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Russian Gas Giant Acknowledges Billions in Loan Guarantees

Gazprom Annual Report Admits to Backroom Dealing

By Peter Baker

Russia’s colossal natural gas monopoly, has acknowledged for the first time that it provided $2.7 billion in loan guarantees to other companies last year, including firms partially owned by Gazprom executives or their relatives.

The revelation, contained in Gazprom’s annual report released last week, arms critics with new evidence that insiders have been profiting off the world’s largest natural gas company. It also suggests that management installed by Russian President Vladimir Putin may follow through on commitments to open up the secretive corporate giant’s books.

The backroom dealing and allegations of corruption at Gazprom have come to symbolize the problems with Russia’s transition to a market economy if for no other reason than the scale of the company and its assets. Gazprom controls one-quarter of the world’s natural gas reserves and accounts for 7 percent of the Russian economy. As the leading energy provider in Russia and throughout much of Europe, Gazprom often acts as an arm of the state, which owns 38 percent of its stock.

In the face of vociferous criticism by foreign investors and economic reformers, Putin orchestrated the ouster of long-time Gazprom chief executive Rem Vyakhirev two weeks ago and replaced him with a loyal aide, Alexei Miller. The release of the figures on Gazprom’s financial relations with other companies appears to be Miller’s first move to clean up what he inherited.

“We’re gratified that we’re starting to get some transparency,” said Charles Ryan, the American chairman of the Moscow-based United Financial Group (UFG), a brokerage house that has led the fight to reform Gazprom. “It’s hard to be half transparent, so let’s hope that this leads to more discussion.”

Documents included with the 2000 annual report show that Gazprom provided more credit than its annual profit, which is now estimated to be around $2 billion. Some of the companies might have legitimate reasons for securing credit, notably Interconnector, a pipeline company that held one-third of the guarantees, according to Ryan and other analysts.

But others are companies controlled by Gazprom insiders. Interprocom, a Hungarian firm controlled by children of Vyakhirev, former Gazprom chief executive Viktor Chernomyrdin and other company executives, was the beneficiary of $514 million in credits in 2000.