Gazprom pipelines and export capacity

Gas pipelines of West Siberia

Export flows of Gazprom

Gas prices


Putin's math of Gas War


Why do shareholders ignore Gazprom's Swiss link?

Financial Times, July 20, 2006

Sir, Dmytro Firtash makes hundreds of millions of dollars a year, not because he can sell gas at a higher price than Gazprom (FT Investigation, July 14). His wealth is based on the discounted price of gas offered by the Russian gas monopoly. According to financial reports, in the first half of 2005 Gazprom was selling Russian gas to RosUkrEnergo at $93 per thousand cubic meters (mcm). In the second half the price was reduced to $80, which is the only price reduction reported by Gazprom last year. Note that RosUkrEnergo exports gas to Europe, where the average border price increased from $174/mcm in the first half to $205 in the second half of the year.

It is unclear why Gazprom preferred RosUkrEnergo over its fully-owned German subsidiary, ZMB GmbH, which has an impeccable reputation and long experience of selling Central Asian gas to Europe and the former Soviet states. Gazprom does need a foreign broker to ship Central Asian gas through Russia without paying export duty.

A fully-owned foreign branch of Gazprom would do a better job because all operating profits would have stayed in Russia for taxation and dividend payments. In case of RosUkrEnergo, half of the profits go to Mr Firtash and Ivan Fursin, half-owners of the Swiss company.

In 2005 RosUkrEnergo made a profit of $740m. Half of it went to Messrs Firtash and Fursin. Notably, RosUkrEnergo has decided to pay 96 per cent (yes, 96 per cent!) of its 2005 profits in dividends. It does not look like a dividend policy of a reliable long-term partner. We estimate the net profits of Messrs Firtash and Fursin this year at about $3m a day, up from $1m a day last year.

Why do western shareholders turn a blind eye to the special relations of Gazprom and RosUkrEnergo? They don't want to kill the golden goose when the monopoly's shares are bringing huge profits. Karl Marx said: "With adequate profit, capital is very bold; a certain 100 per cent will make it ready to trample all human laws." Respectively, if the profit is below that rate, the law has a chance to strike back.

If the market value of Gazprom grows too little or declines, lawsuits are inevitable, especially from US investors. That would be a practical test of Marxism and a serious blow to Gazprom. As President Vladimir Putin likes to quote: "The law is harsh, but it is the law."

Mikhail Korchemkin


East European Gas Analysis

Malvern, PA 19355, US 




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