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."
East European Gas Analysis
Malvern, PA 19355, US