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Gazprom: rising star of new Kremlin capitalism

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Although Gazprom executives, rather than Russian diplomats, were the first to bring the bad news of higher prices to post-Soviet capitals, the company denies any political motives.

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Gazprom's top public relations official, Anastasia Ivanova, insists that the Rus- sian government – which owns 51 percent – is "just a shareholder" and says the company's only goal is to commercialize the energy business and bring "normal market relations" to the former USSR after years of politically motivated subsidies from Moscow. "It is absolutely incorrect to say that Gazprom is an instrument of Rus- sian government foreign policy," says Ms. Ivanova. "Gazprom is a company with mixed capital, whose management works according to the rules laid down in the company charter."

The government has, however, taken extraordinary steps to spur the company's growth. Last year the Kremlin-dominated State Duma, the lower house of parliament, passed a law giving Gazprom the sole right to export Russian gas, squeezing out independent producers. The energy giant has also benefited from the government's pressure on foreign companies with shares in Russian oil-and-gas projects.

In December, Shell threw in the towel after being accused by the state of massive ecological violations in the Pacific-coast Sakhalin-2 project it managed, and agreed to sell 50 percent of its stake to Gazprom at a substantial discount.

Other foreign companies with stakes in Russian oil-and-gas projects coveted by Gazprom have found themselves under similar pressure from law enforcement and state environmental agencies. Experts say the next likely target is the British-Russian joint venture TNK-BP, which runs operations at Russia's largest natural-gas field, Kovytka in eastern Siberia. The state licensing agency Rosnedra is threatening to revoke the company's permit over a list of alleged violations, ranging from illegal logging to failing to meet production quotas.

Critics say state agencies like Rosnedra are clearly acting in cahoots with Gazprom, using tactics aimed at restoring key resources to state control while expanding the energy firm's grip.

"Sometimes it looks like a tail-wagging-the-dog situation," says Igor Tomberg, an expert with the independent Center for Energy Research in Moscow. "Gazprom is clearly part of the Kremlin's economic strategy, but at the same time the state works to improve Gazprom's market position, to help it expand beyond Russia's borders, and so on."

$262 billion company

Assembled from assets of the former Soviet Gas Ministry and largely privatized in the 1990s, Gazprom holds about a quarter of the world's natural-gas reserves and is currently valued at about $262 billion. According to company figures, its net profits increased from $490 million in 2001 to $11.7 billion in 2005. The jump was largely due to soaring global energy prices but, experts say, also reflecting the Kremlin's growing discipline over the company.

In 2005, the Russian government increased its former minority stake to a controlling 51 percent, and Deputy Prime Minister Dmitri Medvedev, a top Kremlin aide and potential Putin successor, was appointed as the company's chairman.

Beyond its rapidly growing oil-and-gas empire, Gazprom has its own bank, an insurance company, and recently purchased the Zenit football team in St. Petersburg. Another wing, Gazprom-Media, has been widely criticized for buying up vibrant media properties, such as the independent NTV network and the central newspaper Izvestia, and turning them into Kremlin mouthpieces.

"The private share of the economy is shrinking rapidly," says Ms. Shevtsova. "The logic of bureaucratic capitalism is to grab more. Soon all the juiciest chunks of the economy will be under state control."