The Guardian: Russia’s power play in Europe

In the second of three reports looking at Russia’s growing financial muscle at home and abroad, we focus on Gazprom, its biggest company, and to many in the west a tool of the Kremlin’s expansionist ambitions

Terry Macalister in Moscow
Thursday April 12, 2007

The neon-topped tower block surrounded by guard posts and 12-ft high steel fencing is a fitting environment for an energy behemoth that is feared and respected in equal measure. Inside the building the atmosphere is equally intimidating. More security checks – more reluctant cooperation – and then a procession of long corridors and silent lift journeys to the top floors. Welcome to Gazprom, a company with the biggest gas reserves in the world and the biggest public relations headache on the planet.

The Russians insist this is just a normal commercial organisation going about its business of selling energy supplies to make money. But critics see this partly state-owned group as a sinister instrument of the Kremlin’s attempts to use energy as a tool of foreign policy.

That concern was heightened when Gazprom turned off the taps to Ukraine in January 2006 and then threatened to do the same to Belarus unless much higher prices were paid. Concerns have increased along with pressure on foreign firms such as Shell and BP to hand over parts of their Russian assets to Gazprom.

And many British political and energy figures have been on red alert since Gazprom told the Guardian last year that it wanted to buy a large supply company such as British Gas as part of its plans to raise gas sales fivefold.

The stark surroundings at Gazprom change on entering the sumptuously furnished boardroom of the director in charge of exports, but the atmosphere does not. Alexander Medvedev shows no sign of recognition as I enter his room. I remind him we met in London last year. “I know,” he says without moving a muscle.

He denies calmly that Gazprom is a tool of the Kremlin: “That is a very simplified view. Obviously, there is state majority ownership and a [state] majority of seats at board of director level, but the rest of the stock is freely floated in Russia and on western stock exchanges and all the shareholders have the right to influence company policy.”

No one can deny Kremlin connections are deep. The chairman is Dmitry Medvedev (no relation), first deputy prime minister of the Russian Federation, while German Gref, the trade minister, is on the board as is Viktor Khristenko, the energy and industry minister. Igor Yusufov, “ambassador at large” for the ministry of foreign affairs, is also represented.

Neither does the company’s formal business plan make little effort to hide its ambitions to be a player on the world stage. A Gazprom website confirms the company is pursuing “the strategic objective of becoming a global energy leader”. While it currently provides a quarter of Europe’s gas needs, this is expected to rise to a third after 2010 – even without any new supply deals being signed.

But many European countries have become nervous about Gazprom’s power over energy because of its tough approach to supply in many former Soviet states. Its decision to cut off gas to Ukraine in January 2006 over a price dispute convinced many in the west that this was a Kremlin warning to that country not to stray from its close connections with Moscow and seek protection from America.

Mr Medvedev brushes this aside. “I can tell you with full authority that I don’t feel any pressure or influence from the Kremlin. Obviously questions are put on the board of directors’ agendas related to the interest of the state but very often inside the representatives of the state there are different opinions.”

Mr Medvedev expresses frustration that Gazprom’s business is interpreted in the context of some kind of new cold war. But David Clark, a former special adviser in the Foreign Office and chairman of the Russia Foundation, believes there is no question Gazprom is being used by Vladimir Putin to progress his foreign policy.

“I do not believe in the Pearl Harbour scenario where Europe suddenly becomes completely dependent on Gazprom and the Kremlin shouts ‘Gotcha’; it’s more subtle than that,” he says. “I do think there is a process of Finlandisation going on under which European politicians will eventually end up realising it is not in their interests to get on the wrong side of the Kremlin.”

Twelve months ago Mr Medvedev told the Guardian that Gazprom was looking at buying a British firm. The share price of Centrica, owner of British Gas, soared but the revelation also triggered a wave of concern from politicians such as the former energy minister, Brian Wilson, who feared it could lead to a dangerous dependency on an a politically volatile country.

The heat in the issue has not gone away. The heads of Britain’s leading energy consumers’ organisations joined forces last month to call on the EU to stand up to Russian power in the energy sector and play by common rules.

Andrew Bainbridge, director general of the UK’s Major Energy Users’ Council, said: “Gazprom is feared and distrusted, is not investing in its infrastructure and is buying downstream supply assets in order to exert control over Europe’s domestic supply networks. It is up to Gazprom to prove by its future actions and not by its promises that it will be an honourable and reliable supplier.”

The concerns over Gazprom start from the sheer scale of the enterprise: it has 400,000 staff and is the biggest natural gas company in the world, with 155,000 km of pipelines and around 30 trillion cubic metres of gas reserves worth £70bn.

It was set up by Mikhail Gorbachev in 1989 and now owns more gas and oil reserves combined than anyone barring Saudi Arabia and Iran. Gazprom has also moved into banking, agriculture and construction. It even owns part of the media.The group acquired NTV, Russia’s only nationwide state-independent television station in 2001 and 18 months ago took control of one of Russia’s most influential newspapers, Izvestia.

But the issue that worries most is the hold it has over vital energy supplies to many nearby countries such as Finland, Slovakia and Bulgaria, which are 100% dependent on Russia for gas, while 66% of Turkey’s gas comes from there, as does 41% of Germany’s and a quarter of France’s. It only provides 2% of UK gas imports but plans to make that 10% by 2010 and has started an aggressive expansion programme here.

It has set up a trading business in the UK, bought a small supply firm, Pennine, and announced plans to take an ownership stake in a strategic gas pipeline, BBL, which runs between Britain and Holland.

http://business.guardian.co.uk/story/0,,2055126,00.html