumer, simply for physical-economic reasons, costs less than a kilowatt-hour
consumed by the public. This is rather simple to explain: A large consumer uses electrical grids
of high tension (500, 330, 220, 110 kV), over which electrical energy goes to the region and
requires practically no transformation in tension.
But household electrical appliances operate at 220V. And in order to remove the "kilo," it is
necessary for [the power] to pass through several transformer substations, each of which costs
considerable money. As a result, objectively the price of electrical power must be lower for
industry and higher for the population. This is not because Chubays is a bad guy, and not
because reform is anti-popular. It is simply that this is the objective side of the matter.
But in reality, the picture today is just the opposite: Tariffs for the population are lower than
for industry. Now let us put ourselves in the position of any major industrial consumer. He
buys electrical energy from the local AO-energo [energy joint-stock company] at an average price
of 80 kopeks (let us overlook the large disparity between regions), while the population buys it at
40 kopeks. The very difference in price is a reflection of that same cross subsidization. The
industrial consumer, in buying electrical power from the AO-energo, pays more specifically
because the population pays less. And the AO-energo itself buys the electrical power on the
wholesale market at a price which is 1.5-2 times less. The average price on the wholesale
market is around 35 kopeks. What will the major consumer do? He will run to FOREM,
where as a result of the lower tariff he can get $10-$15 million a year in savings on expenditures
for electrical energy. Imagine what a volume of resources an enterprise could allocate for
resolution of all problems (legal and others) associated with this access to FOREM. And it will
allocate this money. It will solve these problems.
The consequences for the electrical power industry are enormous: For the AO-energo, the
withdrawal of one or two major consumers to FOREM means a loss of from 50-80 percent in
revenues to the income articles of the budget, specifically because the one leaving is the one who
bore the burden of cross subsidization. In the existing system, the only method of somehow
combating the decline in revenues is by shifting the additional tariff load onto the population and
onto small-scale consumers. This would entail explosive, catastrophic, consequences: Growth
of tariffs for the population in specific regions and in a specific situation by 2-3 times, generally
without any preparation and without any compensation whatsoever. This is an absolutely
unacceptable scenario of development, but its threat is real. While even last year this existed at
a level of theoretical considerations, today major companies are already undertaking specific
161
actions to access FOREM. We are trying to hold back this avalanche, but our efforts will not
last long. Immediate solutions are needed.
Trend in prices for electricity in Russia (considering denominatio
1998)
I have cited only one of the examples of how domestic disproportions in the power industry
are beginning to crop up today, and will continue to crop up in the future. I can cite other
examples as well. For the full resolution of these problems, we need reform, which is an attempt
if not to stop this process of explosive disintegration, then at least to radically regulate it and to
steer it into a manageable channel.
[Correspondent] How does the planned scenario of reforms, associated with break-up of the
sector, take into consideration the exacerbation of the problem of cross subsidization? How can
it prevent major consumers from spontaneously leaving the AO-energo and going to FOREM?
Why is it a solution to the given problem?
[Chubays] Reform in and of itself does not resolve the problem of cross subsidization. By
2005, when the competitive market in electrical energy will be introduced, cross subsidization
must be eliminated. Today, not only power producers understand this, but also the leaders of the
regions. Finally, a tendency has been outlined in practically all the regions: Tariffs for industry
are growing much more slowly than for subsidized groups of consumers. In a number of cases,
they have even declined.
We favor a gradual, step-by-step resolution of this problem. A schedule of changes in tariffs
by groups of consumers must be compiled for each energy system, for a period until total
liquidation of cross subsidization is achieved. At the same time, measures for targeted social
protection of specific categories of the population must be implemented. Major consumers
should not leave the energy systems during this period. In order to reduce expenditures for
electrical energy, they will have the opportunity to buy it in the unregulated sector of the
wholesale market. We have an entire set of proposals and, seeing the acuteness of this problem,
we have sent them to the government. Furthermore, energy producers will have to seriously
reduce expenditures, and this will hold down the growth of tariffs.
[Correspondent]
But prices on coal and gas will still grow?
162
[Chubays] We do not foresee any radical growth in the price of coal. It is in fact being held
down by the export price and by the export transport capacities and logistics. Therefore, there
will be some growth here, but only as a measure of inflation. But with gas, naturally, there will
be a different picture, and this also dramatizes the situation.
[Correspondent]
Specifically what kind of situation is being formed with gas?
[Chubays] According to the results of 9 months of this year, gas prices rose by 40 percent-up to 70-85 rubles (R) per 1,000 cubic meters. Our tariffs have increased by 27 percent. That
is, gas prices are growing faster than our tariffs. This tendency will also probably be retained in
the future.
Intensity of electricity usage in various types of production
[Correspondent] A number of experts generally believe that reforms are being implemented
in incorrect sequence: Before liberalization of the domestic gas market, liberalization of the
market in electrical energy is either impossible, or will be a profanation.
[Chubays] The leading reform of the gas sector has its "pros" and "cons." In any case,
reform of the electrical power industry must proceed hand in hand with reform of the gas
market. On one hand, today the leading reform of the power industry is justified. Regulated
prices on gas make it possible to make a smoother transition to the market in the electrical power
industry. We will organize the market and we will attract investments into construction of
modern effective capacities--primarily those based on the steam-gas cycle. As a result of this,
the consumption of gas will be significantly reduced, and the effectiveness of its application will
be increased. This is also to the advantage of Gazprom itself.
On the other hand of course, it would be better for us to have fuel at market prices at the
outset--not only coal and fuel oil, but gas as well. For us, regulation in the gas sector means not
only prices below world prices, but also limitations on provision. Investors come to me who are
ready to build gas refineries. One of the first questions they ask is: What will happen with gas
provision to these plants? Market relations in the gas sector will give much freedom to the
electrical power industry as well.
163
[Correspondent] A market with well-developed competition and supply and demand which
are effectively equalized by prices is something that is very rarely seen outside the pages of
economics textbooks. In reality, many regional energy systems are monopolized either on the
part of demand, or on the part of supply. According to your plan, who will compete in them,
and how? Could you cite specific examples?
[Chubays] At the level of the retail, consumer market, we can cite an endless number of
examples of markets with "well-developed competition," as you call it. These are markets in
many types of consumer services, the market in most food products, and gasoline. This did not
happen right away. More than 10 years passed from the first cooperatives to today's
abundance. In the power industry, it will be faster. In reality, we do not have that many
regional energy systems which are monopolized on the part of consumers. It is just that we have
large industrial enterprises with large volumes of consumption, but in reality each energy system
has thousands of consumers. But "supply" today really is monopolized throughout the
country. But to give the consumer the opportunity to choose his electrical energy supplier--that
is the market, and that is the goal of the reform.
On the way to the consumer, it is primarily the marketing companies which will compete with
each other. They will choose which generator to buy the energy from--in their own region, in
the neighboring one, or whether the sales volumes of this marketing company will generally give
it the opportunity to buy electrical energy on the wholesale market. All this will be ensured by
equal access to the networks, which is also a key principle of reform. There will be competition
in such forms of business as generation (on the wholesale market between the wholesale
generating companies, on the regional market--between the territorial generating companies) and
marketing. Dispatch and transmission will remain monopolized and non-competitive.
Competition in many regions will arise also between the repair and other service companies,
which is very important for the power industry.
[Correspondent] One may often hear the following argument: Tariffs on hydroelectric power
are significantly lower than on tariffs on heat, and if there are low tariffs, then why reform the
entire electrical power industry? Is it possible to resolve the problem of growth of tariffs by
increasing the relative share of hydroelectric power?
[Chubays] Yes, in fact, tariffs on hydro-generation are several times lower than on thermal
generation. As a rule, they are 8-10, even 5, kopeks, while at thermal plants they are 30-35-40
kopeks. This is the pure truth. But the nature of this phenomenon is very simple: Tariffs
generally do not take into consideration the cost of invested capital.
[Correspondent] That is, GES [hydroelectric power plants] operate as a gift of nature?
[Chubays] Absolutely. This, of course, is effective from the standpoint of the current
moment. But if we look at the other side of this coin--not through the eyes of the consumer, for
whom it is convenient for the present day, but through the eyes of the investor--it becomes
obvious that no investor in his right mind would even discuss the possibility of investing money
into hydraulic generation. Yet it is very capital intensive, and the state will never be able to
develop current hydroelectric construction without attracting private capital.
At the same time, Russia's peculiarity consists of the fact that we have fantastic volumes of
untapped hydraulic resources. On the whole, the coefficient for utilization of hydraulic
resources comprises 17 percent, and for the Far East it is 3 percent. This despite the fact that,
164
say, in Austria, it is 90-95 percent. That is, our country possesses gigantic natural resources, but
the economic mechanism which has been built excludes the possibility of their utilization. It is
clear that neither modernization of the existing plants, nor the construction of new ones is
possible without reform of the current system.
[Correspondent] In discussing the project for reform of the electrical power industry,
reference is often made to the negative moments in the course of privatization and the security
deposit ["loans for shares"] auctions--the cases of corruption, and so forth. Does the scheme of
restructuring RAO YeES rule out such abuses? And in general, how do the specific historical
conditions of that process, as we call them, differ from the current one?
[Chubays] Those who utilize the argument of security deposit auctions to oppose reform of
RAO YeES are being coy, to say the least. They are being coy because they must certainly
understand the fundamental difference between the Russian era of '95-'96 and the Russian era of
2002-2003. These are different worlds and different conditions.
The security deposit auctions resolved only one task: The creation of large capital so as not to
allow the return of communism in Russia. The task was 95 percent political, and only 5 percent
economic. It was resolved with the aid of the security deposit auctions, against whose procedure
we could have legitimate claims from the standpoint of classic economic theory. But large
private property was created in the country in an extremely short time.
Our key task today is to ensure a competitive market in electrical energy. The market in
electrical energy may be competitive when it has different owners. If the owner of everything is
RAO YeES, then there will be no competition. It is specifically for this reason that RAO YeES
must cease its existence in its current form. Competitive owners must emerge. That means,
we must create this competition through different ownership. Further, the question is to a
significant degree technological--how this different ownership emerges.
There are two technologies for creating wholesale generating companies (OGK), which
comprise the basis of the future market, its framework. The first way is to sell the share of
property owned by RAO YeES in these companies. The second way is not to sell this property,
but to isolate wholesale generating companies from RAO YeES through the procedure of
reorganization in accordance with the Law on Joint-Stock Companies, and to divide up this
property in mirror fashion between the shareholders.
Each of these ways has its advantages and drawbacks. Since this is a sensitive and painful
question for our shareholders, since some of our opponents are speculating on it by bringing up
the topic of security deposit auctions, we are prepared to agree to reject the sale altogether. We
know the technology which makes it possible to really ensure pluralism of ownership in the case
if we do not sell our packets in the OGK. In that case, the structure of ownership of the
wholesale generating companies would correspond to the current structure of ownership of RAO
YeES--52 percent of the shares owned by the state, and the other 48 percent owned by minority
shareholders.
Capitalization of RAO YeES
165
But beyond that, for me it is simply of principle importance that owners--wholesale generating
companies--do not lay up this property, but that they still opt for attracting strategic investors,
who may be Russian "strategists" or Western strategic companies. This is specifically what we
must achieve, in my understanding.
The trouble is that today we have no "strategists" among the RAO YeES shareholders.
Objectively, that is how it worked out. In my opinion, it would certainly be possible to develop
a prudent technology, under which a strategic investor would nevertheless appear, even if RAO
YeES rejects the sale of the share packets.
[Correspondent] Perhaps, as a result of reform, certain "pieces" of the sector which are
potentially profitable objects really will become attractive to investors. But who will invest in
and modernize the power industry in regions with objectively high expenses and an absence of
competitive generators?
[Chubays] We believe that, as a result of the reform, all of the "pieces" of the sector, as you
call them, will finally become profitable. The level of profitability will ultimately determine the
degree of investment attractiveness.
For non-competitive aspects of the business, the funds for development will be included in the
network tariffs and dispatch tariffs.
For isolated energy systems, and the discussion here centers specifically around them--this is
primarily our Far East--the investment process will be built on different principles. There, it is
impossible to create a market in view of technological reasons. And where there is no market,
there must be regulation. The tariffs must include the investment component. It will be
possible to attract credits. This year, for example, we have launched 50 megawatts of capacities
at the Mutnovskiy GeoTES at the expense of a special-purpose credit from the EBRD [European
Bank for Reconstruction and Development]. And this is specifically a region with objectively
high expenditures, an isolated system. But, I repeat, there are few such regions--this is not a
typical situation. For example, completion of our long-term construction projects on building
166
hydroelectric plants will immediately make it possible to significantly reduce tension in a number
of such regions. The fund for building completion and investment guarantees, which is being
created, will in the future also significantly reduce the risks of investing in the most varied objects
of the power industry.
[Correspondent] Can we hope for the appearance of a strategic investor in view of the
ongoing conflict with minority shareholders?
[Chubays] At the end of September, the management of RAO YeES presented a set of
initiatives on measures which must be implemented immediately, and proposed a real dialogue
with the minority shareholders on correcting the company's strategy of development. What we
proposed, the market perceived in a positive manner: 2.5 months after this announcement, quotes
on shares of RAO YeES had risen by more than 60 percent! Not one other Russian company
experienced such growth. The market on the whole had grown by 5 percent during that time.
Practically, this means that it was specifically our growth that brought up the market.
[Correspondent] According to the indicator of capitalization per unit of established capacity,
RAO YeES loses out by 20-30 times to the major European energy companies--the German RWE
and the Italian ENI. How can you explain this? Is this undervaluation associated with the risk
of unequal exchange of assets for minority shareholders?
[Chubays] In fact, our shareholders are somewhat concerned about an unequal exchange.
In September, the company's management, having announced seven steps to meet the minority
shareholders halfway, once again confirmed that a principle of reform is the proportion
distribution of shares in the newly created companies, at any level.
As for the under-appraisal of our assets, here there are very many factors, and such a direct
comparison is not entirely correct. In Russia, the assets in practically any company are
undervalued, and their value is incomparable with the assets of companies in the Western
countries. We have different economies, different conditions of economic management,
different effectiveness, different country-related risks. All this is contained in the quotes. A
company which operates on market conditions and a company which operates in a market
economy, but under state regulation, generally cannot be compared. But our capitalization is
growing. It is growing faster than the market. We have removed the risks associated with the
potentially possible sale of profile assets. After adoption of the laws, a large part of the risks
associated with the conditions of uncertainty in the sector will be removed. I am convinced that
we will continue to grow in the future. It is another matter that--regardless of the conditions and
regardless of the steps taken by management--any delay in reforms will not have a positive effect
on capitalization.
[Correspondent] If we could, let us return to the economics of restructuring. Objectively,
there are different plants, and some of them are probably find themselves in very difficult
conditions in terms of expenditures. Will they be included in some more balanced structures?
[Chubays] One of the goals of reform is to create a situation whereby effective generating
capacity attracts the investor and develops. The ineffective one is either modernized, or shut
down. As in any sector, in the power industry the logic must be the same: Effective business
grows, ineffective business is restructured or shut down. Of course, in the power industry this is
a much more delicate problem, which cannot be resolved bluntly, by throwing all the plants out
onto the market and then seeing which ones survive. It is specifically for this reason that we
have proposed such a structure as the wholesale generating company. Every OGK would
167
include several plants, which will vary in regard to their fixed capital, fuel, and location. The
OGKs must have conditions which are mutually comparable, both in terms of average production
cost, and in terms of competitive position on the market. But at the same time, there would be
different plants within the OGK. This means that each wholesale generating company will be
faced with the question which you have posed. Within the OGK, there will be room to
maneuver. But if electrical power plants were thrown out onto the market individually--then
certainly there would be problems, which could not be resolved.
In any case, closure and withdrawal of a plant, in accordance with the draft law on the
electrical power industry, are possible only through the government. Therefore, the situation
may arise whereby the interest of pure business comes into contradiction with the electrical
energy balance, with the physical requirements and the statistical and dynamic stability of the
entire energy system. For example, if there is one generating capacity in a large region, and this
generating capacity is shut down, energy supply to the region as a whole may be threatened, even
in the presence of a well-developed network. Therefore, provision is made here for a more
complex technology of decision making. At the same time, the state is also a shareholder in the
OGK at the initial stage. But even if it withdrew as a shareholder at some stage of reform, still
the closure of the plant would be a question which is resolved only through the government, with
consideration of factors outside of business.
[Correspondent] Could you tell more specifically about the OGK? What are the regions of
their responsibility and the generating capacities included in them?
[Chubays] Altogether, plans call for creating 10 OGKs: Six on the basis of heat and power
plants, and four on the basis of hydroelectric plants. Their total capacity would comprise on the
order of 70,000-75,000 megawatts, around 45 percent of the holding company's capacity. The
backbone of the OGK would be comprised of our federal plants, the branch stations of RAO
YeES Rossii and a number of large plants from the regional energy systems. The list of
electrical power plants which would most probably be included in the OGK is posted on the
company's website. The board of directors has approved the list of our assets which will not be
sold either today or tomorrow. That is, they will remain as assets of RAO YeES until the end of
the company's existence, until the completion of reform. This list includes the assets of the
Federal Network Company and the OGK.
As for the region, the OGK as such cannot have a region of responsibility. The OGK will
supply energy to the wholesale market. Moreover, the OGK will include electrical power plants
located in various regions, but this will be a single legal entity, a single company.
[Correspondent] One of the proclaimed goals of reform of the power industry is the
scrapping of the expensive model of price formation in the sector, which discourages
conservation of energy resources, the struggle against losses and reductions in expenditures. Is
there some assurance that the elements of competition, which will emerge as a result of reform,
will lead to such a result, and on what is [this assurance] based? After all, for example, critics of
the English program of privatization and commercialization of the power industry insist that the
reduction of energy tariffs in England was the result not of competition as such, but of the decline
in prices on gas and coal and the mass lay-offs of workers in the sector, which just happened to
coincide in time.
[Chubays] When there is a market, every producer will be vitally interested in reducing the
cost of production. The profit of the company and its development will ultimately depend on
this. This is the law of the market. Already today, all of the enterprises in the holding are
168
successfully implementing programs of cost management. In only 9 months of this year, the
savings were over R9 billion, and last year--over R12 billion. These are huge sums. For
comparison: The net profit of the holding company last year comprised R14 billion. Today,
when the government decree permits leaving the savings in the tariff for 2 years, this may already
become a serious incentive for cost cutting.
As for the English reform of the electrical power industry, there the situation is entirely
different. There, many events have been superimposed over one another. Reform in England
began in the late 80's, and proceeded parallel with reform of the coal sector. In both sectors,
there was a significant reduction of personnel. In the power industry, it was by almost 30
percent. In the coal sector, most of the unprofitable mines were closed down. At the same
time, power producers were allowed to burn gas, which they could not do before. Gas was
considered to be the raw material for the chemical sector, and not a fuel. That is, the fuel
balance changed drastically. Construction of effective modern gas installations was
developed. Parallel with this was the development of the market. At practically the same time,
new capacities and a market emerged, as a result of which prices declined. Then, England
exports electrical energy, primarily from France, and also on a competitive basis. Therefore, if
we are to give an appraisal to English reform, we must take into consideration the full totality of
facts and to tie them in with one another.
[Correspondent] When modernization of generating companies and networks begins, RAO
YeES will inevitably present a colossal demand for products of energy machine building,
metallurgy, and construction. Is there some way to appraise the effect of this demand on the
part of RAO YeES on economic growth?
[Chubays] The logic is absolutely correct, although few people see it. The fact is that
already, the very fact of restoration of 100-percent payment for electrical energy and heat has led,
among other things, to the situation that our entire investment process is also being financed by
real money, and not by mutual offsets. And while, 3 years ago, we financed only 5 percent of
the construction of the Bureyskiy GES [hydroelectric plant] with real money, and 95 percent with
offsets and other schemes, today we are giving 100 percent in real money. Where has all this
led? As far as I know, for example, the Leningrad Metals Plant last year posted a growth of 60
percent in its volumes. These are turbines for that same Bureyskiy GES and for an entire series
of our other plants. However, they are also working well for export at the present time, but the
fact of growth of our orders is obvious. That is, already today, simply as a result of clearing up
the company's financial flows and bringing about order with budgeting and payment, we have
become a most interesting and profitable market for our machine builders. Moreover, we, of
course, retain competition, but with all other conditions being equal, we give the priority to
domestic developments. For example, the GTE110 gas turbine is an absolutely key element in
the entire strategy for future technical retooling of Russia's power industry. It is clear that our
entire gas energy sector (and gas in our country's balance comprises 68 percent) must be fully
retooled from the traditional steam-power to steam-gas assemblies. These are gigantic orders
for machine builders.
[Correspondent] Why was another, smoother, approach to overcoming the investment crisis
in the sector not selected? For example, one based on pinpoint project financing of modernized
facilities with participation of the state, domestic producers of energy equipment, and major
energy consumers?
[Chubays] In 10 years, RAO YeES Rossii has introduced 207 energy units, with total
capacity of 11,200 megawatts. Construction was performed under the most difficult financial
169
conditions, within the scope of meager investment funds. The state is incapable of providing
those volumes of investments, which are already today needed by the electrical power industry.
Today, we are capable to retaining the production potential, but the wear of capacities is
increasing. Specialists have estimated that, at this rate, we will renew our capacities in
approximately 250 years. For this year alone, our repair program will cost R40 billion. This is
a huge amount of money, and this is not renovation--it is merely patching up the holes. The
question of obsolescence of equipment and technologies still remains. We see the solution in
bringing strategic investors--Russian as well as foreign--to the sector. The goal of reform
consists specifically of forming companies which are attractive from the investment standpoint, in
order to minimize the investment risks. And none of us think that the appearance of "strategists"
will be rapid. This approach will specifically be smooth, well thought-out and well planned. It
will take decades to fulfill.
[Description of Source: Moscow Ekspert (Internet Version-WWW) in Russian -- Weekly
business magazine known for its reporting and analysis of financial-industrial groups and their
political interests, partly owned by Vladimir Potanin.]
THIS REPORT MAY CONTAIN COPYRIGHTED MATERIAL. COPYING AND
DISSEMINATION IS PROHIBITED WITHOUT PERMISSION OF THE COPYRIGHT OWNERS.
Unclassified
Unclassified
Russian Duma defies government to pass amended law on electricity tariffs
CEP20021219000031 Moscow RIA-Novosti in Russian 0730 GMT 19 Dec 02
[FBIS Translated Text]
Moscow 19 December. Despite objections from the government, at an additional plenary
meeting today the State Duma approved the law "On introducing amendments to Article 2 of the
federal law 'On state regulation of electricity and heat tariffs in the Russian Federation'" in the
wording suggested by the conciliatory commission.
The law envisages that the government sets electricity and heat tariffs once a year, before the
draft federal budget for the next year is adopted in the first reading.
Explaining the government's stance on the matter, the cabinet's representative with the State
Duma, Andrey Loginov, stressed that the government believed the adoption of the law
170
inappropriate from the financial and economic points of view.
The law was passed by a unanimous vote of 321 Duma members.
[Description of Source: Moscow RIA-Novosti in Russian -- government information agency, part
of the state media holding company]
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Unclassified
Russia: Duma sets maximum electricity, heat tariffs
CEP20021219000019 Moscow ITAR-TASS in English 0828 GMT 19 Dec 02
[FBIS Transcribed Text]
MOSCOW, December 19 (Itar-Tass) -- The State Duma adopted on Thursday a federal law,
which provides for the establishment of maximum electricity and heat tariffs every year, until the
lower chamber of parliament adopts after first reading a draft budget for the next year.
The voting on the draft law was held for the second time, because the Federation Council
rejected the first version on October 16. A conciliatory commission was created, which made
some changes in the text of the law and submitted it for the consideration of the Duma. On
Thursday 321 MPs voted for the new version, with no one voting against or abstaining from
voting.
So, the Duma did not take into consideration the objections of the government against the law.
Andrei Loginov, representative of the government, said at the plenary meeting on Thursday, that
the law would do damage to the natural monopolies, because the setting of maximum electricity
and heat tariffs is the prerogative of the government. The new law says, however, that the
changing of the tariffs during a financial year without the government submitting a corresponding
proposal to the Duma will not be permitted.
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
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Unclassified
171
Russian power grid chief hints at political uncertainty over reform
CEP20021218000441 Moscow NTV Mir in Russian 1900 GMT 18 Dec 02
[FBIS Translated Excerpt]
[Report from Russian NTV International television 1900 gmt 18 Dec 02]
[Presenter Kirill Pozdnyakov] The head of [national grid company] Unified Energy System of
Russia [UES] today called on the state to declare its position on the fate of power sector reforms.
According to Anatoliy Chubays, the reforms are no longer as conceived by him. There are other
authors: the government, the State Duma and the Federation Council. Journalists were above all
interested in confirmation of rumours that certain financial groups had started speculating with
UES shares and his answer to the question of what the purpose of this speculation was. Here is an
exclusive interview with Anatoliy Chubays that we recorded two hours ago.
[Pozdnyakov] Anatoliy Borisovich, you said today that there is some kind of large financial
group, or even several financial groups and powerful businessmen, who have been buying up
UES shares for some time now. In your view, are the share purchases a method for attaining a
political aim of some kind, or for pursuing purely economic goals?
[Chubays] It is difficult for me to comment on the aims of these groups, who can set their own
goals without my assistance and without asking me! I can't rule out that both components are at
work here. But at any event it is clear that there is a large-scale operation under way whose value
can be put at several hundreds of millions of dollars.
[Pozdnyakov] You said that in all probability they are influential people, these groups. The
question that arises in this connection is whether there is a connection between the delay of bills
to reform the power sector in the Duma and this parallel process of share buying?
[Chubays] Judge for yourself. Before reaching conclusions, let's recall the facts about what's
actually happening.
Fact one. A considerable package of UES shares is being bought up on a large scale at a cost of
several hundreds of millions of dollars. All analysts recognize it. There is no doubt on this score.
Secondly, the same analysts affirm with one voice that the operation is not over yet, that the
purchases are continuing and that the aims of those responsible clearly go beyond the present
volume of buying. In other words, this means that a similar amount of money, perhaps more, has
to be spent to complete the operation. If that is so, it means that those who will continue to buy up
the shares undoubtedly and by definition have an interest in getting as cheap a price as possible.
And it clearly follows that any method to reduce the price of the shares brings a direct and
unambiguous profit worth tens of millions of dollars.
[Pozdnyakov] Several different figures have been quoted on what the final percentage stake is to
be. As far as I recall, the figure of 25 per cent was mentioned. Do you think they will stop at that
or not? Will the figure grow much beyond that?
[Chubays] I think the figure of 25 per cent would signify a complete change of the ownership
structure in the company. And even if you take this modest figure as a benchmark, at the present
share value you have to spend approximately, well no less than, 700m-800m dollars to bring the
existing stake to this level.
[Omitted: Chubays says each percentage drop in the share value makes a big difference for
anyone buying shares]
The facts are that we have a situation in which in the past three days, as a result of the decision
to postpone the reform, the value of the company's shares has slumped by 4 per cent. At first we
cited the figure of 220m [dollars] for the first two days, and today, as a result of today's trading, I
can name a new figure of 260m dollars. These are the company's, the company shareholders'
losses as a result of the decision to postpone, to put off, the reform.
Some people lose out, and others win - just as in the song! It's obvious who. Those who intend
172
to spend big money on continuing to buy up shares will have to spend less money. And if
someone is gaining political dividends from the postponement - and these people are fairly well
known - others simultaneously gain direct cash dividends and make money out of it. I don't know
if there is a connection between these two groups or not, but these two facts cannot be disputed.
[Pozdnyakov] As far as political dividends are concerned, what political dividends do you have
in mind and who are these people?
[Chubays] I won't be giving away any secrets if I name the consistent opponents of the reform of
UES. They are [leader of the Russian Federation Communist Party] Gennadiy Andreyevich
Zyuganov, [presidential adviser] Andrey Nikolayevich Illarionov and [Yabloko leader] Grigoriy
Alekseyevich Yavlinskiy. They are fairly well-known politicians who are consistently doing
everything to slow down, repeal and halt the reform of the country's power sector. And if they
don't manage to roll it back, they want at least to freeze it at the point we are at now.
By the way, it is an open stance of theirs. They come out with it directly; they express a certain
logic. There is some logic here. It cannot be denied. But neither can you deny that these people
have an interest in stopping the reforms; that is what these people are trying to achieve.
[Pozdnyakov] Let's continue this topic. You have already said that the process must be out in the
open. It has come out into the open today with the active discussion of the process of share
purchases. In your view, is the phenomenon itself at odds with the law?
[Chubays] No, without question it is not at odds with the law. Moreover, the people buying up
the shares are acting according to normal common sense and logic, and you cannot blame them
for doing so. You just have to understand that they simply have an interest in getting a bargain.
It's a natural commercial interest. What complaints can there be?
But you also have to realize that their actions coincide absolutely with the political scaffolding
that is being erected around this. A gigantic company, one of the biggest in the country, is going
all out to implement the decisions of the state authorities. In implementing these decisions, it has
adopted a whole series of very important steps to transform itself. And in the middle of this
process, some kind of financial and industrial groups and politicians appear who say: no, perhaps
we should halt all this for a moment.
Look, lads, what are you up to? Take a decision, then, not to postpone things for a moment, but
to go back to the very beginning.
[Pozdnyakov] How irreversible is this process?
[Chubays] I think the most dangerous thing in this process would be to remain in this - pardon
me for saying so - ill-defined situation. This would not just discredit the authorities who took this
decision, but it would simply be dangerous from the point of view of the production process.
So then one would have to go in the opposite direction. One would have to consolidate UES as a
unified company, and probably increase the state's stake, and - I don't know - nationalize private
property, and take other decisions. And then it can be managed as a single economic complex, as
we had under socialism. That is a consistent logic.
There is another logic - to come to the market. But to expect to have one foot in the market and
the other in nationalization is totally unrealistic - and the consequences of such a position would
in practice be very grave for the production process: in other words, for our 146m consumers.
[Pozdnyakov] I want to return to the share purchases. You were saying that, basically, if the
figure reaches 25 per cent, very significant structural changes could befall the company. What
sort of changes could there be?
[Omitted: Chubays reiterates that the buying-up of shares is quite legal.]
[Pozdnyakov] Would the shareholder structure change?
[Chubays] The shareholder structure would change so radically that while today the state is in
effect the dominant shareholder, with 52 per cent - and the state today gives the minority
shareholders a chance to have their say and have their views heard, and we strive for this too today the minority shareholders account for 0.5 per cent, 1 per cent or 1.5 per cent.
If a single company or group of companies appeared with 25 per cent, it would be a different
173
situation. It would be a situation in which they could put their conditions to the state, and, if the
state does not agree to their terms, take significant steps to coerce the state to act as they see fit. It
would be another ownership set-up, another supercompany, another situation in the country's
power industry.
[Pozdnyakov] Do you believe that among the people in the financial group that is buying up
UES shares there are people capable of decisions of this sort, this sort of determined action?
[Chubays] They are very serious people. These serious people are deciding to spend half a
billion dollars - a sum comparable to the annual budgets of two, three or five constituent parts of
the Russia Federation. These people are capable of very significant actions. There's absolutely no
doubt about it. Moreover, I have come across situations in my own political experience when two
or three businessmen believed that they ran the country, and thought they would be making the
decisions. Who's minister there? - No, change him. Whom do we have in the government team? No, he doesn't suit us. I know this kind of logic very well. I have fought against this logic in
rather tough situations. Frankly, what is emerging now replicates events of the recent past.
[Omitted: Chubays says UES has done all it can, and now it is up to the authorities to take a
decision]
[Pozdnyakov] How far could Anatoliy Chubays agree to a postponement of these bills until, say,
next year - in other words, to having them frozen for another few months?
[Chubays] You know, I can agree to any decision as long as the logic is explained in a
comprehensible manner. If there is a solid argument, let it be presented and let us hear it. But
during the work on the reform, it was amended a great deal, on a great deal there was agreement,
many points were rejected and many accepted. I can't see any solid arguments today for a
postponement.
[Pozdnyakov] Thank you for your replies.
[Endall]
[Description of Source: Moscow NTV Mir in Russian -- broadcasts programs from Gazprom's
NTV network, as well as original shows, via satellite to the US, Israel, and elsewhere]
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Unclassified
Threat of Postponed Examination of Power Reform Package in Russian Duma Reported
CEP20021218000105 Moscow Kommersant in Russian 12/17/2002 P 15
[Report by Irina Granik: "Energy Reform Under a Short-Circuit Threat" -- taken from HTML
version of source provided by ISP]
[FBIS Translated Text]
The Duma may examine in the second reading a package of laws on reform of the electricity
sector tomorrow [18 December]. Or, it may not. Yesterday [16 December], a coordinating
174
council of four Duma centrist associations declared that the examination might be postponed.
Yesterday, the deputies were pretty vague about reasons that made the Duma centrists violate yet
another time all the accords reached with the government to adopt the "electricity" package in this
year to speed up reforms. The centrists from Unity and OVR [Fatherland-All Russia] refused to
make any comments altogether, while Oleg Morozov, the leader of the Russian Regions group,
declared that the deputies still have "many questions about the package."
Yesterday, the news about a threat that the adoption of the package of laws may be postponed
caused a tumult on the stock market. The RTS [Russian Trading System ] trading closed with a
3.75-percent drop in RAO YeES [Unified Energy System of Russia Russian Joint-Stock
Company] stocks. Traders believe that this happened specifically because of the report on
[possible] postponed examination of the draft laws.
Notably, yesterday's declaration by the deputies about possible postponement of the draft laws
came right when Anatoliy Chubays, at the Federation Council's "round table" discussion on
restructuring of the Russian electricity sector, expressed his satisfaction with the plans obtained as
a result of finalization work in the Duma. "We do have objections, of course, but the laws did
not lose anything on their way from the first to the second reading. The concept's consistency is
harmed but the amount of common sense has not been reduced," he declared. As is known, the
objections of Anatoliy Chubays are about the strengthened state regulation in the reformed
industry. Yesterday, however, he declared that it remained "within sound limits" as a whole, and
even pointed to some useful corrections made by the Duma.
Specifically, the deputies increased a role of the state in the Trading System Administrator (ATS)
-- at the stock trading market, where market prices of electricity will be set. They agreed to
reduce from 75 to 50 percent the number of votes required by the YeES Board of Directors to
make any decision on the company's reorganization (this will not allow reforms to be suspended
half-way to suit interests of minority shareholders). The YeES head described as another sound
decision the fact that although the deputies indicated in the draft law "On Electric Power
Engineering" a need to increase the state share in the system operator and the Federal Network
Company from the present 52 to 75 percent, they refrained from setting any dates. After all, this
could create a situation in which the state would have to buy shares at higher prices. Finally,
Anatoliy Chubays was pleased by a ban on phased [veyernyye] electricity disconnections, in
which conscientious payers are hurt because of debtors. "We in RAO YeES have banned phased
disconnections already two years ago," he declared triumphantly. The YeES head could not
resist saying that "the process of reforming the sector is already in full swing." His words were
confirmed by Vyacheslav Kravchenko, executive secretary of the government commission in
charge of preparing the package, ATS Head Dmitriy Ponomarev, and OAO [open joint-stock
company] Kalugaenergo Head Irina Yashanina. "There is only one problem left: The legislators
should keep abreast with real life," Anatoliy Chubays summed up. To all appearances, the
legislators have decided in their own way.
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]
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175
Unclassified
Russian power grid chief: Budget loses money over energy reform debate delay
CEP20021218000092 Moscow RenTV in Russian 1030 GMT 18 Dec 02
[FBIS Translated Text]
Because the State Duma debate on the package of energy reform bills has been postponed, the
state has lost 110m dollars over two days only, the head of the Unified Energy System of Russia,
Anatoliy Chubays, said today [18 December].
He added that a group of major Russian businessmen was intentionally trying to delay the
adoption of the new laws in order to reduce the cost of the company's shares. In the meantime,
they were buying up these shares at a low price, Chubays said.
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Russian power grid shares collapse ahead of Duma electricity board debate
CEP20021217000370 Moscow NTV International in Russian 1900 GMT 17 Dec 02
[FBIS Translated Text]
Financial experts have followed the market's reaction to the Duma decision to reform the energy
sector. Figures are impressive. Here are a few assessments of the situation.
[Aleksandr Korchagin, head of the analysis department of the Prospect investment company]
For the investors, the situation around the Russian power grid has been scandalous throughout the
entire period of reform, since [its head Anatoliy] Chubays announced it [reform] in March 2002.
The figures speak for themselves: since March 2002, the company has lost about 39 per cent of its
capitalization, that is, 3.5bn dollars. This year, the power grid has lost about 4bn dollars while the
dynamics has changed only after Chubays's announcement about a change of a moratorium on the
sale of the assets.
[Sergey Komlev, head of the analysis department of the Eurofinance investment company]
When the report came through at about 1630 Moscow time [1330 gmt], saying that the
discussion of the packet of documents on the reform of the power grid will take place on
Wednesday on 18 December, the market collapsed, including today's fall, literally by about 6 per
cent. If we re-calculate this fall from the point of view of the cost of the power grid block of
shares, this will mean that it will lose about 300m dollars of its capitalization. That is the cost of
the issue.
[Description of Source: Moscow NTV International in Russian -- broadcasts via satellite to the
176
US, Israel, and other countries; features programs from Gazprom's NTV network and former
NTV shows now being aired on Gusinskiy's TNT network and Berezovskiy's TV-6]
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Unclassified
Russian RTV 'Vesti-Plus' focuses on reform of energy industry
CEP20021217000395 Moscow Russia TV RTR in Russian 2000 GMT 17 Dec 02
[FBIS Report]
Russian RTV studio discussion programme "Vesti-Plus", hosted by Sergey Paskhov, focused on
the reform of the energy industry. The studio guests were the CEO of the Unified Energy
Systems, Anatoliy Chubays, and journalist Leonid Radzukhovskiy, who were joined through
video linkup by first deputy speaker of Federation Council, Valeriy Goreglyad.
Chubays stressed the need for reforms and the benefits of market-orientated electricity and heat
production and criticized artificially low prices as damaging for the economy. He hoped that the
reform aimed at price liberalization would lead to lower prices in the long run. Chubays also
noted that he had been swayed to support the concept of setting maximum price increases for
power and heat once a year.
Goreglyad said the main concern was the quality of the reforms and reduction of risks for the
consumers.
(Duration 30')
(Endall)
[Description of Source: Moscow Russia TV RTR in Russian -- wholly state-owned TV network
that generally promotes official government policies in both domestic and foreign affairs;
broadcasts reach over 93 percent of Russia's viewing audience]
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Unclassified
177
Russian Rail Enterprises May Be Allowed Access to Federal Wholesale Market for
Electricity and Generating Capacity (FOREM)
CEP20021217000192 Moscow Kommersant in Russian 17 Dec 02 P 15
[Report by Irina Rybalchenko: "Federal Energy Commission Calls Railroad Shippers To Energy
Market"--taken from html version of source provided by ISP.]
[FBIS Translated Text]
Fuel-energy complex
Yesterday, Federal Energy Commission (FEK) Chairman Georgiy Kutovoy announced that the
FEK is considering the possibility of allowing railroad transport enterprises access to the Federal
Wholesale Market for Electricity and Generating Capacity (FOREM). This would help to reduce
energy tariffs for railroad shippers, who are now forced to buy electrical energy from
middlemen. Furthermore, the FEK intends to ask the government to freeze oil transport tariffs.
"The FEK is seeing to it that railroad tariffs are no higher than the tariff for the industrial
consumer in the region. But this is not enough: Today, the tariff for railroad shippers is too
high," FEK Chairman Georgiy Kutovoy said yesterday. In his words, the FEK is considering the
possibility of organizing the wholesale supply of electrical energy for railroads by means of
selling electrical energy through railroad energy supply organizations. "Practically all the
railroads have internal networks of energy provision. They could be handed over to a
management company, or an energy supply organization could be created on their basis, which
would get the right to buy electrical energy on the wholesale market," specified the head of the
FEK. This would make it possible to reduce energy tariffs for railroad transport.
As an advisor to the head of the MPS [Ministry of Railways], Konstantin Pashkov, told
Kommersant, any decision of the FEK which would allow reduction of tariffs on electrical energy
would be acceptable to the railroads. At the present time, almost all 17 railroads are paying more
for electrical energy than it costs on FOREM. And the organizational structure of the
management company for provision of energy, OAO RZhD [joint-stock company of the open
type Russian Railroads], would be determined by the FEK itself.
The FEK interceded for the oil producers yesterday. According to Mr. Kutovoy, within 2-3
weeks, the commission will report to the government on the Transneft proposal to freeze tariffs
on transport of oil for 2003. He explained that the FEK is currently performing an expert study
of the Transneft proposal, of which Mr. Kutovoy approves. "Retention of prices on services of
one of the natural monopolies would make it possible to make changes in tariffs in other sectors
more predictable," believes the head of the FEK.
Georgiy Kutovoy told about the results of the 11 December government meeting, at which the
question of prices on services of natural monopolies was discussed, as well as their investment
programs for 2003. He noted that the government will make its final decision on the Gazprom
investment program in the first quarter of next year, and specified that, under conditions of the
upper limit for increasing tariffs on gas in the amount of 20 percent, which had been approved by
the government, it would be difficult for Gazprom to fulfill the investment program in the
planned volumes. "In 2003, Gazprom must not only retain its volumes of gas drilling, but also
increase them, perform drilling work and develop deposits, including the Zapolyarnoye deposit,"
he said. "And with a tariff increase of 20 percent, Gazprom will not have sufficient financial
178
resources of its own to implement the investment program. And this means it will have to either
reduce investment expenditures, or increase its volume of borrowing." We may recall that the
government approved the Gazprom investment program in the amount of R193.3 billion, as
opposed to the R204 billion proposed by the holding company's management.
As for the energy producers, according to Mr. Kutovoy, the increase in tariffs for purchasers of
electrical energy on FOREM by 17-19 percent as of January 2003 will make it possible to reduce
the difference between the cost of purchase and sale of the electrical energy, caused by the
disparity in tariffs established for FOREM buyers and sellers. We may recall that, in order to
eliminate the existing "tariff imbalance" in the amount of R15.2 billion, the FOREM ZAO TsDR
[joint-stock company of the closed type, Monetary Transactions Center] had proposed increasing
tariffs for purchasers of electrical energy on FOREM by 30 percent as of 1 January 2003. In that
case, tariffs for suppliers could increase by 10-12 percent. In Mr. Kutovoy's opinion, the state
itself is also to blame for the tariff imbalance. For example, in amending tariffs for the GES
[hydroelectric power plants], amortization and the several-time increase in the water tax were not
taken into consideration.
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]
Duma postpones consideration of power industry reform bills
CEP20021217000079 Moscow ITAR-TASS in English 0910 GMT 17 Dec 02
[FBIS Transcribed Text]
By Ivan Novikov
MOSCOW, December 17 (Itar-Tass) -- Russia's State Duma (lower house) has postponed at
least for one week the second reading of the government's energy reform bills package.
The Duma Council made the decision at the request from a number of factions insisting on
additional consultations.
The People's Deputy faction, with support from the centrists' coordination center, came up with
a proposal for postponing the consideration of the electric energy reform bills till 2003. Most
other factions disagreed with this, so the State Duma will return to the subject next week.
People's Deputy faction first deputy chief, Anatoly Aksakov has told Tass "the bills have a high
degree of readiness and delaying the UES of Russia reform any further would harm the industry,
but we nevertheless demand the issue should be postponed till the beginning of next year, because
it must be dealt with in a calm fashion, without politicizing."
The bills have been included in the agenda of the lower house for December 18. The Duma
Council is to confirm this when it gathers again next week.
-0-str/ast 171208 DEC 02
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
Russian official views delay in energy reform
179
CEP20021217000037 Moscow Interfax in English 0907 GMT 17 Dec 02
[FBIS Transcribed Text]
MOSCOW. Dec 16 (Interfax) - The delay in reforming Russia's Unified Energy Systems (UES)
does not mean that the reform has been cancelled, presidential administration chief and UES
chairman Alexander Voloshin told a Tuesday conference in Moscow.
"The quality of reform is no less important than its timing," he said. The postponement of
certain stages of the reform means the corporation's leadership and the authorities are planning its
progress and consequences more thoroughly, he said.
"UES reform proceeds in an open format," Voloshin said.
He said UES has attained significant results in the 10 years of its existence. "The structural crisis
in power engineering has been halted and power generation is on the rise," he said. In addition,
company management has uprooted the system of barter deals and mutual offsets.
The conference "UES: an Open Company" is timed for the power generator's 10th anniversary.
[RU EUROPE EEU EMRG ELG] ml tl <EESR.BE EESR.DE EESR.RTS > 1207 171202 MSK
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
Russia: Electricity, gas tariffs to go up by 14-20 per cent in 2003
CEP20021216000116 Moscow ITAR-TASS in English 1213 GMT 16 Dec 02
[FBIS Transcribed Text]
MOSCOW, December 16 (Itar-Tass) -- Electricity and gas tariffs for the population will go up
in 2003 by 14 and 20 per cent respectively, Georgy Kutovoy, head of the Federal Energy
commission, said at a press conference in Itar-Tass on Monday.
According to his information, the tariffs will be increased in equal measure both for the
population and for industrial enterprises. "The government adopted a resolution several days ago,
which does not allow Gazprom to increase gas tariffs by more than 20 per cent," he added.
Kutovoy believes that the idea to introduce different tariffs for the population and the enterprises,
which was put forward by Gazprom, "may create the situation, which we now have in the sphere
of electricity supply and which we are trying to change."
Responding to the question of Itar-Tass on the increase of electricity tariffs for the population,
Kutovoy said that "the growth will range from 14 to 19 per cent in various regions, depending to
their energy situation."
Commenting on the transformations in the energy sector of Russia, Kutovoy stressed that "if the
reform develops along the way outlined by the laws, things will go smoothly." "We convinced the
government that regulation on the regional level should be preserved. In this case the governors
and the local government bodies become our partners, instead of opponents," he added.
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
Gref Assesses Russia's Growth, Reform Prospects in Interview
CEP20021212000215 Moscow Ekspert in Russian 09 Dec 02
180
[Interview with German Gref by Aleksandr Ivanter: "The Most Difficult Problem is Reforming
Ourselves --German Gref, the head of the Ministry of Economic Development, Doesn't See
Qualitative Changesin the Mechanism of Economic Growth, Considers the Reform of the State
Apparatus To Be the Hardest and Is Ready for a Further Reduction of the Tax Burden" -- taken
from HTML version of source provided by ISP provider]
[FBIS Translated Text]
[Ivanter] The Ministry of Economic Development declared 2001 to be a year of growth
oriented toward the domestic market. What is your qualitative assessment of the economic growth
this year?
[Gref] I must say that there was no fundamental change in the quality of growth either last year
or this year. The growth is based mostly on favorable foreign economic market conditions, which
are a generator of domestic investments. Growth in the export industries brings orders in
metallurgy and on along the chain in other industries. That is also where most of the growth in
revenues is centered. For example, the average wage in oil production today is 22,000 rubles -those are already very high numbers.
Strictly speaking, we didn't even expect qualitative changes. It is impossible to make
qualitative changes in the structure of growth in one or two years or even in five years -- this
takes a much longer time frame. The reforms we are now working on àre in fact aimed at
changing the structure of the economy, tentatively speaking, by 2007.
Now about the growth rate. The GDP growth rate this year will be about 4 percent -- that is
somewhat higher than our baseline forecast. The higher rate came, again, from the favorable
foreign economic market conditions, and also from a sharp decrease in capital outflow. It is
gratifying that the downward trend in capital outflow is continuing and is even intensifying.
There is a potential for economic growth to reach 6-10 percent a year. The trouble with the
Russian economy is primarily its monopolization. More than 50 percent of GDP is produced in
the state sector. So we must make every effort today to destroy the monopolies, which is being
done, for example, in the reform of RAO YeES Rossii or the housing and utilities economy.
[Ivanter] What is your vision of the reform of the housing and utilities economy?
[Gref] It is extremely important to get this reform off the ground. It is the only way to
introduce competition between state and private companies in the service market. The key to the
reform is to change the model of the housing and utilities economy by turning grants into
subsidies. It is time to stop nourishing the monopolies, which feel very are comfortable in the
utilities sector, and to open this highly profitable part of the economy to small business. Grants
should be given to people rather than businesses. As for the public paying for 100 percent of
housing, I firmly state that this idea is wrong and pernicious in every respect.
[Ivanter] Which reforms are having the greatest difficulty and running into the most resistance?
Where are there major breakthroughs, and where are there problems and adjustments to the
original reform plan?
[Gref] The most difficult problem is still reforming ourselves. Administrative reform and the
reform of the state are most difficult in terms of technology, psychology, the amount that needs
changing and the readiness of officials for these changes.
181
The administrative reform has three components. The first is to demarcate powers between the
levels of government, which the Kozak commission is working on. The second is to reform the
civil service and define the status of a civil servant. And third is the actual reform of the structure
of the executive branch.
So far we still have a Soviet-type state: an executive hierarchy that, on the one hand, is missing
in the traditionally regulated sectors of the economy, and on the other, is extremely bloated,
unwieldy and awkward in the industries and areas where the state is not supposed to be present at
all. Hence there is an excessive burden on the economy, a supplemental tax on the economy in
the form of an inefficient bureaucracy and a lack of qualitative institutions for normal operation
of the market economy. Here's an example. The system of dual accounting -- bookkeeping and
tax accounting -- by our estimates results in expenditures by economic agents of 1 to 1.5 percent
of GDP. This is an indirect tax burden that business is forced to bear because of poor
administration.
There is a similar need for radical restructuring of the system of licensing, business registration
and all the procedures involving standardization and certification. The inefficient lawenforcement system and the judicial system require major transformation, and so forth. We must
sharply improve the quality of state institutions. Otherwise we will never achieve stable
acceleration of the economic growth rate.
As for where we have made headway, major steps have been made in tax reform, although it's
only, one might say, a good start, which still has to be developed in a very serious way.
There have been major breakthroughs in the foreign economic area -- everything that was done
to get market-economy status. A few days ago, following the lead of the US and the EU, South
Africa recognized Russia's market-economy status, and a parade of recognition of Russia's
market-economy status has started. This is one of the most significant events in recent decades in
foreign economic policy.
[Ivanter] How are the talking regarding Russia's entry into the WTO going?
[Gref] Things are going pretty well with the WTO today, although it's impossible to talk yet
about a specific time frame for joining that organization.
A lot of disputed issues have already been removed as of today, including the evening out of
energy tariffs and the level of state support for agriculture. We can safely say today that we will
be able to reach agreement with Europe and America. That cannot be said of China. The Chinese
are not ready for open communication, and so far we don't know what their demands are
regarding our entry.
Another problem is Ukraine. There is a likelihood that Ukraine very shortly will join the WTO
on terms that are absolutely not to its benefit. The WTO is viewed in Ukraine as a stepping stone
to entry into the EU. As a result Ukraine will sharply lower prices and duties on all of its goods,
including those its exports to Russia; in that case we will have to completely shield the market
from Ukrainian products.
[Ivanter] A couple of months ago Finance Minister Aleksey Kudrin and President Vladimir
Putin implied that we should not expect a further decrease in tax rates anytime soon. Yet
businessmen are extremely skeptical about the results of the steps already taken under the tax
reform. For many businesses, especially those that actively invest, the tax burden hasn't
182
diminished, but has grown. What is your assessment of the effectiveness of the tax changes?
[Gref] My position is that we cannot ensure a high economic growth rate without reducing the
tax burden -- this is an obvious task. The total amount of tax collections and all other state levies
is estimated in 2003 at 40 percent of GDP. And if we add in the indirect levies stemming from the
ineffective work of state institutions such as what I mentioned before, we will reach 50 to 55
percent of GDP. This is unacceptably high. You won't find a single country that shows a high
growth rate with such a burden on the economy. By our estimates, a more or less stable growth
rate requires an annual decrease in the tax burden of at least 1 percentage point of GDP a year.
[Ivanter] How is the process going right now? Are we adhering to this timetable?
[Gref] We have to distinguish between the nominal and the real tax burden. The nominal
burden has fallen in recent years, while the real one, paradoxical as it may sound, has grown until
recently. It is all a matter of escaping from the shadow of substantial layers of business and
revenues. So the trend in the real tax burden has been as follows: in 1999, 31.5 percent of GDP;
in 2000, 33.5 percent; in 2001, 33.9; and in the first nine months of 2002, 33 percent of GDP. The
expected total for the year is 32.9 percent of GDP. In other words, based on this year's results the
tax burden will drop by the precious percentage point of GDP. Next year we plan to reach
approximately 31 percent of GDP in tax levies, and the total proportion of levies will be, as I said,
40 percent of GDP.
One of the top priorities is to repeal the sales tax, which today is simply destroying the service
sector. It is also essential to create a good climate for production-sharing agreements. Then we
will be able to attract foreign capital into the country's economy, above all to develop the
economy of the regions.
I disagree with you that the president supports the view that taxes should not be lowered. On
the contrary, both the president and the prime minister are following a policy of cutting taxes. The
only question is about feasibility, the pace and the need to carry out an entire array of reforms. I
repeat once again: we will continue work to reduce the tax burden.
But we will not be able to do this without working at the same time to restructure the whole
system of budgeting and budgetary institutions, reorganizing the operation of the social sector and
state services. If we look at the level of the costs the state incurs to maintain this absolutely
inefficient social system, it cannot be compared to that of developed countries. For example, we
have 20 percent more physicians per 10,000 population than the EU, and 2.7 times more hospital
beds, but the state's total expenditures on health care in our country are far lower. What does this
say? That we are underfunding the health-care system and squandering money to boot. As a
result, doctors do not receive a normal wage. As a result, necessary types of medical care are not
being funded. We are funding surplus beds that no one needs and we are funding institutions,
whereas we need to fund the end services. And again we need to implement a simple principle:
give money to patients rather than fund the upkeep of institutions. And we need to practice this
principle everywhere when we use the budget, including officials. We must stop funding
ministries for them to exist. We must fund the result, the performance of the ministry's functions.
Only this kind of system provides an incentive to lower costs and gives society real control of the
government, without which we cannot build an efficient state and an efficient economic system.
[Ivanter] Another thorny issue is the reform of the power industry. What mechanisms that can
eliminate the risks from the sharp rise in energy tariffs and from the reduced reliability of the
country's heating and power supply are built into the plan to commercialize this extremely
183
important sector of the infrastructure?
[Gref] This is a global question. I will try very briefly to formulate our basic approaches. First,
the package of laws that is now in the State Duma puts off the liberalization of the market. It will
take at least two years from the time the law is enacted until a market is introduced. If, let's
suppose, the package of laws is enacted early next year, then realistically it will take until mid2005 to prepare a huge number of statutes and to create a new market infrastructure in order to
put the law into effect. It will take these two years to create and set up a workable market
mechanism for the sector, including the built-in risk regulators you refer to. I wouldn't dramatize
the situation regarding a sharp rise in tariffs. The price of electricity for industrial customers in a
whole host of regions is already pretty high right now. For example, in the Central Region it is
about 70 kopeks, or more than 2 cents. In the European countries, with their costs, it is more than
4 cents. Even after the reform of the industry the price in our country should be lower. After all,
Russia has a fairly high proportion of relatively cheap nuclear and hydraulic energy. I believe the
tariffs should drop in a number of regions after the transition to market pricing. I don't think the
reform of the industry will entail any shocking consequences for business and the public. No one
has a stake in this, regardless of whether our government carries out the reform of the power
industry or another government does.
But we must start the reform right now, when there is a surplus supply of generating capacities.
If the market is introduced at a time of scarce capacities, then a price jump is inevitable.
[Description of Source: Moscow Ekspert in Russian -- Weekly business magazine known for its
reporting and analysis of financial-industrial groups and their political interests, partly owned by
Vladimir Potanin.]
Russia: Commentary Views Delays in Implementing Gref Reforms
CEP20021212000224 Moscow Vedomosti in Russian 04 Dec 02
[Commentary by Kirill Rogov: "Whirlpool of Reform"--taken from html version of source
provided by ISP.]
[FBIS Translated Text]
Today, we can say with full assurance that the main structural reforms declared by the Putin
command at the moment of its ascent to power and proclaimed in Gref's program have been
relegated to the next presidential term.
The four monopolies--MPS [Ministry of Railways], Gazprom, RAO [Russian joint-stock
company] YeES and the ZhKKh [housing-municipal complex], which comprise a colossal nonmarket sector of the Russian economy--will not be reformed before the new presidential
elections. Furthermore, the prospects of reform appear to be even more ephemeral today than
they did 3 years ago. In any case, at that time it seemed that the new team had a relative
consensus about their necessity and primary vector.
The reason for this, in essence, is clear. While in the Spring of 2000, the concepts of reform
were developed by economic theoreticians, after Putin's victory in the presidential elections the
Gref program turned into a governmental program (these were specifically the words of Prime
184
Minister Kasyanov at that time). And this meant that the development of reform had for the
most part fallen under the auspices of the actual departments which were to be reformed.
Two reforms--of the ZhKKh and RAO YeES--hobbled to parliament through the sweat and
trouble of endless discussions. However, in both cases the executive branch, presenting its
compromise revisions to the deputies, in fact already does not have consolidated positions in
regard to them. As a result, both are subjected to criticism from the left and from the right.
From the left--for the fact that they presuppose liberalization of consumers prices. From the
right-because they do not give guarantees of creating a competitive environment after this
liberalization.
It is easy to note that these discussions almost exactly repeat the main debate at the beginning
of the 90's: First liberalization, then privatization, or vice versa. It is no accident that one of the
main ideologists of resistance to both reforms is Grigoriy Yavlinskiy. On one hand,
liberalization under conditions of monopolization of the market leads to the fact that the
management collects monopoly rent. And, having concentrated the capital, re-distributes
property in its own favor. On the other hand--it is also unclear how to perform privatization
under conditions of fixed prices and absence of profitability (not the profitability which emerges
as a result of internal re-distribution and enriches management, but the one which attracts the
investor).
As for the history of reformist ideas in regard to the two other monopolies, it appears even
more pedantic. After administration had been taken over by representatives of the Putin
command as a result of the complex political and power operations, both the MPS and Gazprom
found themselves practically removed from the orbit of the government discussion. Liberalreformist rhetoric was needed as long as it was aimed at the former management and served as a
political justification for its replacement. But now, why beat at one's own? Furthermore, while
both super-corporations constantly emphasized their wealth before the change of management,
the new leadership of the monopolies, on he contrary, is trying hard to popularize the topic of
domestic crisis and extreme financial troubles. Which must at the same time become an
argument in favor of raising tariffs and postponing restructuring.
In other words, as the real political positions of the Putin command have steadily grown
stronger, the political support for reform within the command itself was reduced. Today, in its
political rhetoric, questions of structural reform are obviously unpopular. Instead of Gref's
reforms, now it is Kozak's reforms that embody the undying reformist vein for the public. They
too have many interesting ideas.
[Description of Source: Moscow Vedomosti in Russian -- Business paper published jointly with
The Wall Street Journal and Financial Times; reportedly friendly with Kremlin.]
Russia: Proposed 2003 Electricity Tariff Increases Detailed
CEP20021213000097 Moscow Kommersant in Russian 11 Dec 02 P 18
[Unattributed report: "Ministry of Economic Development and Trade on Electricity Tariffs in
2003"]
185
[FBIS Translated Text]
"The Russian Ministry of Economic Development and Trade considers it necessary for federal
stations to receive tariff proceeds of R12.8 billion from the Federal Wholesale Market for
Electricity and Generating Capacity, leading to a 31.5 percent increase in commodity proceeds
[tovarnaya vyruchka] in 2003 compared to 2002. Moreover, the increase in the electricity tariff
for federal power stations operating on coal or fuel oil will, according to the Russian Ministry of
Economic Development and Trade proposal, be 3.01 percent, as against the stations' planned 19.9
percent. The increase in the heat energy tariff in 2003 will be 41.09 percent instead of 64.26
percent. The increase in the electricity tariff for federal hydroelectric power stations in 2003 will,
according to the Russian Ministry of Economic Development and Trade proposal, be 88.46
percent, as against the stations' planned 103.91 percent; and the increase in the heat energy tariff
will be 13.81 percent, as against the stations' planned 35.57 percent. The increase in the tariff for
gas-powered federal power stations in 2003 will, according to the Russian Ministry of Economic
Development and Trade proposal, be 31.03 percent, as against the stations' planned 49.71 percent,
and the increase in the heat energy tariff in 2003 will be 43.43 percent, instead of the stations'
proposed 71.59 percent.
"The overall increase in tariffs for the YeES Rossii [Unified Energy System of Russia] Russian
Joint-Stock Company's 29 federal stations will be 25.97 percent compared to 2002."
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]
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Russia Deputy Economic Development Minister Sharonov Eyes Electricity Draft Laws
CEP20021213000070 Moscow Kommersant in Russian 11 Dec 02 P 14
[Unattributed report: "What Deputies Argued About With the Government"]
[FBIS Translated Text]
According to Andrey Sharonov, deputy minister of economic development and trade, around
1,800 amendments were submitted to the State Duma during the preparation of the six draft laws
"On the Electricity Industry" for a second reading. According to Mr. Sharonov, the disputes
concerned issues of restricting the rights of the network owners. As a result it was decided that
all users could conclude contracts with the Federal Network Company to transport electricity
through the national power systems. There were also disputes regarding the preservation of state
control over prices and tariffs throughout the transition period and, according to Mr. Sharonov, "a
compromise was also found on this issue."
Many disputes also arose over the state's shared involvement in cheap (in terms of the prime
cost of the electricity generated) hydroelectric power stations. The point is that the FatherlandAll Russia faction submitted an amendment to the effect that Russian Federation participation in
the incorporation capital of the organization for the administration of the unified national grid and
the system operator of no less than 52 percent should be guaranteed by 1 April 2005 at the latest.
186
It is intended that the Russian Federation should subsequently increase its share to 75 percent,
notably by reducing its involvement in the generating companies. In the process the state itself
will obtain nothing from the introduction of this amendment but hydroelectric power stations run
the risk of becoming unappealing to investors if the state's share of their capital increases.
Admittedly, the amendment does not extend to those hydroelectric power stations where the
state's stake is currently less than 50 percent.
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]
Document ID: CEP20021212000189
Entry Date: 12/12/2002
Version Number: 01
Russia: 'Final Version' of Package of Electricity Reform Laws Viewed
CEP20021212000189 Moscow Kommersant in Russian 11 Dec 02
[Report by Irina Granik: "Duma Decides To Control Electricity Market" -- taken from HTML
version of source provided by ISP]
[FBIS Translated Text]
Yesterday [10 December], the State Duma Energy Committee decided that its last session on
preparations for the second reading of the package of laws on reform of the electric power
industry would be held 11 December. Kommersant has obtained the final version of the
package.
The package of laws on reform of the electric power industry is aimed at transforming this costbased subsidized sector into a market sector. According to the concept underlying the laws, fair
competition among power generating companies combined with state control of all power
networks will enable to attract private investment to the sector and put an end to galloping tariff
growth.
While submitting the laws to the Duma deputies took precautions to ensure that the population is
not left without electricity and heating during the sector's reform. Therefore, deputies decided to
preserve state regulation of the electric power industry to the extent possible. The government
initially resisted on grounds that a regulated market is not a market at all. However, it finally
decided that the absence of legislative basis for the functioning of the electric power industry in
the country is a greater evil. A compromise had to be found.
During the adoption of the Law "On the Electric Power Industry" in its first reading the OVR
[Fatherland-All Russia] faction put forward the following condition: It will approve the law
provided that amendments stepping up state regulation are introduced prior to its second
reading. Deputies demanded that the law should unambiguously ban phased power cutoffs
during which conscientious consumers are disconnected from the power supply along with
debtors and that the state share in the Federal Network Company should be increased from 52 to
75 percent and in the System Operator -- to 100 percent. In addition, deputies demanded that all
nuclear and hydroelectric facilities should remain state property and that the state retain the right
to set the upper limit of tariffs for the population and enterprises.
187
As turned out yesterday, the demands had been taken into account. Admittedly, the government
managed to ensure that the state share in the System Operator is increased to 75 rather than 100
percent and that the law does not set the deadline for increasing the state share in the Federal
Network Company and the System Operator. After all, the state will have to purchase its share
on the market, and if the deadlines are set market brokers will be able to hold back the shares in
order to sell them at a higher price.
As for state regulation of tariffs, a provision was introduced envisioning that simultaneously with
the draft budget the government "will set for a one-year period the maximum level of tariffs" for
electricity supplied to consumers and will single out the tariffs for electricity supplied to the
population. Admittedly, it was decided that this procedure would remain in force during the
transition period only, meaning, through 1 January 2005.
Deputies did not stop at those amendments, but also introduced legislative regulations for the
Trade System Administrator [TSA] -- the exchange where a balance will be struck between
suppliers' and consumers' price interests. Until recently it was believed that the TSA charter will
regulate all nuances of its the operation. However, deputies decided to reinforce the TSA
Coordination Council with representatives of the legislature, the Federation Council, and the
government. When the TSA was set up a year ago it was decided that the council would
comprise only representatives of suppliers and consumers and a government representative
playing the role of "commissioner," who would enjoy limited voting rights (only the right to veto
certain decisions). Admittedly, there is no trace of the "commissioner's" veto in the draft now.
OVR deputy Yuriy Lipatov, head of the working group, told your Kommersant correspondent:
"We preserved the original concept of the draft law and at the same time took deputies'
amendments into account and filled the draft law with additional guarantees for consumers and
investors." Representatives of the government and the Unified Energy System of Russia Russian
Joint Stock Company have declined to provide any comments so far.
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]
Izvestiya: 'Exaggeration' To Claim Russian Tax Reform a Flop
CEP20021212000132 Moscow Izvestiya in Russian 10 Dec 02
[Article by Semen Novoprudskiy: "Good Interest Is Dead Interest" -- taken from HTML version
of source provided by ISP]
[FBIS Translated Text]
That [reference to headline] could be the slogan for any successful tax reform. Interest (or,
rather, specific tax rates) should remain dead (or, rather, unchanged) for as long as possible. And
taxes should be collected as fully as possible and should cover a considerable proportion of the
state's necessary expenditure (more than the 30 percent of GDP represented by tax collected in
Russia). There has so far been no successful tax reform in Russia -- and that was honestly
recognized by the government in the course of its regular Thursday session last week. Its future
actions in this sphere have given rise to diametrically opposed interpretations in the mass media -from convictions that the cabinet is prepared to continue cutting the tax burden contrary to the
president's view (Putin has repeatedly stated in public that the reserves for tax-cutting have been
188
exhausted in the current economic situation) to confidence that the relative tax free-for-all will be
coming to an end.
In this instance the truth is to be found not even in the middle but in quite another place
entirely. Strictly speaking, there are currently no weighty grounds for believing that the
government will continue to cut taxes. The economic situation in 2003 -- the presidential election
campaign and the peak of our foreign-debt payments -- will not be conducive to a further easing
of the financial burden. On the other hand, the need to increase the pace of economic growth
forces us to think about a comprehensive reduction in the tax burden on business. Nonetheless,
the main task of tax reform is not a matter of cutting or raising taxes.
The problem is not so much the rates of specific taxes as it is the tax system and the goals of
that system. Russia has proclaimed a policy of creating a social state. If we already had such a
state, if Russia were a kind of Sweden, for instance, there would be some point in having high tax
rates. Because the main aim of a social state is to spend money on ensuring the most comfortable
existence possible for its citizens. Consequently, the Swedes pay income tax of 72 percent and do
not grumble about it unduly. But there is no social state in Russia, and in order to create one our
economy will have to grow for many, many years by many, many percentage points a year. And
if your goal is economic growth, taxes in general and as a whole should not be too high.
In Russia the outlook for tax reform is complicated by the country's territorial composition.
The federal state with its three levels of budgets -- federal, regional, and municipal -- still lacks
any legally ratified concept of interbudgetary relations. Attempts to reach agreement on
distributing revenues between the center and the regions strategically -- for years to come -- have
so far yielded no result. And tax reform has substantially altered the composition of taxes and the
mechanisms for distributing them between the three levels of budgets. Frankly, it has been
chaotic.
Finally, the government has committed one other conceptual inaccuracy in its approach toward
tax reform. The claim that the lower the rate of tax the better people will pay was taken as
axiomatic. The level of entrepreneurs' distrust in the state is so high that it would be naive to
expect any immediate abandonment of "under-the-counter" schemes for conducting business
following the first tax cuts.
The most important thing for the government now is to think not about cutting or raising taxes
but about creating a relatively well-organized tax system and preserving it for as long as possible.
This is no longer an arithmetical but an algebraic task -- an equation with many unknowns. The
size of the state's social obligations, allowances for the dynamically changing conditions in rawmaterials markets, and mechanisms for raising investment should all be taken into account in
implementing tax reform.
Following the government session last Thursday many people rushed to announce the failure of
tax reform in Russia. For the time being this is a considerable exaggeration. Too little time has
passed. The task of shaping organic fiscal proportions in the economy is too difficult -- it is far
more difficult than simply deregulating prices or permitting the purchase and sale of foreign
exchange.
But, at any rate, unless an effective tax system is created, Russia will be unable to safeguard
itself against a slide into the economic abyss or to bring itself any closer to the living standards
enjoyed by the world's leading countries -- that is even more important than reform of the natural
monopolies or the banks. We will nonetheless have to look for "good" interest rates and make
189
them "dead."
[Description of Source: Moscow Izvestiya in Russian -- One of Russia's most prominent dailies;
controlled by Vladimir Potanin although Lukoil owns a minority share.]
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Unclassified
[Go To Best Hit]
Unclassified
Russian Duma Schedules Second Reading of Energy Reform Bills for 18 Dec
CEP20021210000427 Moscow ITAR-TASS in English 1842 GMT 10 Dec 02
[FBIS Transcribed Text]
By Diana Rudakova
MOSCOW, December 10 (Itar-Tass) - Russia's State Duma, the lower house of parliament, has
scheduled the second reading of a government-proposed package of bills on power industry
reform for December 18, Oleg Kovalyov, chairman of the Duma committee for parliamentary
procedure, told reporters Tuesday.
Members of parliament have introduced about 2,000 amendments to the package since the
approval of government-sponsored concept of energy sector reform, and the lower house and
government officials have come to agreement on most of them by now, Kovalyov said.
"The amended versions of the bills take account of virtually all proposals and I do not see any
major problems with their endorsement," he said.
The revised texts of the bills contain guarantees of interests of small producers and distributors
of electric power and specify procedures of property redistribution in the energy sector, Kovalyov
said.
The deadline by which the most revolutionary changes will take effect has been moved to 2005,
he indicated. Simultaneously with it, the government will keep in effect provisions on regulating
the electricity rates and state control over the activity of natural monopolies.
Kovalyov hopes that the MPs will pass the package. "I do not see any barriers to it," he said,
adding that the centrist majority in the house was ready to have a solidarity vote in favor of the
bills.
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
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190
Unclassified
Russia starts importing electricity from Kazakhstan
CEP20021210000190 Moscow ITAR-TASS in English 1341 GMT 10 Dec 02
[FBIS Transcribed Text]
MOSCOW, December 10 (Itar-Tass) -- Russia has started to import electricity from Kazakhstan.
Representatives of the press service of Unified Energy Systems (UES) of Russia confirmed the
report in an interview with Itar-Tass.
They added, however, that the time left before the New Year would hardly be enough for
adopting all the documents needed for the creation of a joint Russian-Kazakh fuel and energy
company. The company is going to include the Severny opencast colliery and the Ekibastuz
Thermal Power Plant No.2, both located in Pavlodar Region, as well as a power transmission line
connecting Ekibastuz and Omsk.
There are no major differences between the parties to the contract, the UES representatives said.
"Nevertheless, we shall hardly be able to adopt a final resolution in December. All the documents
should be approved by the council and the board of directors of UES of Russia. The next meeting
of the board of directors is scheduled for December 27. Even if all is ready by that time, we shall
hardly be able to sign the contract within the remaining four days," they explained.
In their opinion, it is not so important whether the documents will be signed a little earlier or a
little later, because the process of the creation of the joint company has been going on for several
years, and all the main issues have been coordinated.
Kazakh Minister of Energy and Mineral Resources Vladimir Shkolnik said in Astana recently
that they were going to bring electricity exports to Russia to three billion kilowatt-hours in the
near future. He admitted that the Kazakh debt to Russia for electricity imports in the 90s
amounted to 239 million dollars. Part of the debt will be paid back with the help of the new joint
enterprise.
[Description of Source: Moscow ITAR-TASS in English -- main government information
agency]
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Putin aide: administrative reform will pass power down to local government
EUP20021210000141 St Petersburg Russian RTR TV in Russian 0635 GMT 8 Dec 02
[FBIS Translated Text]
[Presenter Aleksandr Korennikov] The new St Petersburg Legislative Assembly will be in
session when the administrative reform is implemented in Russia. The reform affects all three
levels of government: federal, regional and municipal. The last touches to a bill already being
described as revolutionary are being made by a commission charged with demarcating the powers
191
of the various branches. That commission is headed by Dmitriy Kozak, deputy head of the
Russian Presidential Administration. In the next few days, the bills, including the one on general
organizational principles for the legislative and executive bodies in constituent parts of the
Russian Federation, will be shown to the president and later submitted to the State Duma.
In an exclusive interview to St Petersburg Vesti news, Kozak stressed the vital importance of
regional legislative bodies in the future new Russian power structure.
[Correspondent] At present some people in Russia believe that legislative power is less efficient
than executive power. The president is popular while the State Duma is not. In the regions the
governor is popular, legislative bodies less so, to say nothing of local government bodies. How is
this situation to be changed? How can representative and municipal power be made more
popular?
[Kozak] If we talk about legislative power, and about representative power as a whole, the
reason for this is that the activities of the representative power bodies and local government
bodies is less conspicuous. These bodies write and set rules. Citizens do not see their work
directly, although it is extremely important. In fact, it is more important than the activities of
executive bodies because - and this is the president's position which was openly declared in the
president's address - all the activities of executive power bodies should be regulated by law. If we
take into account the fact that the rules of behaviour of Russian citizens can be regulated by law
alone, we should realize that legislative power bodies are the key public power bodies.
As for the St Petersburg legislative assembly, it is an extremely important body.
If we take into consideration the reforms that the Russian president intends to implement, and I
mean the reforms of federal relations first and foremost, the legislative assembly is all the more
important. It is the assembly which will regulate the bulk of everyday life of the citizens of St
Petersburg and other constituent parts of the Federation. It is very important for the residents of St
Petersburg to make a conscious choice, for everybody to take part in the formation of the
assembly, because the quality of its work depends on us voters. The assembly consists of specific
people - politicians. Taking part in the assembly poll, voters will define the quality of those
politicians, their views and their decency and diligence.
I would like to say once again that we have no reason to underestimate the importance of the
legislative assembly in the life of St Petersburg as a constituent part of the Russian Federation.
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Unclassified
Source-Date: 12/10/2002
Russian financial official: capital flight situation shows 'correctness of reforms'
CEP20021210000063 Moscow Interfax in English 1023 GMT 10 Dec 02
[FBIS Transcribed Text]
MOSCOW. Dec 10 (Interfax) - Net flight of private capital from Russia in the first 10 months of
the year amounted to $3 billion, Deputy Finance Minister Andrei Petrov said at an international
conference on business services in Russia on Tuesday.
192
He said that in 2001, capital flight stood at $16 billion, and in 2000, at $24 billion.
"This means capital feels more and more comfortable in Russia, which confirms the correctness
of the reforms conducted by the government," Petrov said. He added that the policy of reducing
the tax burden and maintaining a budget surplus meets the interests of business, and is intended to
promote it.
[Description of Source: Moscow Interfax in English -- non-government information agency
known for its aggressive reporting, extensive economic coverage, and good coverage of Russia's
regions]
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Russian 'Oligarchic Grouping' Seen Rumored Buying Up YeES Shares Ahead of Reform
CEP20021202000333 Moscow Gazeta in Russian 02 Dec 02 P 9
[Report by Yekaterina Kats: "An Open Home Front: Deripaska, Abramovich, and Melnichenko
Versus Chubays" -- taken from HTML version of source provided by ISP]
[FBIS Translated Text]
The bosses of YeES Rossii RAO [Unified Energy System of Russia Russian Joint-Stock
Company] are concerned by a purposeful buying up of shares in the power holding company and
its subsidiaries. Analysts claim a Russian "oligarchic grouping" already owns a 15-20% stake in
the company's shares. The emergence of a new strategic investor cannot fail to affect the
progress of reforming the monopoly.
Most traders believe suspicions of buying up the shares fall on Oleg Deripaska and Roman
Abramovich. Andrey Melnichenko is allegedly also taking part. One analyst told Gazeta that
several significant shareholdings in the company were bought through MDM Bank roughly one
month ago. It was then that it became clear who was accumulating the stake.
YeES management body member Andrey Trapeznikov does not deny that "shares are being
bought up in both the holding company itself and its regional subsidiaries." According to
Trapeznikov, though, the company bosses do not know who exactly is buying up the shares.
Information about the composition of the owners of YeES shares will not become known before
May, one month ahead of the next company shareholders meeting. It is by this time that the
central depositary closes the register of shareholders and any of them can demand a copy. It is
unlikely to clarify the real picture of who YeES belongs to, though: The register only reflects a
nominal list of shareholders and it will still only be possible to guess at their relationship to
Deripaska or Melnichenko.
Illarionov Plus Chubays
There are currently two mutually exclusive versions of how events have developed. The
company itself is making a direct link between the buy-up of shares and the controversy that took
place at the economic form in Boston in mid-November. Holding company bosses believe that
the report made by Presidential Adviser Andrey Illarionov caused a crash in the prices of the
193
company' shares. Foreign investors began to actively get rid of their ADRs [American Deposit
Receipts], which played into the hands of those who are buying up shares in Russia.
RTS [Russian Trading System] trading data over the past period fits this version. Judging from
the graph, the shares' active growth began on 11 November. At the time the shares cost 11
cents. Company Chief Anatoliy Chubays's report at the Boston economic form warmed
investors' interest and the shares went up to $0.126. But immediately after Illarionov's speech
they collapsed to $0.1177 by 20 November.
But the collapse was followed by a new growth that continued until the end of last week. Last
Friday the share price came to $0.125. So at first sight the company bosses' version has
convincing confirmation.
Troyka Dialog investment company analyst Lauri Sillantaka believes the controversy did indeed
lead to Western investors beginning to dump their securities. But people on the market do not
confirm that Illarionov's report played a substantial role in what is happening. And analysts have
different assessments of the role of Illarionov himself.
"Speculators are discussing a different rumor -- that Chubays and Illarionov came to an
arrangement and created a controversy in order to thus squeeze foreign investors out of the
market," Metropol investment company chief analyst Andrey Bespalov laughs. "Illarionov's
behavior toward the company leadership was so aggressive that even those foreigners that have a
negative attitude toward restructuring began to suspect him." Bespalov himself does not believe
the controversy was planned in advance, though.
Speculators Are Heating Up the Market
Traders are sure that the buy-up of YeES shares began back early this year when the share price
had fallen to 7.5 cents. Last year the price reached 18 cents. Western portfolio investors began
to dump their assets after the company's capitalization began to fall. And as there was no
particular increase in the shares and problems arose with passage through the Duma of the raft of
laws launching energy reform, foreigners are preferring not to risk investing in YeES securities.
Illarionov's report could not have changed much about that, people on the market believe.
"The buy-up of shares is proceeding according to the same scheme as the buy-up of Sibneft did in
its time. They bought up shares at 40 cents for eighteen months and it was only afterward that
they shot up to $2," Bespalov believes.
The scheme that is being used allows us to draw the conclusion that what is happening is the
work of one financial group. "When there are a few buyers, a battle begins and prices shoot up,"
Bespalov told Gazeta. "If there is one buyer, why should he drive up the price?" The analyst
believes "prices have now reached levels at which buying can be slowed down." He is sure the
shares' 43.5% increase over the last two months is mainly the work of speculators trying to heat
up the market.
Chasing a Blocking Stake
The way events will go on to develop will depend on how many shares investors have already
managed to buy up. Rumor has it that it is a question of 15-20%. "The people who are buying
up the shares need 25%," an Alfa-Bank trader told Gazeta. "If the new strategic investor does
not yet have a blocking stake, the buy-up will continue."
194
Most analysts are sure the shares are not being bought with the aim of speculating. "Portfolio
investors would not buy so many. There is clearly a different aim here: To become the owners
and this can only be welcomed," people in Alfa-Bank believe.
It is primarily a question of owning shares in the wholesale generating companies, which will
include federal power stations belonging to YeES and which will become the main players on the
future electricity market. After all, according to the government-backed mirror principle of
dividing the company's property, after restructuring all the company's current shareholders will
get the same stake in each wholesale generating company as they own in YeES.
It is unlikely that the new owners are only pursuing the goal of increasing the value of their assets
at the end of reforms, though. They also have more immediate interests: Deriving profit and the
enterprises they own getting free access to the federal wholesale market. The possibility is not
ruled out that these objectives include buying up new assets. That is to say, precisely the thing
against which the minority shareholders objected when they demanded the introduction of a
moratorium of the removal of assets.
A Gazeta interlocutor believes that minority shareholders' position could worsen with the
appearance of new owners as "their interests concern no one but them."
"Aside from the oligarchic group that has bought up shares, there are other oligarchic groups that
will lobby for their own interests," Andrey Bespalov is sure. "No one wants to end up with a
super-monopoly that will control half the country through power generation." Which means the
future progress of reforms is becoming unpredictable.
[Description of Source: Gazeta -- Daily paper run by former Kommersant editor Shakirov and
reportedly backed by metals magnate Vladimir Lisin and Western sponsors; not affiliated with
the gazeta.ru website.]
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Russia: YeES Deputy Head Speaks of Electricity Sector Problems
CEP20021204000096 Moscow Rossiyskaya Gazeta in Russian 03 Dec 02 P 5
[Interview with Sergey Dubinin, deputy chairman of Unified Energy System of Russia Russian
Joint-Stock Company, by Vladimir Fedorov under "Energy" rubric; place, date not given: "No
Place for Investment Hiatus"]
195
[FBIS Translated Text]
The state of the energy sector today is such that in a few years' time Russia could encounter the
need to buy electricity abroad. This likelihood exists because the growth rate in industry may
exceed the dynamics of the commissioning of energy capacities.
There is one way out: To construct new generating capacities, but for this it is necessary to
attract large-scale investments. This is what Sergey Dubinin, deputy chairman of the YeES
Rossii [Unified Energy System of Russia] RAO [Russian Joint-Stock Company], believes.
[Fedorov] Sergey Konstantinovich, Russia now supplies energy not only to itself but also to
certain neighbors. According to [YeES Rossii CEO] Anatoliy Chubays, an increase in electricity
exports abroad is, in turn, not too much of a prospect. So does the Russian economy need new
generating capacities now, if there is sufficient energy anyway?
[Dubinin] Let us, nonetheless, endeavor to investigate the situation in greater detail and then
draw a conclusion. First, whether or not anyone wishes to acknowledge this, there is a real
problem of worn-out fixed capital in the energy sector. Here are data from an independent
technical audit. Precisely 54 percent of the basic equipment in the energy joint-stock company is
worn out, while equipment with a total capacity of 31 million kw has exhausted its normative
operating life: To put it more simply, it is operating with reduced reliability.
During the next two years a further 23 million kw of heat and electric power station capacities
will reach the end of their operating life. In all, almost 47 million kw of generating capacities
will reach the end of their stock operating life in 2007.
[Fedorov] But, after all, these capacities can be repaired, can they not?
[Dubinin] All the figures I have cited take account of the maintenance and repair of energy
facilities. But at a certain moment it becomes simply economically unprofitable to maintain old
capacities. This is roughly the same thing as driving an old car for a very long time: One fine
day the cost of repairing it starts to exceed the difference between its value and the price of a new
car, which, moreover, is also both technically more sophisticated and more economical.
A similar situation has taken shape in the energy sector. Technologically, we have lagged
behind very seriously. Existing power stations have an average performance coefficient of 30
percent. In modern steam and gas plants, which now form the basis of heat and power generation
in developed countries, the performance coefficient stands at 55-57 percent. That is, there is a
difference of almost one-third. We have just one such plant -- at the Northwestern Heat and
Electric Power Station. Taking into account the expected growth in the cost of gas fuel, this
figure could altogether become critical for the existence of thermal power stations.
This is why it is necessary not just to maintain what we have today but also to construct new,
more modern capacities to replace the old ones. Naturally, this will require investment.
[Fedorov] Nevertheless, thanks to our own fuel stocks, we will always enjoy more favorable
conditions than, say, West European countries.
[Dubinin] We are already encountering the problem of the increasing cost of gas in the country
-- which is inevitable. An attempt to profit from Russia's inexpensive resources is, in my view, a
purely temporary solution.
196
Of course, taking into account the conditions of extraction and transportation, oil and gas will
be less expensive in our country than in countries which do not extract their own, but the
difference will gradually boil down to the elementary cost of the transportation component. At
present oil and coal prices are regulated by the market, while gas prices are regulated by
administrative means. A quite dangerous situation is arising: Given artificially cheap gas and old
electricity generation capacities, today our electricity tariff helps our industry, as it were, to
withstand competition. But tomorrow, when gas becomes expensive while the available
capacities remain as before -- that is, obsolete and burning 40 billion cubic meters of gas a year
more than they might -- electricity will become expensive, which will deprive our industry of its
competitive advantages.
This is very dangerous, when you consider that we are now building an open economy. Never
before in Russia's history, incidentally, has the economy been so open -- not in Soviet times or
even in czarist times. Today we encounter international competition on a daily basis. Starting
with the range of goods on store counters and ending with the array of offers relating to a major
purchase by tender, everything attests that we are already part of the world market. Therefore the
money invested now and subsequently in the energy sector will ensure the normal functioning of
the entire economy.
[Fedorov] In your view, what funds should be used to finance the construction of energy
installations?
[Dubinin] For the past 10 years 99 percent of the investment in the energy sector has been
provided from the resources of the RAO YeES Rossii. To date there has been virtually no outside
investment -- that is, on the part of other companies, Russian or foreign.
Admittedly, there are some exceptions, where outside investors also participate in funding the
construction of facilities. The construction, say, of quite a large steam and gas station in
Bashkortostan. Or Kamchatka, where the Mutnovskaya Geothermal Power Station was
constructed with funds from the European Bank for Reconstruction and Development. Its first
unit was commissioned a year ago and the second in October this year. But these, after all, are
just isolated examples. We now have approximately 6,000 megawatts of capacity at installations
which are being completed, and, in addition, it would be desirable to construct a further 5,000
megawatts of capacity at a number of energy centers where a capacity imbalance is possible. In
my view, it will be impossible to realize these plans without attracting outside investment.
[Fedorov] Do you expect investors to arrive as reform of the energy sector is implemented?
[Dubinin] The aim of the reform is indeed to make the sector attractive to investors outside the
RAO. We believe that it is necessary to restructure the sector and to create a genuinely
competitive market, whereby market parameters will determine the cost of the electricity
generated, and this, in turn, will enable investors to make a real calculation of the effectiveness of
investments.
Nevertheless, there is another problem, peculiar to Russia. From the experience of energy
sector liberalization in all European countries and the United States, we can see that immediately
after the introduction of a competitive market there is usually a fall in the tariff and a certain
hiatus in investment, because investors want to know at what level income from investment will
stabilize in the future.
If liberalization has been preceded by a period during which significant power-generation
197
capacity was commissioned, as was the case in Britain, for example, such a hiatus is almost
natural and may not be frightening. In our country, unfortunately, the situation is different: We
are now going into the market, as I have already said, with a very large amount of capacity that is
nearing the end of its service life. And if demand continues to grow pretty dynamically in these
conditions, we will inevitably encounter a situation in which all facilities, including the least
effective ones, will be in operation. This could lead to a rise in tariffs.
In order to prevent such a rise, this investment hiatus must be avoided. There is a need to create
a sort of bridge across the first few years of market operation, perhaps even involving the use of
techniques of regulation not purely by the market but by the state. The Economy Ministry,
together with the RAO YeES Rossii, has proposed a formula for the creation of a fund for
completing the construction of generating facilities and guaranteeing investments. We propose
giving investors certain guarantees against market instability in the transitional period.
But we do not intend to guarantee the full tariff, which is necessary in order to cover costs, but
the difference between it and the tariff's market level in a competitive market. Thus we are not
giving investors a full guarantee; we are forcing them to work in the market, to compete. At the
recent symposium on investment in Russia in Boston, we tried to present this scheme to investors
in general terms.
[Fedorov] Nevertheless, the project was subjected to furious criticism by presidential adviser
Andrey Illarionov in the presence of foreign investors. What, in your view, are this project's
prospects, and how, in your view, will it influence foreign investment in the energy sector?
[Dubinin] After the forum Mr Illarionov said that he had spoken not as an adviser but as a
private individual. On the other hand, those investors who have been working in Russia for a
long time know the value of statements made by Illarionov, who ventures to make very subjective
judgments, based, to put it mildly, on a selective attitude to the facts and material to be analyzed.
Take, for example, the attempt to compare the changes in the market capitalization of the RAO
YeES Rossii, in other words of a company currently outside the competitive market, with similar
indicators for companies whose operations are determined principally by market rules.
Moreover, data for the RAO YeES Rossii were cited for the period from the start of 1998 in US
dollars, in other words before the August crisis, and were compared with the present day. But the
data for oil companies were only from after the crisis. But even such a comparison, in my view,
demonstrates the need for urgent reform of the energy sector.
Illarionov called for the State Duma's consideration of electricity laws to be postponed
indefinitely. This would inevitably have prompted a fall in the value of RAO YeES Rossii
shares, because of the renewed uncertainty about the prospect of reform. This is evidently what
he was trying to do. Someone could have bought these shares very cheaply. However, the
reform schedule was reconfirmed.
The market hardly reacted at all. This demonstrates, in any case, what market players think
about Illarionov's statements. True, this applies to those investors who are already operating in
one way or another in Russia and know our situation well. As for potential investors, who are
only thinking about the possibility of going into Russia, the speech undoubtedly produced a
negative impression on them. If a Russian state functionary of such a rank undertakes to tell
investors where they should and should not invest their money, many will decide to keep away
from such a country.
198
Now both the government and industrialists will again have to expend energy on trying to
persuade foreign capital to come to Russia. Paradoxically enough, Mr Illarionov's speech makes
the proposed program for guaranteeing investments in the energy sector even more topical.
[
Plan to reform electricity utility seen causing possible crisis in Russia
CEP20021202000339 Moscow Informatsionnoye Agentstvo Ekho Moskvy in Russian 0944 GMT
26 Nov 02
[FBIS Translated Text]
[No dateline, as received] Electricity tariffs in Russia at the present time are, relative to the
country's GDP, inflated by 100 or 200 per cent, Russian presidential aide for economic issues
Andrey Illarionov has told Ekho Moskvy radio in an interview.
According to him, all payments for electricity presently being made in Russia are 6 per cent of
GDP, while in the USA the figure is 2 per cent. He said that in addition to this, in the first six
months of 2002 electricity prices for industrial consumers in 12 regions of Russia exceeded those
in six foreign countries - Germany, Finland, France, New Zealand, Norway and the USA.
In his view, in the event of the project to reform the Unified Energy Systems of Russia jointstock company being approved, the draft of which has been submitted for approval to the Russian
State Duma by the company's management, electricity tariffs will rise many fold and "the state
will pay a high price for this". He said that in such an event there could be a new economic crisis
in Russia. He added that "sooner or later it will be considered".
Another draft plan to reform the electricity sector developed by a working group from the
Russian State Duma "is a much more effective and much less scandalous alternative. This is an
option on which national consensus exists", Illarionov said.
[Description of Source: Moscow Informatsionnoye Agentstvo Ekho Moskvy in Russian -- press
agency associated with Radiostantsiya Ekho Moskvy -- influential private radio station known for
its fast-breaking news coverage and exposes of high-level officials, controlled by Vladimir
Gusinskiy's Media-Most group]
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Unclassified
Russia: Presidential aide criticizes planned power grid reform
199
CEP20021129000387 Moscow Informatsionnoye Agentstvo Ekho Moskvy in Russian 1201 GMT
26 Nov 02
[FBIS Translated Text]
[No dateline, as received] "The management of the Unified Energy Systems of Russia [USE] is
ineffective and this resulted in serious consequences for the capitalization of the company",
Russian presidential aide for economic issues Andrey Illarionov has told Ekho Moskvy radio.
He said that the company's capitalization value had fallen by 9bn dollars in the four year's of this
management's work. That is, instead of attracting investment reduction of the existing
investments, their confiscation to be precise, has taken place.
Illarionov noted that "it was strange and absurd, that a number of people who worked in the
company took part in making decisions in August 1998. Then, 40bn dollars worth of foreign
investment was taken out of the Russian economy".
He stressed that the rise in company share values is in no way connected with what is happening
in the country. "In those four years the whole market has risen by 15 per cent. This once again
says that the situation is caused by the actions of the company's management. Besides, just as the
authorities began to interfere in the company's operations its capitalization began to rise," he said.
Illarionov said that the UES management's plan to reform the power grid will result in serious
consequences for the company itself, the energy sector and the entire country. "What is being
proposed is aimed not at creating a market but at monopolizing the power grid, getting rid of
stable electricity supplies and raising prices, which are already overinflated compared with the
level of our development. This cannot be allowed to happen," he said.
[Description of Source: Moscow Informatsionnoye Agentstvo Ekho Moskvy in Russian -- press
agency associated with Radiostantsiya Ekho Moskvy -- influential private radio station known for
its fast-breaking news coverage and exposes of high-level officials, controlled by Vladimir
Gusinskiy's Media-Most group]
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DISSEMINATION IS PROHIBITED WITHOUT PERMISSION OF THE COPYRIGHT OWNERS.
Unclassified
Commentary on Suggestions For Reform of Russian Electrical Power Industry
CEP20021121000376 Moscow Vedomosti in Russian 21 Nov 02
[Commentary by Aleksandr Lebedev, president of the National Investment Council (NIS) and the
National Reserve Bank (minority shareholder of RAO YeES); Aleksandr Nekipelov, co-chairman
of the NIS Council of Trustees and vice-president of the Russian Academy of Sciences: "Power
Industry: Reform Without Anguish"--taken from html version of source provided by ISP.]
[FBIS Translated Text]
The question of reforming the electrical power industry became a hot topic practically from the
very moment of its emergence. And although today the discussion has already reached the level
of consideration of draft laws, critical comments are being heard from the federal departments,
200
and from the State Duma, and from portfolio investors. At the very least, this testifies to the fact
that the program of reform is still far from ideal, and requires considerable revision.
The purpose of any reform is to improve the existing situation. The reform of such a
monopoly as RAO [Russian joint-stock company] YeES Rossii must have at least three goals.
The first of these is to create an effective competitive market in electrical energy. The second is
to reduce, or at least hold down, the growth of prices on electrical energy. And finally, the third
goal is to increase investment attractiveness of the electrical power industry specifically, as well
as of the Russian economy as a whole.
How successfully the process of reform takes place in this complex technological sector will
also largely determine the probability of our economy's making the transition from the group of
risky [countries] to the group of countries which are attractive from the standpoint of investment.
The main problems of the electrical power industry for the present day are physical
deterioration and obsolescence of the fixed capital, as well as the decline in demand for electrical
energy which took place in the 1990's (which inevitably led to a decline in the level of
investments into construction of new electrical power plants). According to the favorable
scenario presented by the Ministry of Energy, the level of electrical power production which
corresponds to 1990 will be achieved only in 8 years.
At the present time, RAO YeES Rossii controls most of Russia's generating capacities
(approximately 72.5 percent). However, slightly over 20 percent of the generation is in 100percent ownership of the holding company. At 34 AO-energos [energy joint-stock companies],
the RAO owns over 51 percent of the voting shares, at 36--from 25 percent to 49 percent, and at
two--less than 25 percent. The shares in the AO-energos which do not belong to the RAO are, as
a rule, distributed amongst foreign and Russian companies, as well as local agencies of state
power.
In the practical plane, the creation of an environment in the power industry which would be
attractive to investors presumes, first of all, the development of such a packet of legislative
statutes which would provide effective producers of energy the opportunity to earn the market
standard of return on capital (incomplete rules of the market may undermine the financial position
of its participants from the very outset). At the same time, state regulation must be reduced to
the minimally necessary level. And secondly, generating companies must be created by means
of "mirror" allocation of shares in new companies to shareholders of RAO YeES and AO-energo,
which would serve as a good sign for portfolio and direct investors.
At the same time, in our opinion, any deals on sale of assets in the company to third persons
must be excluded prior to the completion of reform. All facilities in the electrical power
industry, including the so-called assets of non-profile description, must be accounted for in the
course of the transformations. Moreover, the moratorium introduced by the RAO YeES
management is not enough to fulfill this necessary condition. Especially when the
representatives of the RAO themselves allow the possibility of sale of up to 10 percent of the
company's assets. (If we use the roughest estimate based on the market capitalization of the
RAO YeES, then the value of 10 percent of the holding's assets is calculated at several hundred
million dollars). In order to avoid accusations which are unnecessary for reform, we must
introduce a legislative ban on sale of the company's property until such time as the reform is
concluded--until 2007.
The implementation of "secondary privatization" of property of the electrical power companies
201
may do irreparable harm to the investment image of the Russian Federation. It may also close
off the road to large investment resources for the corporations created in the course of the reform
for a long time to come. And in a number of cases, it would be expedient to expand the
previously performed deals on sale of RAO YeES assets--such as the sale of property belonging
to a branch of the OAO Rostovenergo, the Shakhtinskiy TSTs [central heat and power plant], to
the Energoperspektiva Southern Section Company.
As for the reform of the electrical power industry itself, in order to avoid delay in formulation
of a competitive environment, holding companies may be created within a short time. [These
holding companies] would be the owners of the shares in federal power plants belonging to the
RAO YeES and those power plants which are presently under 100-percent ownership of the
RAO. At the same time, it is necessary to proportionately distribute the shares in these holding
companies among the RAO shareholders without delay.
Such a scheme is also applicable in relation to objects of the electrical power industry where
the RAO owns the controlling or near-controlling packets of shares. The voting shares of the
new holdings could be distributed between RAO shareholders, as well as among minority
shareholders included in the holdings of subsidiary companies. These [subsidiary companies]
would be offered a share exchange on the basis of a coefficient determined by results of a market
appraisal. The packet of shares in small regional companies of the RAO could be introduced into
the statutory capital of the holding's generating companies, and these holdings could effectively
be divided up amongst the shareholders on a proportional basis.
The questions of reform of the power network management deserve separate review.
Considering the experience of analogous companies in other sectors of the economy, network
assets in the electrical power industry could bring considerable revenue to their shareholders.
For this purpose, it is necessary in the nearest time to secure within the legislative statutes the
right of owners of network assets to earn the market standard of profit on capital. At the same
time, the question of ownership may be resolved quite easily if traditional market mechanisms are
used. For example, the Federal Network Company may ask minority shareholders to redeem
their shares at market value in exchange for bonds which it issues. This would allow small-scale
shareholders to withdraw from the company already at the early stage, at the same time realizing
the full value of their shares. Meanwhile, the state would receive over 75 percent in the FSK
[Federal Network Company], all the while not infringing upon the rights of the shareholders. At
the very least, this would require completion of reform of the network management (for now, the
FSK is a 100-percent subsidiary company of RAO YeES, and division of shares among the actual
owners of this property has not yet taken place).
The task of transferring the main power networks from ownership of the AO-energos to
ownership of the FSK may also be resolved without infringing upon the rights of the minority
shareholders. For this, it is enough for the network company to propose to the regional
companies that they exchange the assets belonging to them for FSK bonds. This same scheme
may also be used for redeeming the distribution networks from the AO-energos.
Fulfillment of the proposed measures would make it possible to retain a positive appraisal of
reform, while at the same time creating a wholesale market in electrical energy, because the
probability of infringing upon the rights [of investors] would be excluded. RAO shareholders
would receive proportional participation in the capital of the companies separated out of the
holding, without fearing a risky sudden liquidation of YeES Rossii in 2004. At the same time,
the state would become the owner of significant (sometimes controlling) packets of shares in each
generating company, which it could then sell to investors at its discretion and at the necessary
202
moment.
Simultaneously with this, if the bond scheme of state redemption of the network management
of the current AO-energos is realized, the state would concentrate in its hands over 75 percent of
the shares in the FSK. This would rule out the possibility of private investors--owners of the
new energy holdings--exerting influence on the wholesale market in electrical energy at the initial
stage.
As for the reduction or curtailment of growth of tariffs, until the wholesale market in electrical
energy begins to function, it is necessary to consider in the legislative base a statute on formation
of prices on services of power producers based on their expenditures. Moreover, the experience
of German reforms may be used as an example. There, in amending tariffs, consideration is
given not only to the specific expenditures of the company, but the so-called standard principle is
also used, comparing the effectiveness of production in one company with that in another (as a
rule, a more effective one). Thus, in making the decision to increase tariffs, this principle makes
it possible to understand the reason for the increase in production cost of a product--whether it is
the price of the raw material, or ineffective management.
[Description of Source: Moscow Vedomosti in Russian -- Business paper published jointly with
The Wall Street Journal and Financial Times; reportedly friendly with Kremlin.]
THIS REPORT MAY CONTAIN COPYRIGHTED MATERIAL. COPYING AND
DISSEMINATION IS PROHIBITED WITHOUT PERMISSION OF THE COPYRIGHT OWNERS.
Unclassified
Russia: Presidential Economic Adviser Illarionov Cites Reasons for Opposing YeES Energy
Reform Plan
CEP20021121000363 Moscow Vedomosti in Russian 21 Nov 02
[Interview with Russian Federation Presidential Economic Adviser Andrey Illarionov, conducted
by Boris Grozovskiy: "Interview: Andrey Illarionov, Economic Adviser to President of the
Russian Federation;" date and place not given--taken from html version of source provided by
ISP.]
[FBIS Translated Text]
Andrey Illarionov: "This is not a scandal, but a minor provocation with distortion of the facts."
Last week, Russian Presidential Economic Advisor Andrey Illarionov returned to his "favorite"
pastime. At the Harvard Investment Symposium, he criticized the reform of the electrical power
industry as proposed by Chairman of the Board of RAO [Russian joint-stock company] YeES
Anatoliy Chubays so severely, that Illarionov's opponents were shocked. Even quite recently, it
seemed that Chubays had practically gained the upper hand. But even before the presentation at
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Harvard, deputies had applied the brakes to the energy draft laws. A and Illarionov, in an
interview with Vedomosti, said that the fact that the reform proposed by Chubays had been
approved by the government certainly does not mean that it cannot be stopped.
[Correspondent] The debate with the managers of RAO YeES at the Harvard Investment
Symposium gives one the feeling of déjà vu: Even if the content of the discussion is changing, it
is rather slowly. Was the fierce battle in Boston planned?
[Illarionov] Let us clarify. First of all, strictly speaking, there was no debate or discussion, of
which you speak. There was a presentation by the representative of RAO YeES, and there were
questions posed to him. My presentation was given the next day, and there were questions for
me.
[Correspondent] That is, the scandal occurs exclusively because the RAO managers
misunderstood what you wanted to say?
[Illarionov] If there is a scandal, it consists of the fact that the country has already incurred
huge losses. And alas, they may be greater still in case of implementation of that variant of
reform which the RAO management is trying to push through. And as for Boston, this is not a
scandal, but a minor provocation with distortion of the facts. I regret to say that the comments
[of deputy chairman of the board of RAO Sergey] Dubinin regarding my speech, which were
disseminated by a number of mass media, do not correspond to reality. According to these
comments, I supposedly "called upon foreign investors not to invest money into the Russian
economy," "not to engage foreign firms working in the power industry as management companies
in RAO YeES," and also compared their methods of activity with the "methods of the wellknown entrepreneur Boris Berezovskiy." All these affirmations are Mr. Dubinin's fantasies.
There were around 100 participants in attendance at the roundtable on investments into the
Russian power industry, and they heard very well who in fact said what.
[Correspondent] What happened the next day?
[Illarionov] The next day, I gave my presentation. It was devoted to questions of investing
into the Russian economy. The speech was entitled, "Where to invest?", and began as follows:
"For the people who have gathered in this auditorium, the question of 'to invest or not to invest in
Russia?', does not exist. For the people who have gathered in this auditorium, this question has
been decided--to invest." But investments are made, as a rule, not into countries in general, but
into specific projects and companies. Therefore, today another question appears on the agenda:
Where specifically to invest? The presentations of a number of Russian regions and numerous
Russian companies which have already been given, and the ones planned for tomorrow,
convincingly demonstrate that there is somewhere to invest. However, investments into Russian
companies (as into any others, for that matter) present not only great opportunities, but also
certain risks.
For example, an investor who decided to invest $100,000 into the YUKOS company in March
of 2000 would get $1.1 million in November of 2002--an 11-time increase in his investment. An
investor who had decided to invest $100,000 into Sibneft would have received $450,000, and into
Severstal--$300,000. An investor who had decided to invest not in some individual Russian
company, but into the country as a whole--for example, into the RTS [Russian Trading System]
index, would have received $185,000--an increase of 85 percent in dollar expression in 2.5
years. This despite the fact that, in certain other countries, the dynamics of the stock indices
were somewhat different.
204
However, if the investor had invested $100,000 into the RAO YeES company, today he would
have received only $52,000--48 percent less than his initial investment. Since, in appraising
investment projects, it is the cost and effectiveness of alternative investments that is important, in
comparing investments, say, into RAO YeES, it is necessary to keep in mind the alternative yield
which the investor could have received if he had invested in the national index. In that case, the
discount on investments into the RAO in relation to the RTS index increases to 72 percent.
Finally, if we consider the fact that Russian prices on electrical energy in the dollar equivalent
grew one-third faster than on the average throughout the country during this period (including
also oil prices), then the discount on investments into the RAO in relation to alternative
investments into the national RTS index increases to 80 percent.
[Correspondent] What are the reasons for your dissatisfaction with the work of the RAO
leadership?
[Illarionov] They lie primarily in the dynamics of the company's market capitalization. In
May of 1998, when the current management came to it, the company cost $13.6 billion. Today,
it is worth $4.7 billion. In this same time, the RTS index (which includes the RAO YeES,
among others) increased by 12 percent. In the 4.5 years of work by this team, the value of the
company has dropped by two-thirds--and this despite the significant growth in [value of] the
shares in the past 2 months. Thus, instead of attracting tens of billions of dollars in investments,
the company's shareholders have lost $9 billion to the present day. Over half of this amount-around $5 billion--was lost by the state, the company's main shareholder. Since the national
stock index had grown during that time, such a decline in capitalization cannot be written off to
any country-related risks. That means the reason lies in the activity of the management.
[Correspondent] Why has the capitalization of the RAO dropped so greatly?
[Illarionov] Evidently, there are several reasons for this. They include the production and
financial activity of the company, the quality of the corporate management, the attitude of the
company's management toward its owners and their property, the true meaning of the proposed
model of reform of the electrical power industry, and the methods used for its implementation.
First about production activity. The results of the RAO's work appear unimpressive on the
background of what is going on in the Russian economy as a whole. This year, the RAO will
produce around 610 billion kW/hr of electrical energy--i.e., around the same as in 1997, on the
eve of the current management's arrival at the company. During that time, production of
electrical energy in the country as a whole increased by 6 percent (including by 21 percent at
Irkutskenergo and by 31 percent at Rosenergoatom). On the whole in the country, industrial
production increased by 29 percent during that time. In many companies, it increased by tens of
percentage points (in YUKOS--by 50 percent, in Vimm-Bill-Dann [Wimbledon] it doubled). On
the background of significant growth of production in the country as a whole, it turned out that
we in fact have one large company where production did not grow over the past 5 years, and even
declined by almost 3 percent as compared to last year.
At the same time, employment increased in the RAO YeES holding (according to official
reports of RAO YeES compiled in accordance with Russian standards of bookkeeping and
accounting--from 662,000 in 1997 to 664,800 persons in 2001. According to international
standards of financial reporting, it increased from 660,000 persons in 1998 to 685,000 persons in
2001. According to data of Goskomstat RF [State Committee on Statistics of the Russian
Federation] on the number of persons employed in the electrical energy sector, [employment]
205
increased from 340,000 in 1997 to 396,200 persons. At the same time, the number of persons
employed in Russian industry as a whole for 1997-2001 declined by almost 2 percent.
As a result of stagnation of production and growth in the number of employed persons, labor
productivity in the RAO declined. Specifically, production per person employed in the
"electrical energy" sector declined in the company by 11.5 percent, and by 8 percent in the
electrical power industry as a whole. In Rosenergoatom, it increased by 7 percent, and in
Irkutskenergo--by 14.4 percent (in Russian industry as a whole, growth of labor productivity in
1997-2001 comprised 26 percent).
While in Russian industry as a whole, investments increased by 20 percent in the past 4 years,
in the electrical power industry they declined by 38 percent, and in the RAO--by 48 percent.
Considering the large relative importance of the RAO in the electrical power industry, it is not
difficult to see that the overall decline in investments into the electrical power industry took place
primarily at the expense of the RAO. The reduction in the volume of investments in
Irkutskenergo comprised 25 percent, while in Rosenergoatom they increased by 78 percent.
Thus, the regular statements of the management about the need to increase investments are in
contradiction with its actual activity. Especially on the background of the ever-increasing
volume of financial resources which it has at its disposal.
Matters are no better also in the sphere of export of electrical energy. For several years, one of
the officially proclaimed goals of the company's management was to increase export of electrical
energy. The authorities and the public were triumphantly informed of numerous projects on
electrical power export to Europe, Turkey, China, and Japan. Most of the competitors had been
edged out of this business: The relative share of RAO YeES in export of Russian electrical energy
increased from 60 percent in 1998 to 92 percent in the first half of 2002. What happened as a
result? In 1997, Russia exported 22 billion kW/hrs of electrical energy, in 2001--less than 20
billion kW/hrs, and this year, evidently, it will not even be 15 billion kW/hrs--a decline of more
than one-third. The sums which the country receives from export of electrical energy have
dropped by more than two times--from $525 million to less than $250 million. Export prices
have also been reduced by almost two times: From 2.9 cents to 1.7 cent per 1 kW/hr.
At the same time, two facts have become apparent. First of all, already in 1998, export prices
of the RAO and other Russian exporters of electrical energy in fact did not differ. The RAO
exported energy at 2.5 cents, while the average export price throughout the country comprised 2.6
cents. However, in the first half of 2002, the average export price throughout the country
comprised 1.7 cents, while the export prices of the RAO proved to be almost one-fourth lower-1.3 cents. Secondly, the two-time decline in export prices of the RAO--from 2.5 cents to 1.3
cents for 1 kW/hr--was accompanied by a doubling of domestic tariffs for the end consumer:
From 1 cent to 2 cents. Thus, we constantly hear that domestic Russian tariffs must continue to
grow, because they are lower than in other countries. But, on the other hand, export prices of the
RAO are falling, and even faster than at other Russian exporters of electricity.
[Correspondent] How can this be explained? Perhaps a large amount of energy is being
supplied as offset of the sovereign debt? Supposedly, the Falkon firm had planned to take up this
matter...
[Illarionov] In recent years, Russia has not provided electrical energy to the Czech Republic.
I cannot say whether this is technically possible today.
Another reason for the decline in value of the RAO is its financial activity. In accordance with
206
the RAO report according to MSFO [International Standards of Financial Reporting] for 2001,
out of a gross profit of R60 billion, only 18 percent, or R10.9 billion, constitutes profit from
production activity.
The rest is the effect from the change in the purchasing capacity of the ruble and the profit
from various operations, primarily with the Russian budget.
[Correspondent] What operations?
[Illarionov] This is profit from the deal with the so-called "Czech debt," and from
restructuring of taxes and creditor indebtedness.
[Correspondent] Perhaps this is only to the credit of the company's management, if it knows
how to extract benefit from interaction with the state?
[Illarionov] Perhaps the management should be proud of this, but this is not so much its merit
as it is the result of the special attitude of the authorities. At least, I do not know of any other
Russian company which would get a gift of a half billion dollars from the budget, as the RAO did
in the Czech deal.
The next point is the reform program.
First of all, instead of de-monopolization in the electrical power industry, it presumes the
creation of a grid super-monopoly, which must unite not only the main grids, but also--judging by
the results of the "Czech deal"--the distribution networks as well. According to this model of
reform, the creation of alternative power grids is in fact prohibited. And then not only business,
but even the very existence of all electrical energy producers and all energy traders, would
depend exclusively on the presence or absence of uninterrupted access to the power grid. Then
any companies operating in the country and most regions may end up as debtors of this supermonopoly's management. And the fact that the current management of RAO YeES is not neutral
in its sympathies and antipathies, to put it mildly, need not be proven.
Secondly, this model of reform violates the synchrony of transition to market relations on the
wholesale and retail electrical energy markets. As the experience of the California crisis has
demonstrated, such a procedure of market deregulation inevitably leads to the fact that possible
growth of prices on the wholesale market, with regulated prices on the retail market, may lead
companies engaged in middleman operations to bankruptcy. Such a variant of development of
events is in fact predetermined in our country--in implementation of another administrative
increase in gas prices.
[Correspondent] How can the RAO hinder independent producers? Today, only
Rosenergoatom and Irkutskenergo are complaining about it.
[Illarionov] And isn't that enough? This is enough to become convinced that the monopolist
is not neutral. Many investors would gladly undertake construction of electrical transmission
lines. But they have been refused in this. Many regions and power stations are ready to build
transmission lines from energy-surplus regions to regions of energy shortage.
[Correspondent] Can you name such projects?
[Illarionov] The currently effective legislation does not permit this. The proposal to reject
207
this prohibition in favor of unlimited construction of electrical power grids was thoroughly
besmeared by the RAO management at all stages of preparation of the reform program. The
possibility of such construction was left only in the case when new grids--regardless of who built
them--go under management of RAO. Thus, an artificial barrier has been erected in the path of
investments into a segment [of the economy] which is critically important to the Russian
electrical power industry.
[Correspondent] Nevertheless, large power consumers are actively building generating
capacities.
[Illarionov] Many large companies, having encountered the growth of energy tariffs and
monopolist behavior, have begun to change over to the acquisition and construction of generating
assets. As a result, the relative share of energy and the capacities generated outside the RAO are
gradually increasing. However, the effectiveness of such production is significantly lower than
in specialized companies. Nevertheless, for many of them, such an approach is perceived less
painfully than the threat of ending up as the debtor of a grid monopolist. Naturally, it is
necessary to draw off part of one's own resources for this, which leads to a decline in the potential
effectiveness of these companies, as well as the national power industry and the economy as a
whole.
[Correspondent] Perhaps there will really be de-monopolization of the power industry?
[Illarionov] Except that the price for it will be very high. And it will take quite a bit of time.
And if large companies partly safeguard themselves, what are the others to do? Companies,
regions and the population?
Then what kind of economic growth and improvement in the well-being of the population
should we speak of?
Finally, the mutual relations of the company's management and its shareholders. In 4.5 years,
the owners of the company have lost 2/3 of the RAO's value. Not one of the "promised" strategic
investors has yet come to the company. Among the broadly publicized "seven steps of
management," there is a "temporary moratorium on sale of profile assets until such time as their
'fair price' is determined." First of all, the world has not yet thought of anything "fairer" than
market prices. And secondly, assets, whatever they may be--of profile description or non-profile
assets--do not belong to the management. They belong to the owners of the company. It turns
out that, by its activity, the management--which was hired by the owners to preserve and increase
assets--has not only already led to the squandering of a considerable portion of these assets, but is
promising to continue to do so--now at "fair" prices.
Alas, it is not the pronounced words and not the PR-campaign, but the real activity of the
current management of RAO YeES that is leading not to attracting investors, but to pushing them
out the company, out of the Russian power industry, and out of the entire Russian economy.
[Description of Source: Moscow Vedomosti in Russian -- Business paper published jointly with
The Wall Street Journal and Financial Times; reportedly friendly with Kremlin.]
Russia: Commentary Views 'Pseudoliberal' Currency Reform
208
CEP20021120000369 Moscow Vedomosti in Russian 20 Nov 02
[Commentary by Andrey Cherepanov, council chairman of the Moscow International Currency
Association: "Currency: Pseudoliberalization"--taken from html version of source provided by
ISP.]
[FBIS Translated Text]
In the Summer of 2000, in his annual message to the Federal Assembly, the Russian president
announced the need to draw lessons from experience and to admit that the key role of the state in
the economy is to protect economic freedom. "Our strategic line is such: Less administration,
more entrepreneurial freedom," [he said]. He expressed a similar idea also in April of the
following year: "I am convinced that we will create an acceptable business climate in the country,
and that capital will stop 'fleeing' from it. Capital cannot be kept 'under guard.' It must have
lawful freedom of movement--to wherever it is profitable and effective... It is time to review the
very principles of currency regulation, bringing them closer to those generally accepted in world
practice. I believe that the currently existing limitations... discriminate against citizens of Russia
as compared to citizens of other states, limit their freedom, and undermine the competitiveness of
Russian enterprise."
Thus, the supreme state official defined an entirely clear vector toward liberalization of the
effective currency legislation. However, in the considerable interval of time which has elapsed
since then, only one notable step has been taken in this direction: The standard for mandatory sale
of export revenue has been reduced by 1.5 times. Evidently, they were expecting negative
consequences of such an action, and were hoping that the president would have a change of
heart. That did not happen. But after several additional firm directives, public officials finally
began to move. As a result of discussions which were unprecedented in their fervor, the concept
of a new law on currency regulation was developed and on the whole approved at the last meeting
of government. And it was presented to the "broad public" as a liberal breakthrough.
Supposedly, in case of adoption of the prepared draft law, the state would retain only two
instruments for regulating the market: Establishing the account regimen, and the requirement of
interest-free deposit of funds on a number of operations. And even then, it could resort to [these
instruments] only in crisis situations in order to resolve problems associated with the transfusion
of "hot" money. And as of 1 January 2007 or a few years sooner, even these "modest measures"
would be rejected. In general, everything is as had been requested. In confirmation of the purity
of their ideas, they did not even object to the publication of the draft in one of the central
newspapers. We can only hope that they gave the press the wrong version: The published text
proved to be extremely far from liberalism.
Judge for yourselves: Although the draft law speaks of the implementation of currency
operations in movement of capital without limitations, it provides a broad list of exceptions to this
general rule. Moreover, it includes such operations as, for example, receiving and granting
financial credits for a term of no more than half a year, which are freely performed in accordance
with the currently effective legislation. But now, it is proposed that they would be performed in
accordance with a special procedure. It may provide for establishing a monetary reserve in
interest-free accounts in the Bank of Russia and for establishing an account regimen. In other
words, the private entrepreneur may be forced to incur considerable financial losses. Or it may
stipulate such an account regimen which would take away one's desire to honestly manage his
own funds at his own discretion. Then again, judging by the fact that the draft law does not cite
the rejection of the practice of granting individual permits among the main principles of currency
regulation, we need not doubt that such permits will all too often be issued by means of
establishing individual account regimens. The only positive change is the fact that part of the
209
powers and authorities on administrating the movement of currency is being handed over from
the Bank of Russia to the government. In all probability, this decision is dictated by the fact that,
with very rare exceptions, in the entire post-crisis period the country's main bank has not adopted
a single useful normative statute in the sphere of currency regulation.
Furthermore, the draft law makes no mention of the powers and authorities of the Bank of
Russia in establishing the purposes for purchase of foreign currency, which it possesses today.
But it speaks of its rights to demand the reservation of funds and to establish an account regimen
on operations of purchase and sale of foreign currency by residents and non-residents. And this
means an expansion of the possibilities of strict administrative regulation. Up until recent times,
the Bank of Russia could lawfully only limit the purposes for purchase of currency (payment for
import and repayment of currency debts), but its normative statutes on establishing rules for
further use of the purchased currency did not correspond to the legislation. But now, it is
proposed that the Bank of Russia's ambitions on determining the order of performing all types of
conversion operations on the domestic currency market, and on the subsequent use of the
purchased funds in foreign and national currency, be legitimized. After all, "establishing an
account regimen" includes an entire extensive list of conditions for crediting funds to an account,
and determining the period for which the money is to remain there, and making the withdrawals
from it. This diffident wording conceals the Bank of Russia's powers and authorities to introduce
limitations at any moment, for any period of time and any degree of severity. General, as well as
individual, limitations.
The institution of mandatory sale of export revenue is being retained. However, the standard
of sale is being reduced from 50 to 30 percent. Which makes it already not even absurd, but, if
you will pardon the expression, stupid. Is it not clear that 30 percent of export comprises only
slightly over $30 billion a year, and if we consider the various benefits--even less. This hardly
covers even a third of today's needs in import and state payments on the foreign debt, and
consequently, resolves exactly nothing. At the same time, exporters, proceeding from their own
economic interests, are selling from 80 to 100 percent of their revenues. After all, they need to
perform expenditures in rubles for product production, payment of taxes, etc. So why should the
state force a private owner to do what he is already doing voluntarily? Just to realize a "crooked"
scheme, forcing exporters to bear "public guilt" in an arbitrarily established regimen? In this
plane, we might add, the draft law makes the existing legislation even more stringent. It
establishes the rule of mandatory sale only at currency exchanges and to the Bank of Russia, and
only in separately specified cases--to authorized banks. Thus, the requirement of the analogous
sub-legal statute adopted by the Bank of Russia would presumably be elevated to the level of a
law. And at the same time, the potential for development of a civilized term market would be
forgotten: Currency revenue may be sold after it is received, at the exchange rate formulated on
the day of sale.
We can spend a long time listing the numerous "pearls" of the draft law which violate both the
constitutional rights of owners and common sense in areas far removed from the problems of hot
money. This leads to the following conclusion: The new currency concept proclaims additional
freedoms--not for the economy, but for officials from the government and the Bank of Russia.
However, something is also left over for Russian entrepreneurs. They are allowed to lawfully
perform a number of operations on export of capital, which they previously performed quite
successfully with the aid of "gray" [semi-legal] schemes. But, tell us if you will, was it really
worth coming to blows merely for the sake of legitimizing the long-established practice of
usurpation of powers and authorities and outflow of private capital? Or does the entire matter lie
in the fact that they really did publish the wrong document, and there is still a chance that a
civilized currency law might be adopted?
210
[Description of Source: Moscow Vedomosti in Russian -- Business paper published jointly with
The Wall Street Journal and Financial Times; reportedly friendly with Kremlin.]
THIS REPORT MAY CONTAIN COPYRIGHTED MATERIAL. COPYING AND
DISSEMINATION IS PROHIBITED WITHOUT PERMISSION OF THE COPYRIGHT OWNERS.
Duma Reading Postponement Could Stall YeES Reform Five Years
CEP20021121000246 Moscow Kommersant in Russian 21 Nov 02
[Report by Alena Kornysheva: "YeES Russian Joint-Stock Company Reform Will Happen Either
Now or in Five Years" -- taken from HTML version of source provided by ISP]
[FBIS Translated Text]
The Duma Council will today [21 November] determine the date for giving its second reading to
the package of laws on power generation -- the leaders of four Duma factions advocated
postponing it the other day from 29 November to 18 December. The YeES Rossii Russian JointStock Company is cautious about the deputies' initiative -- it is worried that the second reading
may be postponed until spring.
The fact that the deputies are postponing the second reading of laws pertaining to reform of
power generation was mentioned Friday by Vyacheslav Volodin, head of the Fatherland-All
Russia faction. Previously Yabloko leader Grigoriy Yavlinskiy had complained about the laws to
President Vladimir Putin and even proposed drawing up a new law entitled "On Electric Power
Generation" instead. As a result it was decided not to rush matters and to examine all
amendments calmly (opinions on this differed -- according to deputies' figures, 1,800
amendments have been submitted, while according to the figures supplied by the Russian JointStock Company, there were just 800, and 600 of them related to the baseline law "On Electric
Power Generation").
Of course, compared with the experience of the package's first reading (which, as is wellknown, was moved no less than five months -- from June to October) a mere three weeks' wait
should seem like an utter trifle to the government and the Russian Joint-Stock Company. But if
the postponement is more significant (January or longer), this will mean just one thing -- that the
reforms will be halted for at least five years. The logic is simple -- deputies will clearly not be
making any dramatic progress in a preelection year, so examining the laws in the spring would be
quite simply dreamland. And then there will be the 2004 presidential election, after which a
change of government is possible, and everything will be back where it started. But even if it is
not necessary to resubmit the laws, preparing a new system for a free electricity market will take
at least two years, so realistically the laws will not be able to come into operation any earlier than
2007, and that will once again be a preelection year. So a few days could mean years of major
technological backwardness for the sector -- after all, the main aim of the reforms is to raise
investment. We would note that the level of technological backwardness in power generation is
already at the level of 20-30 years according to various parameters. Because of this, Russian
211
power generation workers burn off 40 billion cubic meters of gas for no reason every year -- that
is, they waste $4 billion.
Since the reform is marking time, unresolved problems that have built up are beginning to
surface. For instance, the YeES Russian Joint-Stock Company has long been sounding the alarm
about the prospects for a mass exodus of major customers to the wholesale electricity market -the FOREM [Federal Wholesale Market for Electricity and Generating Capacity]. Given the
current levels of cross subsidy (amounting to around 40 billion rubles a year that major industrial
enterprises overpay for electricity used by the population) this threatens to result in a real disaster
-- if enterprises leave for the FOREM and, correspondingly, stop subsidizing the population, local
authorities will be forced to raise their energy tariffs several times over all at once, which,
naturally, would trigger a social explosion. "All the consequences would nonetheless be put
down to reform, even though it has nothing to do with it," the Russian Joint-Stock Company is
stating. Apart from cross subsidies, the YeES Russian Joint-Stock Company is constantly at war
with the government over deliberately reduced tariffs that do not allow for capital investment to
be recouped. Consequently, no sober-minded investor would invest in power generation under
these circumstances. The YeES Russian Joint-Stock Company sees its task in the transitional
phase as being to prevent any collapse in investment in the first two or three years when the
Russian Joint-Stock Company in its current form will cease to exist (the Russian Joint-Stock
Company currently invests around $1 billion a year on average). The energy holding company
sees the creation of an investment guarantee fund as a way out of this situation.
As far as the intracorporate scandals that periodically arise at the Russian Joint-Stock Company
are concerned, the recent approach made by minority shareholders to Aleksandr Voloshin,
chairman of the board and head of the Presidential Staff, ended without result -- an EGM was not
convened, Anatoliy Chubays was not dismissed, nor did they get the company charter to include a
ban on the sale of assets. Despite this, the Russian Joint-Stock Company's shares are up by 54
percent (whereas the rest of the Russian stock market is up relatively insignificantly, by just 2-3
percent) in the slightly less than two months since the announcement of the moratorium on asset
sales (adopted under pressure from the minority shareholders). Regrettably, Western investors
continue to have no interest in the Russian Joint-Stock Company's shares, but Russian investors
clearly believe that the reform will nonetheless be moving ahead.
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]
THIS REPORT MAY CONTAIN COPYRIGHTED MATERIAL. COPYING AND
DISSEMINATION IS PROHIBITED WITHOUT PERMISSION OF THE COPYRIGHT OWNERS.
Unclassified
Kommersant Eyes Illarionov-Dubinin Spat Over Energy Reform at Boston Symposium
CEP20021119000109 Moscow Kommersant in Russian 18 Nov 02 P 14
212
[Report by Sergey Minayev under the "Reformers" rubric: "'YeES Rossii Russian Joint Stock
Company Wants Monopoly on Power.' Continuation of Furor at Boston Symposium"]
[FBIS Translated Excerpt]
Saturday [16 November] Kommersant reported the furor that took place at the Boston investment
symposium between Russian delegation members. Kommersant observer Sergey Minayev sums
up the results from the scene. [Passage omitted on Yukos boss Mikhail Khodorkovskiy's speech
at Boston symposium]
Andrey Illarionov, the president's economic adviser, pointed out in his speech that at a time
when Russian companies are demonstrating their ability to earn money and increase their assets,
the managers of the YeES Rossii Russian Joint Stock Company have demonstrated their ability to
reduce assets, bringing about a fall in the share price. It looks as though the management of some
companies creates wealth, whereas in others it destroys it. The situation is starting to resemble
1998 when the government and the Central Bank devalued the ruble and caused investors huge
losses. The YeES Rossii Russian Joint Stock Company's proposed reform, Mr. Illarionov
stressed, merely heralds monopolization. What is more, the YeES Rossii Russian Joint Stock
Company "is aspiring not only to monopolize electrical capacities, it wants the monopoly on
power." The nonmarket sector in Russia needs to be scaled down (if only for the purpose of
cutting tax), consequently, real reform of the YeES Russian Joint Stock Company is essential.
In response Sergey Dubinin, YeES Russian Joint Stock Company deputy CEO and former head
of the Central Bank, stressed that Mr. Illarionov's comparison of the YeES Russian Joint Stock
Company with other companies in terms of the creation and destruction of wealth is incorrect. In
Mr. Dubinin's opinion, Mr. Illarionov's recommendations not to invest money in Russia and
reduce the ruble exchange rate "make it unclear where the source of Russian GDP growth lies."
Mr. Illarionov in turn immediately doubted Mr. Dubinin's understanding of his position in the
sphere of foreign investment and the ruble exchange rate (in the process he used expressions like
"professional liar" in respect of his opponent).
Participants in the symposium organized by Harvard University got an opportunity to dip into a
lively atmosphere of scientific debate and the Russian economy.
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]
Putin's Adviser Illarionov Views Electric Power Industry Reform Issues -- Part 1
CEP20030115000535 Moscow Rossiyskaya Gazeta in Russian 14 Jan 03
[Part one of article by Russian president's economic adviser Andrey Illarionov: "Substance of
Reform Is More Important Than Its Pace" -- taken from HTML version of source oprovided by
ISP ]
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[FBIS Translated Text]
The electric power industry can be compared to the nervous system of the economy and its
reform can be compared to a surgical operation on the nervous system. Reform in the
economy, just as an operation in medicine, is occasionally a useful and necessary step. However,
in both cases one has to realize clearly what part of the currently functioning system one finds
unsuitable; what components of the existing system pose the greatest threat; what problems the
planned reform (operation) is expected to solve; how exactly it should be carried out and what
the sequence of steps should be; what results it should produce, what optional scenarios exist and
what risks each of them entails; what conditions should be met to ensure that it is successful; is it
possible (and to what extent) to solve the problem by means of therapeutic methods. There are a
lot of questions regarding reform of the electric power industry. These questions have been
repeatedly asked in our society in recent years; they have been asked by deputies, senators,
representatives of the legislature and the executive, in Moscow and in the provinces, by power
engineering specialists and many citizens of our country. However, by far not all of those
questions have been answered.
Tariffs are one of the questions to which this country has not received convincing answers (the
price of electricity and the tariffs at which electricity is and will be sold to consumers). What do
we hear all the time? We hear that electricity tariffs are understated and should at least be
doubled. Why? We hear a whole number of reasons in response. In particular, we are told that
our electricity tariffs are lower than in other countries of the world. Of course, this immediately
prompts the following question: Why should we compare our electricity prices to prices in other
countries of the world? In view of physical properties of electricity its commercially efficient
transportation is limited to a certain distance (economists call those kinds of commodities
"limited tradability goods.") Therefore, electricity does not have a single world market or a
single world price. Electricity is sold on local markets where prices are set depending on the
existing correlation between demand and supply.
The correlation between the demand for and the supply of electricity in Russia differ substantially
from the relevant correlation in foreign countries. Therefore, it is not quite correct to directly
compare nominal electricity prices in countries that do not have interconnected energy systems.
As for the level of Russian prices itself, it is only natural to assume that in light of the rather low
income level (in dollar-equivalent terms) and a substantial surplus of power generated in Russia
the correlation between the low demand for electricity and its substantial supply should result in
much lower electricity prices than in many other countries. Direct comparison of Russian
nominal prices for electricity with prices in other countries of the world attests that they are much
higher than their face value.
For instance, industrial consumers in the United States and Germany pay 4.1 cents per one
kilowatt-hour of electricity, in Canada -- 3.8 cents, and in France -- 3.6 cents. In Russia, the
price is 2.1 cents, meaning, is 1.5 times lower or even twice as low as in developed countries.
However, per capita income in Russia in dollar-equivalent terms is approximately 15 times lower
than in the United States, Germany, Canada, or France. Therefore, the correlation [between
Russian and Western] electricity prices should be much greater than 1.5 or 2. If so, Russia's
current electricity prices are overstated and not understated. And, most likely, they should be
lowered and not increased.
Let us compare the correlation between domestic Russian and world (regional) prices for some
stock exchange commodities that have their world (regional) markets and world (regional)
prices. Russia's domestic oil price oscillated within the range of 20-30 percent of the world
price. The domestic price for residual fuel oil oscillated between 15-20 percent of European
214
prices. Meanwhile, electricity prices stood at 40-50 percent of prices in developed countries. It
appears that prices for commodities that are not imported as massively as stock exchange
commodities ("limited tradability commodities" that do not have either a world market or world
prices) are closer to prices in developed countries than prices for "tradable" stock exchange
commodities. This contradicts both economic laws and the world practice and means that
Russian electricity prices are overstated. If we compare electricity prices in Russian Federation
regions and prices in foreign countries, it will turn out that in six regions of this country (the
Republics of Kalmykia and Yakutia, Arkhangelsk, Kamchatka, and Sakhalin Oblasts, and
Chukotka Autonomous Okrug) electricity prices are already higher than prices in France, Finland,
Norway, and New Zealand. Meanwhile, we have to reiterate that Russia is after all a country
with a different, lower, per capita income level in dollar-equivalent terms than the
aforementioned countries.
Finally, if one wants to make legitimate comparisons to foreign countries, one has to take into
account how much particular countries as a whole spend on electricity and how much all national
consumers -- the industrial sector, the population, and municipal structures pay for electricity. In
the United States, for instance, all payments for electricity comprised 3 percent of GDP in 1990,
2.3 percent in 1999, 2.2 percent in 2000, and 2.1 percent in 2001. In the second half of the
nineties, the correlation between all electricity purchases and GDP was as follows: In Finland -3.2 percent; Sweden -- 2.5 percent, Italy -- 2.4 percent, Brazil -- 2.3 percent, Austria and
Switzerland -- 2.1 percent, Germany -- 1.8 percent, Great Britain -- 1.7 percent, France and
Denmark -- 1.6 percent, Mexico, Indonesia, and Ireland -- 1.5 percent. In the overwhelming
majority of countries total electricity purchases stood at 1.5-2.5 percent of GDP. Let us now
look how much Russian citizens and Russian companies paid and pay for power. In 1995 -- 6.8
percent of GDP, 1997 -- 8.2 percent, 2000 -- 4.2 percent, 2001 -- 4.7 percent, and 2002 -- almost
5.5 percent of GDP.
The increase in the correlation between the monetary equivalent of electricity sales and GDP took
place not as much due to the increase in actual consumption of power (it went up 1.7 percent in
2002-2002 from 864 billion kilowatt-hours to 878 billion kilowatt-hours) as due to a price
increase (by 53 percent from 1.27 to 1.94 cent per one kilowatt-hour). In Russia this indicator is
already 2.5-3 times higher than in the United States and in many other countries of the world.
Therefore, payments for electricity in Russia, as compared to incomes, are higher than in
countries that by far are not the poorest countries in the world, countries where per capita
electricity consumption is several-fold higher than in our country. Moreover, in those very rich
countries electricity costs are two, three, or even four times as low as in other countries. Why?
The reason is that prices at which electricity is sold in Russia are not understated; they are
overstated as compared to our GDP, the level of our development, and the level of our incomes.
Nevertheless, we hear all the time: "The existing electricity prices are insufficient. Tariffs
should at least be doubled." This means that those who advocate a tariff increase believe that the
5.5-percent correlation between electricity costs and GDP is insufficient and that tariffs should be
doubled as a minimum. In its turn, this means that the existing three-fold or four-fold difference
between electricity payments in Russia and in foreign countries [as compared to GDP] should
probably become six-fold or eight-fold difference.
We are told that electricity tariffs should be increased because outlays are growing. In particular,
Anatoliy Chubays, chairman of YeES Rossii RAO [Unified Energy System of Russia Russian
Joint-Stock Company] Management Board, said in his recent interview that tariffs should be
raised because the price of residual fuel oil (fuel used by electric power stations) grew
significantly over the last several months. The price of residual fuel oil, indeed, increased 2.5-
215
fold in February-November 2002. However, on the one hand, this does not automatically mean
that prices have to be raised. Prices of raw materials change all the time, but this does not mean
that prices of goods and services produced from those raw materials should increase
accordingly. More than 100 countries of the world import oil, the price of which has tripled
since 1998. However, dollar prices of their products have changed unsubstantially. The concept
of a rigid correlation between outlays and prices is a vestige of obsolete Marxist theories and was
inherited from the economy managed by the [USSR] State Planning Committee.
Second, life did not start in February 2002. It is no accident that the YeES Rossii management
prefers not to tell what the situation was before that date. The point is that over the year and onehalf before February 2002 the price of fuel oil dropped 2.5-fold. Therefore, in two years -- from
November 2000 to November 2003 it increased 5 percent in ruble-equivalent terms (from 2,429
to 2,552 rubles [R] per tonne). Meanwhile, when converted into dollars in line with currency
exchange rates, the price of fuel oil dropped 8 percent from $87.4 to $80.4 per tonne. Therefore,
electric power stations currently pay for fuel oil 8 percent less in dollars than they paid two years
ago. Over the same period of time the price of electricity increased 59 percent in rubleequivalent terms and 39 percent in dollar-equivalent terms. Two years ago, one kilowatt-hour of
electricity was sold at R0.42 and now -- at R0.62; two years ago it cost 1.5 cents, and now, it
costs 2.1 cents. Is this the way to justify further increases in electricity tariffs?
The country is being told that prices have to be brought up for two-three years until 2005; an
electricity market will have be established by that time and then, electricity prices will drop.
Why will they drop? The YeES RAO leader says that this will happen in line with the economic
law on the correlation between demand and supply. In line with the law, even in 2005 the supply
of electricity in Russia will remain much higher that the demand due to the huge surplus of
generating capacity in this country. As a result, prices will drop. If it really is so and if in 2005
-- despite the expected further growth of GDP and possible withdrawal of a proportion of
generating capacity -- the supply of electricity greatly exceeds the demand thus causing the
lowering of prices, it is true today ever more so. The question is: What sense does it make to
raise prices now? Any economic sense is not discernible. Ya. Urinson, deputy chairman of
YeES Rossii Management Board, stated the following in his interview: "The tariff increase will
make us richer, not poorer." This statement is difficult to dispute. Tariff increases will, indeed,
make Mr. Urinson and other YeES Rossii managers richer. However, all other people in this
country will become poorer. Administrative increases of electricity tariffs have become a finetuned mechanism for channeling huge financial resources from the nonmonopoly to the
monopoly sector of the economy.
According to Investitsii Strane, Russia cannot do without foreign investors, the electric power
industry needs investment, and $50-60 billion should be invested in generating capacity within
the next decade. Should it really? Let us analyze the cited arguments: Even in 2005 Russia
will still have a substantial surplus of capacity in the generating sector, which will result in
excessive supply of electricity as compared to the demand and will lead to the inevitable drop of
electricity prices. However, since the surplus of generated electricity currently stands at no less
than 35 percent of existing capacity, since the surplus will persist even in 2005, the question is:
Who needs investment in excess capacity? Judging by the dynamics of decommissioning of
generating capacity, our country will probably not need large-scale investment in the power
generating sector for quite long. Potential investors are aware of this and therefore are in no
hurry to invest in the generating sector. Perhaps, they could invest in the Russian electric power
industry (admittedly, in networks rather than the generating sector). However, they are not
allowed to, although the density of electricity supply networks in Russia is insufficient, there is a
shortage of networks, and the networks are operating at a loss. To eliminate weak points in the
216
electric power industry, link regions that have an electricity surplus with regions experiencing
power shortages, increase the density of networks, heighten stability and reliability of electricity
supply to customers -- these are really grandiose and advantageous tasks for investors, both
Russian and foreign, private and state-run, individual and corporate. However, there is a ban on
investment in networks. Who imposed it? YeES Rossii RAO.
The ban remains in force in the package of draft laws on the electric power industry currently
under discussion in the State Duma. Even if some courageous person carelessly decides to invest
in new electricity supply networks he will have to part with them when the construction is
completed. The point is that the package of draft laws on the electric power industry, which is
currently being discussed and has been approved in its first reading, prescribes that networks
should be transferred under YeES Rossii's management. Does anybody really believe that it is
the way to attract investment? Therefore, a potential investor analyzes the situation and waits.
He carefully examines the economic and technological parameters of the use of resources in
Russia's electric power industry. He compares electricity prices in Germany and Russia: 4.1
and 2.1 cents is a two-fold difference. He compares prices of gas used to generate electric
power: $250 and $17 per 1,000 cubic meters -- a 15-fold difference. He compares wages in
Germany and Russia -- almost a 15-fold difference. The potential investor notices the following
oddity: Power generation costs in Russia are 15 times lower than in Germany, but prices are
only twice as low. Perhaps, technologies in Russia are not as good as in Germany and equipment
is older and more worn-out? But not seven times as old, after all! After all, the generation of
one kilowatt-hour of electricity does not require seven times as much gas, and the staff of
comparable electric power stations is not seven times as big as in Germany! Therefore, the
potential investor concludes, the huge funds obtained from the sale of electricity in Russia are not
spent in the electric power industry; they are spent elsewhere. "Perhaps, they are spent on
investment?" the potential investor wonders. "Or perhaps they are used to build new stations and
networks and renew the equipment? After all, it has been repeatedly said in recent years how
important and necessary it is to attract investment." And then, the potential investor looks into
YeES Rossii's financial reports. What does he see there? He sees that if 1997 -- the last year
before the new management's arrival -- is chosen as the starting point, investment in the company
dropped 54 percent over the past five years. The investor then asks a natural question: Is the
entire Russian electric power industry affected by this kind of large-scale investment crisis? But
then he looks into other companies' financial reports and sees that the crisis was very selective:
He affected YeES Rossii RAO only. Nothing of the kind has been observed in other Russian
companies. For instance, investment has more than doubled in another electric power company
-- Rosenergoatom. And then, the potential investor starts to realize that people in one company
are preoccupied with real investment, whereas people in the other company are busy waging PR
campaigns to advertise investment. The investor analyzes data on investment in the entire
country and sees that investment in the economy as a whole increased 18 percent over the five
years and that investment in the industrial sector as a whole increased 20 percent. And there is
only one Russian company in which investment was more than halved. The investor then starts
to realize he is dealing with a very unusual company, which greatly differs from the rest of the
Russian economy.
Production and Employment.
The investor then asks: How did production volumes change over the years? He realizes that
over the past five years YeES Rossii's production dropped 2 percent, whereas Russia's GDP
increased 19 percent and industrial output increased 29 percent over the same period. The same
trend persisted last year: YeES Rossii's production dropped almost 3 percent, Russia's industrial
production increased 3.7 percent, and GDP increased 4 percent as a minimum. The potential
217
investor asks questions about the dynamics of changes in YeES Rossii's workforce. He sees that
by all reporting standards -- both Russian and international ones -- the number of people working
in the company increased over the past years, whereas in Russia's industrial sector as a whole it
dropped. The potential investor asks questions about the dynamics of labor productivity in YeES
Rossii. He finds out that it dropped 14 percent over the past years, although in the economy as a
whole it increased by 8 percent and in the industrial sector -- by 33 percent. The potential
investor analyzes electricity losses in supply networks and finds out that five years ago they stood
at 10 percent of the total volume and now -- at 12 percent. Naturally, the investor asks questions
to which he and the whole country for that matter has not received answers for several years now.
Export.
Nevertheless, the careful investor continues his investigation. He asks about other economic
indicators of the electric holding company's operation, for instance, electricity export. How
many times the investor heard from the YeES RAO management in recent years that the export of
electricity is the company's strategic goal! Remember the modernization slogan "Instead of
selling raw materials sell electricity -- a commodity with a high added value?" So many plans
were adopted in this regard! So many visits were paid to Europe, Turkey, China, and Japan!
What is the result? Virtually all rivals have been squeezed out of this business in recent years
and therefore, YeES Rossii's share in Russian electricity export increased from 60 to 92 percent.
However, the result proved to be depressing. In 1997, Russia exported 22 billion kilowatt-hours
of electricity and in 2002 -- 17.9 billion or 19 percent less. In 1997, the value of export was $630
million and in 2002 -- around $300 million or 52 percent less. The price of one kilowatt-hour of
exported electricity dropped from 2.9 to 1.7 cents, meaning, by 41 percent. Naturally, the
potential investor wonders: How come five years ago, when the company had a different
management, it managed to export almost twice as much electricity at prices that were almost
twice as high? How come prices in importer countries have changed insignificantly, but the
price of electricity exported by YeES Rossii dropped? How come Russia's domestic electricity
tariffs are growing, whereas export tariffs are falling? Or on the contrary: Since export prices
are falling, why are domestic prices growing? There is no answer. Of course, the following
answer is also possible: Since export prices are falling, domestic prices have to be raised to
compensate the losses. Meaning, when it is difficult to retain positions on foreign markets it is
easier to squeeze out tariffs set by the state inside the country. But then the investor realizes that
what he sees is not as much high-quality business management as high-quality lobbyism. The
curious investor has more and more questions. For instance, why Russian electricity exported to
Kazakhstan is cheaper than the lowest domestic wholesale prices charged on FOREM [Federal
Wholesale Market for Electricity and Generating Capacity]? Why are prices of electricity
exported to Azerbaijan twice as low as prices charged on FOREM for electricity generated in the
nearby Caucasus regions, which, as a matter of fact, supply electricity to Azerbaijan? Is it not
strange that while Georgian authorities provide information about the volumes of electricity
purchased from YeES Rossii and about the sums of money paid for it YeES Rossii reports figures
that are five-ten times lower? There are no answers. Potential investors are greatly perplexed
and, naturally, do not rush to invest their money in this kind of company and this kind of electric
power industry.
[Description of Source: Moscow Rossiyskaya Gazeta in Russian -- Government daily
newspaper.]
Russia: All Sides 'Reconciled' To Power Industry Reform Delay
CEP20030102000063 Moscow Kommersant in Russian 24 Dec 02 p 2
218
[Report by Irina Granik: "Duma Postpones 'Electric' Package Until January"]
[FBIS Translated Text]
Yesterday the Duma postponed the second-reading examination of the package of laws on
electricity industry reform until the end of January. The eventual date will be fixed by the Duma
Council after the New Year holidays. The government and YeES RAO [Unified Energy Systems
Russian Joint-Stock Company] are reconciled to the delay. However, they are appealing to the
deputies not to prolong the process any more, because that would complicate the progress of
reform.
The four centrist Duma factions nevertheless insisted that examination of the package should be
postponed. The formal case for this is the same as before: that it is not clear what is going to
happen to the law "On State Regulation of Tariffs". This law, which commits the government to
set tariffs for electricity and gas once a year before the budget is adopted, was one of the Duma's
conditions for adopting the package as a whole. It had been rejected by the upper house, but last
week the Duma adopted it in an agreed wording. What happens next is up to the Federation
Council and the president. In fact, as Gennadiy Raykov, leader of the People's Deputy group and
one of the main instigators of the postponement, stated yesterday, the package is being postponed
until January for "purely technical" reasons. Meanwhile State Duma Chair Gennadiy Seleznev
has also cited another reason: the fact that not all the deputies' amendments have yet been
coordinated with the government. None of these explanations is convincing. The norms in the
law on the state regulation of tariffs have now been duplicated in the package of laws on the
power industry, and all the deputies' amendments were coordinated with the government all of
two weeks ago.
YeES RAO board member Leonid Guzman blamed what has happened on Yabloko and the
Communists. He stated that the postponement of the debate on the package of laws was due to
"strong political resistance". However, the resistance in the Communist and Yabloko ranks can
have no effect on the passage of the laws if they have the centrists' consent. The real reasons for
the postponement were spoken about yesterday by the Yabloko people themselves. Faction
deputy leader Sergey Ivanenko stated bluntly that the postponement of the package was the result
of a struggle within the Russian executive structures. "There are forces that are on the side of the
YeES RAO leadership, and there are people within the presidential administration and the
government who are trying to fight the power industry reforms. We are on the side of the latter",
he announced.
The latter, as we know, include presidential adviser for economic issues Andrey Illarionov.
Yesterday he voiced his attitude to the reforms once again to the Praym-TASS agency -- an
attitude which, incidentally, coincides on the whole with the Yabloko faction's position. In the
presidential adviser's view, the reform of the power industry should consist in its
demonopolization. The essence of Andrey Illarionov's case is this: YeES RAO now has a
monopoly in the industry, and the reforms proposed by the company and the government do not
change that situation. In addition, according to the presidential adviser, at the present time YeES
RAO is demonstrating poor management. For instance, whereas in 1998 YeES RAO's
capitalization totaled $13.6 billion, today, since "the Chubays team came to YeES RAO", it is
only $5.2 billion. The presidential adviser believes that this result is evidence of how "the power
networks in Russia are few in number, low in quality, and lacking in capacity". Meanwhile the
YeES RAO management "either bans the construction of private networks or else takes control of
them for itself". And all this could lead even in the very near future to an energy crisis, since
Russia "has no consolidated energy network". Whereas it is such a network that "makes it
possible to move energy to where it is needed or to concentrate it in a particular region". In other
words, Andrey Illarionov doubts that a reform based on the government and YeES RAO method,
219
involving the allocation of the monopoly component of the electric power sector -- the networks - to a single company and the shifting of all the generating companies onto the open market, will
provide healthy competition in the industry. In his view, the only way to secure that is to keep
vertically integrated companies in the sector following demonopolization.
The president's position on this issue, incidentally, is different. Last week he approved the
deputies' intention not to rush the package of laws to the detriment of their quality; but he
declared: "The main element of the reforms is distribution, while the transmission of electricity
over long distances remains in state hands". In other words, the networks must be made into a
state company, as the government is proposing, and not be left in the vertically integrated
companies' control.
As far as the postponement of the package is concerned Aleksandr Voloshin, head of the
presidential administration and simultaneously chair of the YeES RAO Board of Directors,
restricts himself to diplomatic statements to the effect that the quality of the reform is no less
important than the date of its implementation.
Yesterday evening, following Andrey Illarionov's accusations of monopolism against the YeES
RAO management, comments began to emerge from YeES RAO itself. Company board member
Andrey Trapeznikov stated: "In this situation there are two levels. There are the political
interests and ambitions of certain politicians, who are determining their attitudes not so much to
reform as to the YeES RAO management. The other level relates to substance. Today there is a
clear understanding that, after three years of debate, both deputies and senators and regional
leaders and the business elite understand the need for reform and accept the reform principles
formulated by the government. Agreed solutions have been found for the overwhelming majority
of the amendments".
[Description of Source: Moscow Kommersant in Russian -- Informative daily newspaper
purchased by Boris Berezovskiy in 1999 and often reflecting his viewpoint.]
220