Gazprom

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Gazprom

Type	Public/Joint stock company (LSE: OGZD)
Founded	1989
Headquarters	Moscow, Russia
Key people	Alexei Miller, CEO Dmitry Medvedev, Board Chairman
Industry	Natural gas extraction
Products	Natural gas
Revenue	Rb 1231 bn (2005, ~US$46 bn)
Operating income	Rb 358 bn (2005, ~US$13.5 bn)
Net income	Rb 203 bn (2005, ~US$7.7 bn)
Employees	397,000 (as of 2005)
Parent	Russian Government
Slogan	-
Website	www.gazprom.com

Gazprom (LSE: OGZD; Russian: ОАО Газпром, sometimes transcribed as Gasprom) is the largest Russian company and the biggest extractor of natural gas in the world. With sales of US$ 31 billion in 2004, it accounts for about 93% of Russian natural gas production and with reserves of 28,800 km³, it controls 16% of the world's gas reserves (as of 2004^[1], including the Shtokman field.) After acquisition of the oil company Sibneft, Gazprom, with 119 billion barrels of reserves, ranks behind only Saudi Arabia, with 263 billion barrels, and Iran, with 133 billion barrels, as the world's biggest owner of oil and oil equivalent in natural gas.^[2]

By the end of 2004 Gazprom was the sole gas supplier to at least Bosnia-Herzegovina, Estonia, Finland, Macedonia, Latvia, Lithuania, Moldova and Slovakia, and provided 97 percent of Bulgaria's gas, 89 percent of Hungary's, 86 percent of Poland's, nearly three-quarters of the Czech Republic's, 67 percent of Turkey's, 65 percent of Austria's, about 40 percent of Romania's, 36 percent of Germany's, 27 percent of Italy's, and 25 percent of France's. [2] [3] The European Union gets about 25% of its gas supplies from this company. [4] [5]

Apart from its gas reserves and the world's longest pipeline network with 150,000 km, it also controls assets in banking, insurance, media, construction and agriculture.

With US$ 270 billion of market capitalization (as of May 2006), Gazprom is the world's third largest corporation following this measure. [6]

Recently Gazprom announced that quarterly sales grew to $19.5 billion (second quarter of 2006), while quarterly net income reached $5.2 billion (second quarter of 2006) [7]

Some of the major problems of Gazprom are extremely old pipeline system with limited technical capacities and subsidization of industries in the national economy. ([8]).

[edit] History

[edit] 1989-1992: Inception

Due to large natural gas reserves discovered in Siberia, in the Urals and in the Volga region in the 1970s and 1980s, the Soviet Union became a major gas producer. Gas exploration, development, and distribution were centralized in a state ministry. In July of 1989, President Mikhail Gorbachev combined the ministries for oil and gas as part of his economic reforms, and later carved out Gazprom as the entity responsible for gas production, distribution, and sales. (Gazprom is a contraction of 'Газовая промышленность' (Gazovaya Promyshlennost), meaning 'gas industry'.) Viktor Chernomyrdin headed Gazprom.

After the break-up of the Soviet Union in 1991, Gazprom lost a large part of its assets outside of Russia - one third of its pipelines and one fourth of its compression capacity.

[edit] 1993-1997: Privatization

After the new Russian President Boris Yeltsin appointed Chernomyrdin to be his Prime Minister in December 1992, the political influence of Gazprom increased markedly. On January 26, 1993, Rem Viakhirev became the Chairman of both the Board of Director and Managing Committee.

As the new government was committed to economic reform, Gazprom began to be privatized, becoming a joint-stock company according to the Decree of the President of the Russian Federation of November 5, 1992 and the Resolution of the Council of Ministers of the Russian Federation of February 17, 1993, and starting to distribute shares under the voucher method, where every Russian citizen received vouchers to purchase shares of formerly state-owned companies. However, trading these shares was heavily regulated, and the by-laws of the company prohibited foreigners to own more than 9% of the shares.

Gazprom slowly established credibility in the western capital markets with an offering of 1% of its equity to foreigners in October 1996 in the form of London Depository Receipts and a successful large bond issue of US$ 2.5 billion in 1997.

On the second annual shareholders' meeting on May 31, 1996, Alexander Kazakov, the Chairman of Russia's State Property Committee, was appointed the Chairman of the Board of Directors, as the Russian law on JSC required the Chairman of the Board of Director and the Chairman of the Managing Committee positions to be occupied by different persons.

[edit] 1998-2000: Scandals

In 1998 Chernomyrdin was fired from his position of Russia's Prime Minister by President Boris Yeltsin. At the same time, the Russian government suddenly started demanding billions of dollars in back taxes from Gazprom. When tax prosecutors started to seize assets of Gazprom, the company gave in and paid. The company's records started showing a loss for the first time. The reasons are unclear and were explained either by an aging pipeline transport network, by a management that was becoming increasingly corrupt, or by pre-existing losses that appeared because of more transparent accounting policies.

Gazprom conducted dubious transactions with the gas-trading company Itera and a Gazprom/Itera joint-venture, Purgaz, in the late 1990s, which allegedly benefited various management members and their relatives. Additionally, large-scale asset-stripping of Gazprom was going on by corrupt management and board members through various transactions involving the Gazprom daughter Stroitransgaz and the regional gas company Sibneftegaz. The Gazprom auditor PwC apparently had signed off and covered these transactions.^[3]

The investment fund Hermitage Capital Management, a minority shareholder of Gazprom, reported on the scandals in October 2000: "Investors are valuing this company as if 99 percent of its assets have been stolen. The real figure is around 10 percent so that's good news". ^[4]

On the fourth annual shareholders' meeting on June 26, 1998, Farit Gazizullin, the new Chairman of Russia's State Property Committee, was elected Chairman of the Board of Directors.

On the fifth annual shareholders' meeting on June 30, 1998, Viktor Chernomyrdin became the Chairman of the Board of Directors.

On the seventh shareholders' meeting on June 30, 2000 (the sixth took place on August 26, 1999), Deputy Head of Russia's Presidential Administration Dmitry Medvedev occupied this position.

[edit] 2001-2003: Reform years

Russian President Vladimir Putin was actively pursuing reforms in the management of the company in the years following the scandals. This was aided by shareholder activism by Hermitage CEO William Browder and former Russian finance minister Boris Fyodorov.

On May 30, 2001, the Board of Directors replaced Rem Vyakhirev, whose contract had expired, with Alexei Miller as the new CEO to guide the reforms; Rem Viakhirev was moved to the position of Chairman of the Board at the 8th shareholders' meeting on June 29, 2001, temporarily replacing Dmitry Medvedev who became his deputy.

In April 2001 Gazprom took over NTV, Russia's only nationwide state-independent television station held by Vladimir Gusinsky's Media Most holding, which caused major changes in its editorial policy. [9][10][11] On November 8, 2001 by the decision of a Moscow court of May 4, 2001 a block of shares comprising 25% of stock capital of the Media Most holding was transferred to Gazprom Media [12], a media holding founded in 1998 and owned by Gazprom (In 2006 it was transferred to Gazprombank, a subsidiary of Gazprom^[5]). In July 2002 Gazprom Media acquired all Vladimir Gusinsky's shares in media companies of the holding, which resulted in dramatical changes of their editorial policy and closure of some publications. [13] In June 2005 Gazprom Media purchased the influential Russian newspaper Izvestia.

Until 2004 the Russian government held a 38.37% stake in the company, and had a majority on the company’s board of directors. Gazprom provides 25% of all Russian tax revenues (averaging over US$ 4 billion annually between 1993-2003) and accounts for 8% of the nation’s gross domestic product. Non-Russian investors may legally buy Gazprom shares only through Depositary Shares, which cost more than locally traded shares.

In 2004, President Putin announced that Gazprom was to acquire the state-owned oil-company Rosneft and that this will "eventually lead to the lifting of foreign ownership restrictions on Gazprom shares", as the stake of the Russian government in Gazprom will rise from 38.37% to a controlling position. ^[6]

However, Gazprom was foiled both in its attempt to acquire Rosneft, and its earlier attempt to buy the core asset of Yukos, when Yukos filed for bankruptcy in Houston. Fearing that it would fall foul of US law, Gazprom backed away from buying Yukos' main asset when the Russian government auctioned it in December 2004, leaving the more gung-ho Rosneft to buy it. After Rosneft had appropriated such a large and controversial asset, the technicalities of merging it into Gazprom became too complicated. Instead, Rosneft remained independent, to the delight of its own management. The state increased its stake in Gazprom to over 50% instead by paying cash for a 10.4% stake, thus fulfilling the main pre-condition for the abolition of restrictions on foreign ownership of Gazprom shares. At the time of writing, the market is still awaiting this move.

On July 26, 2004, Gazprom sold 49.979 percent out of its 100% share of the SOGAZ Ltd. insurance group to an unnamed purchaser for 1.69 billion rubles [14], and 26% more of SOGAZ in August 2004 for 879.3 million rubles. ^[7] [15] In January 2005 it turned out that ABRos, a subsidiary of the Russia bank, held a 49,97% share of SOGAZ.^[8] [16]

[edit] 2005-2006

In June 2005 Gazprombank, Gazpromivest Holding, Gazfond and Gazprom Finance B. V., subisidiaries of Gazprom, agreed to sell a 10.7399% share to the state-owned company Rosneftegaz for $7 bn, which was widely considered as an understated price^[9], by December 25, which, combined with the 38% share of the State Property Committee, would give the state a controlling share. [17]

In September 2005, Gazprom bought 72.633% of the oil company Sibneft (now Gazprom Neft) for $13.01 billion, aided by a $12 billion loan from the west, which consolidates Gazprom's position as a global energy giant and Russia's biggest company. On the day of the deal the company was worth £69.7 billion/US$123.2 billion, about the GDP of Ireland in 2004.

Gazprom Shareholder Structure (as of September 5, 2005, [18]):

State Property Committee of Russia (Rosimushchestvo) - 38.37315 %
Rosneftegaz - 10.73985 %
Gerosgaz - 2.92997 %
E.ON Ruhrgas - 2.5 %
Gazfond - 3.22159 %
Nafta Moscow - 2.12502 %
The Bank of New York International Nominees - 4.42218 %

On November 15, 2005, Gazprom CEO Alexei Miller and Saint Petersburg governor Valentina Matviyenko announced that Sibneft is going to build the Gazprom City business center including a 300 meters high skyscraper with its headquarters on the right bank of the Neva River in front of the Smolny Cathedral in St. Petersburg, despite current regulations forbid construction of a building of more than 42 (48 with expertise approval) meters high there (See Gazprom City).

On January 1, 2006, at 10:00 (Moscow time zone), Gazprom ended the delivery of gas for the Ukrainian market, calling on Ukraine's government to pay increased fees that partially reflect the globally increased fuel prices. See: Russia-Ukraine gas dispute.

During the night of January 3 - January 4, 2006, Naftohaz Ukrainy and Gazprom negotiated a deal that has resolved the long-standing gas price conflict between Russia and Ukraine, to the satisfaction of both parties.

As the Russian state had acquired a controlling share of Gazprom, in the very beginning of 2006 20% restriction on foreign investment was lifted and Gazprom became fully open to foreign investors.^[10]^[11]

In April 2006, Gazprom market cap was US$ 270 billion.

On July 20, 2006, the Russian federal law On Gas Export granting Gazprom exclusive right to export natural gas was published and hence came into force (Full text in Russian: [19]). It was almost unanimously approved by the State Duma on July 5, by the Federation Council of Russia on July 7 and signed by Vladimir Putin on July 18.^[12]

On April 3, 2006, Gazprom indicated it would triple the price of natural gas sold to Belarus after December 31, 2006. In December 2006 Gazprom threatened a cut-off of supplies to Belarus at 10 a.m. Moscow time on January 1, 2007, unless it agrees to raise the price it pays for the gas from $47 to $200 per 1,000 cubic metres or cedes control over its distribution network.^[13] Analysts suggested Moscow could penalise Alexander Lukashenko, President of Belarus, for not delivering on pledges of closer integration with Russia^[14], while others noted that other friendly countries like Armenia pay for the gas as much as Belarus with the new level and this had nothing to do with any punishments[20]. Later Gazprom requested $105 price^[15], yet Belarus was still firm on the demands refusing the agreement. It responded that if supplies were cut, it would deny Gazprom access to its pipelines, which would hurt gas transportation to Europe.^[16] However, on January 1, 2007 (Moscow time zone), just few hours before the deadline, Belarus and Gazprom signed the last-minute agreement. Under the agreement, Belarus undertook to pay $100 per 1,000 cubic metre in 2007. The agreement also calls for Gazprom to purchase 50% of the shares in Beltransgaz, the Belarusian pipeline network.^[17] Immediately following the signing of this agreement Belarus declared a $42/ton transportation tax on Russian oil travelling through the Gazprom pipelines crossing its territory. (See Russia-Belarus energy dispute)

On December 21, 2006, Gazprom took control over a 50%-plus-one-share stake in Royal Dutch Shell's Sakhalin-II project^[18]^[19] after Russian regulators had withdrawn an environmental permit for Sakhalin-II on September 18, 2006, citing damage to salmon streams. The latter event was widely interpreted as a move by the Russian government to force a renegotiation of the Sakhalin-II deal.^[20].

[edit] 2007

In February 2007 a group of State Duma deputies proposes to give the state-controlled companies Gazprom and Transneft the right to form special armed units. The main task of the new oil military will be to protect production facilities and transport infrastructure. If adopted by the parliament, Gazprom and Transneft officials will be allowed to use weapons and arms for self-protection and for the execution of “service obligations”.

[edit] Management

As of December 2006, its board of directors consists of Dmitry Medvedev (Chairman, First Deputy Prime Minister of the Russian Federation), Alexei Miller (Deputy Chairman), Alexander Ananenkov (Deputy Chairman), Burckhard Bergmann (Chairman of the Executive Board of E.ON Ruhrgas AG, member of the Executive Board of E.ON AG), Farit Gazizullin, German Gref (The Russian Federation Minister for Economic Development and Trade), Elena Karpel (Head of the Department for Pricing and Economic Expert Analysis, Member since June 25, 2004), Mikhail Sereda, Boris Fyodorov (Gazprom’s Shareholder), Viktor Khristenko (The Russian Federation Minister for industry and energy) and Igor Yusufov (Special Envoy of the RF President for International Energy Cooperation and Ambassador at Large of the RF Ministry of Foreign Affairs) [21].

Former Members of the Board: Alexandra Levitskaya (until June 25, 2004).

Gazprom's Management Committee as of December 2006: Alexei Miller (Chairman, Member since 2001), Alexander Ananenkov (Deputy Chairman, Member since December 17, 2001), Valery Golubev (Deputy Chairman, Member since April 18, 2003), Alexander Kozlov (Deputy Chairman, Member since March 18, 2005), Andrey Kruglov (Deputy Chairman, Head of the Department for Finance and Economics, member since 2002), Alexander Medvedev (Deputy Chairman, Member since 2002, Director-General of Gazexport Ltd.), Mikhail Sereda (Deputy Chairman, Head of Administration, Member since September 28, 2004), Sergei Ushakov (Deputy Chairman, Member since April 18, 2003), Elena Vasilyeva (Deputy Chairman, Chief Accountant, Member since 2001), Bogdan Budzulyak (Head of the Department of Gas Transportation, Underground Storage and Utilization, Member since 1989), Konstantin Chuichenko (Head of Legal Department, Member since 2002), Viktor Ilyushin (Head of the Department of Relationships with Regional Authorities of the Russian Federation, Member since 1997), Olga Pavlova (Head of the Department of Asset Management and Corporate Relations, Member since 2004), Vasiliy Podyuk (Head of the Department of Gas, Gas Condensate and Oil Production, Member since 1997), Vlada Rusakova (Head of the Department of Strategic Development, Member since September 5, 2003), Kirill Seleznyov (Head of the Department of Marketing and Processing of Gas and Liquid Hydrocarbons, Member since September 27, 2002, Director-General of Mezhregiongaz Ltd.). [22]

Former Members of the Management Committee: Nikolai Guslisty (1997 - March 18, 2005), Yury Komarov (August 8, 2003, - May 12, 2005), Alexander Ryazanov (2001 - November 15, 2006), Mikhail Akselrod (until March 18, 2005), Boris Yurlov (until April 16, 2004), Nikolai Gornovsky (until April 18, 2003), Vladimir Leviev (until April 18, 2003), Sergey Lukash (until April 18, 2003), Vladimir Rezunenko (until June 26, 2003), Alexander Krasnenkov (until August 8, 2003).

Shares of the members of the Board of Directors and Management Committee (as of September 5, 2005, [23]):

Alexander Ananenkov - 0.00709654%
Alexander Ryazanov - 0.00513865%
Bogdan Budzulyak - 0.00443534%
Vasily Podyuk - 0.00131962 %
Elena Karpel - 0.00086595%
Vlada Rusakova - 0.00019009 %
Andrey Kruglov - 0,00006336 %
Boris Fyodorov - 0.00000422%
Alexei Miller - 0.00000027%

Others have no share.

[edit] Subsidiaries

Incomplete list by countries

[edit] Russia

[edit] 100% ownership

Astrakhangazprom
Bashtransgaz
Burgaz
Ecological and Analytical Center for the Gas Industry
Gazpromexport
Gazflot
Gazkomplektimpex
Gaznadzor
Gazobezopasnost
Gazoenergeticheskaya Kompaniya
Gazpromavia
Gazpromenergo
Gazprominvestarena
Gazprominvestholding
Gazpromokhrana
Gazpromrazvitiye
Gazpromstroyengineering
Gazsvyaz
Informgaz
Informgazinvest
Irkutskgazprom
IRTs Gazprom
Kaspiygazprom
Kavkaztransgaz
Kubangazprom
Lentransgaz
Mostransgaz
Mezhregiongaz
Nadymgazprom
Nadymstroygazdobycha
NIIgazekonomika
Novy Urengoy Gas Chemicals Company
Noyabrskgazdobycha
Science & Production Center Podzemgidromineral
Orenburggazprom
Permtransgaz
Podzemgazprom
Samaratransgaz
Severgazprom
Severneftegazprom – holder of the licenses to develop the Yuzhno-Russkoye field
Sevmorneftegaz - holder of the licenses to develop the Shtokman and Prirazlomnoe fields.
Surgutgazprom
Szhizhenny gaz
Tattransgaz
Temryukmortrans
Tomsktransgaz
TyumenNIIgiprogaz
Tyumentransgaz
Uraltransgaz
Urengoygazprom
Volgogradtransgaz
Volgotransgaz
VNIIGAZ
Yamalgazinvest
Yamburggazdobycha
Yugtransgaz

[edit] Ownership over 50%

Dialoggazservice
Ditangaz
Electrogaz
Fora Gazprom
Future Fatherland Fund
Gazenergoservice
Gazcom
Gazmash
Gazprombank
Gazpromgeofizika
Gazprom Neft
GazpromPurInvest
Gazpromtrubinvest
Gaztelekom
Giprogaztsentr
Giprospetsgaz
Krasnoyarskgazprom
Orgenergogaz
Promgaz
SevKavNIPIgaz
Sibur
Tsentrenergogaz
Tsentrgaz
VNIPIgazdobycha
Volgogaz
Volgogradneftemash
Vostokgazprom
Zapsibgazprom
Zarubezhneftegaz

[edit] Ownership 50% or less

Achimgaz (50%) - joint venture with BASF
Caspian Oil Company
GazAgroFriport
Gaztransit
Gaz-Truby
Horizon Investment Company
Novatek (19.9%)
Prometey-Sochi
RNKB
Rosneftegazstroy
Rosshelf
SOGAZ Ltd. Insurance Group (100% before 2004)
Stroytransgaz
TsentrKaspneftegaz (50%) - joint venture with Lukoil to develop Tsentralnaya field in the Caspian Sea (jointly with KazMunayGas)
Tyumen Hotel
Vega Investment Company
VIP-Premier
Vologdapromresurs
YuzhNIIGiprogaz
Zavod TBD