Washington Should Be Wary Of Russia's Oil Monopoly

Beware of Russians bearing gifts - especially in the form of gigantic "win-win" deals. In this case, we are talking of Rem Vyakhirev, who recently made the rounds in Washington. He is an old friend and protg of Russian Prime Minister Viktor Chernomyrdin who, by extension, has become a great pal of Vice President Al Gore.

Vyakhirev is chairman of Gazprom, Russia's "privatized" natural-gas monopoly, which enjoys an unusually unsavory reputation in a land of Wild West capitalism that would make our 19th-century robber barons, by comparison, look like Protestant pastors.

Gazprom's boss is in search of loans for his company - and without question, Gazprom could stand an infusion of capital. For years the company has skimped on investment, allowing its plants and pipelines to deteriorate. There is virtually no training or skills-development - at times its 367,000 employees have gone without pay. Moreover, management has taken inefficiency to new heights: Exxon generated $100 billion in revenues last year and Gazprom about $13 billion. But Exxon ran its worldwide empire with just 95,000 workers - making its work force some 30 times more efficient than Gazprom's.

Closed books

Yet the firm, a Stalinist-era industrial behemoth, inspires big ideas. It has exclusive control of Russia's natural gas, one-third of the world's reserves. How much all this is worth is not known, but estimates range up to $700 billion. How much profit it could generate is also questionable - because while Gazprom is among the world's biggest corporations, it is also one of the most opaque. No one outside its own corporate suite has seen the books. Price-Waterhouse, its own auditor, is uncertain about the company's assets.

Balance sheets aside, however, Gazprom has structural problems that are nearly without equal. By law, the company cannot cut off supplies to Russian electric utilities - its principal domestic customer - even though they frequently owe money. Worse, individual Russian consumers rarely pay their electric bills, and foreign purchasers in Eastern Europe are not much better.

But what one hand takes away, the other gives back. Gazprom has benefited from unilateral presidential decrees - not legislation - that provide it unique tax benefits not available to the rest of Russia's industrial enterprises. Though it was supposedly privatized two years ago, Gazprom enjoys a very special status. It is still quasi-state-owned - the Russian government is the largest shareholder, with some 40 percent of the corporation's common stock.

Until now, the shares have been held at artificially low prices. How? First, the market has been limited; second, there are restrictions on stock trading; and third, arcane procedures effectively prevent most of the 60,000 workers and others from selling their shares. Insiders - including Chernomyrdin and Vyakhirev, who together control over 3 percent of the shares - and selected others stand to benefit greatly if new capital is found in Washington. A cash infusion, properly used, would drive prices up sharply. Not to put too fine a point on it, this sort of cozy arrangement not only infuriates most Russians but confirms their worst suspicions that capitalism is greed dressed in rules and suits - with democracy the unwitting handmaiden.

Washington meetings

Ironically, properly managed, Gazprom could go some distance in providing Moscow the revenue needed to pay its bills. Instead, in this electoral season, the International Monetary Fund, nudged by Washington, will provide a $10.2 billion loan that allows Moscow to meet its obligations to pensioners and workers - not to mention the soldiers now occupying Chechnya.

Vyakhirev, flashing his friend-of-the- prime-minister credentials, met with senior officials at the State and Treasury Departments and the chairman of the Ex-Im Bank. Mr. Gore's office would neither confirm nor deny that the vice president met with him. The financing Vyakhirev seeks would fund a new pipeline through Belarus and Poland linking Russia with Western Europe, which receives one-quarter of its gas from Moscow.

For an administration struggling to demonstrate foreign-policy prowess, one would think that Gazprom's agenda would have no place in Washington. Moscow's cynical denial of energy to Ukraine last February, while President Leonid Kuchma was visiting here, clearly demonstrated Moscow's willingness to use the resource weapon.

Russian leverage

So why is the Clinton administration even considering supporting the Gazprom agenda? Why support obsolete Soviet gigantism - and its stranglehold on one of Russia's key industries?

Finally, for those familiar with the geopolitical dynamics of Western Europe's dependency on Russian energy, the administration's policy invites liability on an unacceptable scale. Whether under Soviets or Russians, Moscow has used that leverage for political gain. West Europeans have finally gotten the message and are seeking diversity - the Germans and the French, for example, have shifted their purchases to North Sea and Algerian gas . Why should Washington reverse this healthy trend?