Thursday, January 31, 2008
Gazprom - New Russian Weapon
Jan. 30, 2008 – Kommersant – ‘Gazprom, New Russian Weapon’, a book by Kommersant’s special correspondent Mikhail Zygar and Vedomosti’s Valery Panyushkin is out in February in the Zakharov publishing house. Kommersant is happy to publish excerpts of the book. Instinct of Preservation
If asked how and why Viktor Chernomyrdin created Gazprom out of the Soviet Gas Ministry, Egor Gaidar, Russia’s former acting Prime Minister replies:
“Chernomyrdin is no fool. He saw that the old ministry system of governance was falling to pieces. A Soviet ministry was a system directly linked to authoritarian power. The ministry was alive as long as orders were followed. To make sure orders are carried out, armed authority is needed. Everyone was supposed to understand that if they won’t follow orders, armed authority will send them to jail or kill. As soon as armed authority waned, it was no longer possible to govern by orders. Authority became slack by mid-1980s. Chernomyrdin had an idea that in order to preserve the gas industry people could be encouraged to work by interest rather than by force. He had an idea that a person would be working not because otherwise they would be sent to jail but because it is good for him to follow guidelines from officials.”
Gaidar says “had an idea” to describe a most complex reorganization of a colossal structure which employs half a million people now and employed one-third more in the Soviet times. Before launching the reforms, Chernomyrdin would take his employees to Germany and Italy.
“I used to say then that we needed to create such a strong system that even if a fool comes to manage it, he won’t be able to destroy it,” Chernomyrdin says. “We were studying all systems in the world taking all the best – be it technology or equipment. The system had to be fool-proof if you want it never to be broken.”
He took Italian state-run gas company ENI as a model.
“Ryzhkov was the main obstacle,” Chernomyrdin recalls.
Nikolay Ivanovich Ryzhkov, the last but one Soviet prime minister and chief economist of Perestroika, came down to history with a phrase that he is crying at night when he thinks how fast prices are growing. Papers spent a lot of issues publishing different caricatures of the weeping Ryzhkov. Ryzhkov was still shedding tears but prices were not listening to him anyway. What is more, Ryzhkov did not realize that prices would never listen to him. But the decision was up to Ryzhkov when Chernomyrdin was transforming his ministry into a concern in 1989.
Chernomyrdin says that he went to Ryzhkov with his idea of a gas concern several times. He would draw graphs, explain, talk and talk till late evening. At one of these conversations Ryzkov asked him:
“So, you don’t want to be a minister?” he still could not believe that there is something better to do in the Soviet Union than being a minister.
“I don’t,” Chernomyrdin replied.
“So, you won’t be part of the government?” Ryzhkov did not understand. “Do you realize that you’re losing everything? Dacha and all the privileges?”
“I do.”
“Is it your idea?”
“It is. Nikolay Ivanovich, it’s not the time to be a minister now. We’ll make a company.”
Ryzhkov was hesitant.
“How many deputies have you got?” he asked.
“Three first deputies and eight regular,” Chernomyrdin replied.
“You see, if I’m going to let you go, you will take twenty deputies with you!”
“Why would I? I don’t need twenty. Two deputies are fine.”
Chernomyrdin went out of Ryzhkov’s office at midnight leaving the prime minister convinced that the gas industry minister had gone mad.
Chernomyrdin was on his way to the ministry where two of his deputies informed of the plan, Rem Vyakhirev and Vyacheslav Sheremet, were waiting for him. His phone rang in the car: “The question of transforming the gas industry ministry into a gas concern is to be discussed at the presidium of the Council of Ministers tomorrow. Chernomyrdin, Vyakhirev and Sheremet spent that night in 1989 thinking how to present their reckless idea to the presidium. Chernomyrdin had only secured support from Deputy Prime Minister Batanin who promised: “I’m not going to help you because I’m against it, but I won’t oppose it either.”
Batanin kept his promise. The Council of Ministers were listening to Chernomyrdin’s speech in silence. Other ministers were perplexed. At some point, Alexandra Biryukova, deputy prime minister in charge of light industry, took the floor.
“I listened to everything that the minister has just said,” Chernomyrdin retells her words, “but I didn’t understand a word he said. But you know what, why don’t we give it a go? What are we scared of? We know him well. Everyone has always been happy with his work. If he fails – we’ll just take his head off and take everything back to place.”
The Soviet Council of Ministers had less than two years ahead of it, as much as the Soviet Union itself. Members of the presidium believed that they were still able to take somebody’s head off and get something back to place. In reality, they were not able to do anything. Soon after Gazprom ceased to be a ministry, Soviet Prime Minister Ryzhkov said at a session of the Supreme Council that prices in the USSR were artificially low and they needed to be doubled while bread prices need to be tripled. In several hours all goods were swept from shops across the Soviet Union. The country introduced a food card system. On December 26, 1990, 61-year-old Ryzhkov retired to hand over to Valentin Pavlov. Hoping to defeat the economic crisis Pavlov was trying to put a monetary reform in place. It did not help to put the country back on track but embittered people more after they lost their savings in the reform.
The Soviet Union was crumbling down. Governments of many republics openly defied decisions of the Soviet government describing them as interference into their internal affairs. Gazprom was the only structure in the country to have a firm grip on its property – all pipelines and fields in the Soviet Union.
On August 19, 1991, Soviet authorities took the last attempt to keep themselves afloat. Soviet Vice-President Yanayev, KGB Chairman Kryuchkov and Defense Minister Yazov attempted a coup d’etat to oust Soviet President Mikhail Gorbachev. Prime Minister Pavlov was also there to support them. The attempt failed. The plotters met with resistance not from President Gorbachev, who was under house arrest at his dacha in Crimea, but from Russia’s President Boris Yeltsin who drew people to the streets in Moscow winning support of the people and later the army.
In reality, from this moment on the Soviet Union and all of its ministries were no more. In terms of law, the Soviet Union ceased to exist in December 1991 when Presidents of Russia and Ukraine Boris Yeltsin and Leonid Kravchuk and chairman of the Belarusian Supreme Council Stanislav Shushkevich signed the Belavezha Accords.
The world’s biggest gas producer Gazprom, which was extracting over 800 billion cu. meters of gas a year, had a 160,00 km pipeline network, owned 350 flowing plants, 270 field installations for gas preparation, several thousands of wells and dozens of underground storages, has lost one-third of its pipelines, one-third of deposits and one-fourth of flowing plants’ capacity.
But unlike any Soviet ministry, it has survived
Byzantium
After the dismissal of Evgeny Primakov, the struggle between his team and the Kremlin did not cease but gained new vehemence. A camp of those opposing the president’s administration hastily drew together former Prime Minister Evgeny Primakov, Moscow Mayor Yuri Luzhkov and media tycoon Vladimir Gusinsky, owner the NTV channel. The offended Rem Vyakhirev went forward to help them against the Kremlin.
“Primakov and Luzhkov were much closer to him,” Alexander Kazakov says. “This is where their policies toward NTV arose from. It was all agreed, I’m sure of that.”
“Gazprom threw its political support behind Primakov and Luzhkov and was active playing against us,” former head of the Russian president administration Alexander Voloshin recalls. “They were sure that the Kremlin was already dead. Rem Ivanovich [Vyakhirev] really thought the Kremlin had lost everything. He was afraid of a direct confrontation but Gazprom spent a lot of money on them. Rem Ivanovich was trying to be cunning.”
Rem Vyakhirev started another battle against the government. He had no idea that this was going to be his last one.
A cheeky news conference was the first step.
“I work as the chairman of the managing committee, and I’m going to be working as such until my term expires,” he said opening the conference. “I’ve never seen a paper more stupid than that,” he said referring to the trust agreement and promised to “give anyone” the right to vote by the company’s state share. As for Minister Kalyuzhny, Vyakhirev said he had never heard of him. As if parroting Boris Yeltsin who spent a lot of time searching for a successor, Gazprom’s CEO named his potential successor – his long-standing first deputy, Vyacheslav Sheremet.
The first front collision between the Kremlin and Gazprom occurred at the AGM on June 30 which was to elect a new board of directors. A day before that, Prime Minister Sergey Stepashin and head of the presidential administration Alexander Voloshin visited Rem Vyakhirev in his office at Gazprom on Nametkina street. No chief executive had been honored with such a high-profile visit before. Stepashin secured Vyakhirev’s approval of the list of would-be members of the board. He also asked Vyakhirev to elect five representatives of the government for the board, not four as before. He said that the state holds 37.4 percent in Gazprom, so the number of seats on the board would be 4.7. The two officials also recommended Viktor Chernomyrdin for the chair of the board. It is no surprise that the Kremlin picked the former prime minister. Unlike Vyakhirev, Chernomyrdin had never been a fan of Primakov and Luzhkov. What is more, he could not forgive the two for shattering his prime minister and presidential dreams. Therefore Chernomyrdin was to become the Trojan horse which would fight against Primakov and Luzhkov from the inside of Gazprom.
Voloshin, Stepashin and Vyakhirev had a long conversation. But the shareholders’ meeting made their own choices the following day electing four governmental officials for the board again. But Chernomyrdin was elected chairman.
Stepashin was ready to forgive Vyakhirev for that liberty, but Voloshin was enraged and asked the prime minister “not to pick up trash and let others treat you like this”. Voloshin assured Stepashin that Gazprom would become so powerful before the election that it would be very dangerous. Stepashin, however, thought that another conflict with Gapzrom would only create unnecessary tensions before the election.
“As the prime minister you gave an instruction who was to be elected. But they threw them away! Who did that? Rem Ivanovich decided by himself. We must change everything now, call an extraordinary meeting and re-elect the board,” Voloshin was saying in a rush.
“It’s a major company… How is the market going to react?” Stepashin was hesitant.
“They spit in you face! Come on, call the session, call Vyakhirev and no more talking.”
Stepashin obediently called the session to his office. Once everyone got their seats, Rem Vyakhirev took the floor as if he were a host. He said he knows why Stepashin invited everyone – “someone is not happy with the elected board”. But nothing wrong happened, he said. The state and Gazprom have always stood for the same causes, and it will always be this way. He said he cannot understand where all these accusations come from. Stepashin was nodding, saying that Vyakhirev is right and everyone in the government knows that Gazprom is a big company, and no hasty conclusions should be made, but everyone will learn this lesson to make amends in the future.
Voloshin took the floor and abruptly said that Gazprom must hold a shareholders’ meeting and re-elect the board of directors. He then went up and made it to the exit. When Voloshin was already in the doorway, Stepashin closed the session by saying: “Alexander Stalyevich [Voloshin] is right after all.”
This episode became fatal – not for Vyakhirev but for Stepashin. His chances to win the right to become the successor were evaporating.
An open battle between Gazprom and the Kremlin opened in summer 1999 between the election of the first and second board of directors. Gazprom reported $1.8 billion losses for the previous year and said that shareholders including the state would get no dividends. It meant that Gazprom was not going to finance the Successor operation. It also meant that Gazprom could throw its support behind any candidate.
Meanwhile, NTV, owned by Gusinsky and Gazprom, became increasingly criticial of the Kremlin and boosted support for Luzhkov and Primakov. The Kremlin demanded that Gazprom as a major shareholder in NTV influence the TV channel’s policies and tone down blistering criticism of the Kremlin. But Vyakhirev did not lift a finger.
It got worse in August. Yuri Luzhkov’s Fatherland party and the bloc of governors All Russia united. The grandeur of the structure clearly indicated Gazprom’s lavish financing. Sergey Stepashin got his last chance before this unification. On August 3, Alexander Voloshin held desperate talks with leading governors from All Russia trying to persuade them to become the party in power and put the prime minister as number one on their party ticket. But Stepashin said at the very last moment that he would not join any political bloc. He was never forgiven for fleeing the battle-field. The prime minister was sacked one week later. It took three days, from August 6 to 8, to finally confirm Boris Yeltsin’s suspicion that Stepashin is way too weak. Events on the North Caucasus also contributed to that. Yeltsin agreed to fire Stepashin after a Wahhabi group invaded Dagestan.
In a TV statement on September 9, Boris Yeltsin named the new prime minister, Vladimir Putin, and said that this is the person he would like to see as president in 2000. Other candidates have left the short list.
The new prime minister had to start from taking on Vyakhirev. The next day after Putin was appointed, Viktor Chernomyrdin was called to the Kremlin. Gazprom’s chair of the board listened to the list of accusations against his colleague Rem Vyakhirev ranging from his lack of action in relation to NTV to financing the parliamentary election campaign for Primakov and Luzhkov. Chernomyrdin had nothing to say. Following the meeting, Chernomyrdin went out to reporters and said with an unmoving face that the president “supported Rem Vyakhirev”. But one look at him was enough to understand that Vyakhirev was one inch away from the abyss. The following day, Le Monde published an interview with tycoon Boris Berezovsky who told the French newspaper that Rem Vyakhirev “is acting in an unacceptable way supporting Luzhkov” and “Vyakhirev’s dismissal is inevitable” since “it is ridiculous that the financial potential is being used against the president and the government”. People in the Kremlin were busy discussing different scenarios, one of which was to oust Vyakhirev from the post of the chair of the managing committee. Boris Berezovsky was among those who insisted that Vyakhirev be dismissed. In one of the most elaborate plans, a shareholders’ meeting was to be scheduled for August 26 while Rem Vyakhirev was celebrating his 65th birthday on the 23rd. He was to be invited to Yeltsin to receive congratulations and a state decoration. But Vladimir Putin was to meet Vyakhirev right before the president’s office “accompanied by national security and army chiefs”. They were to show Vyakhirev a folder with so much compromising information on him and his children that there was no way he would not step down then.
Rumors about these plans and daily coverage on state television were enough for not very courageous Rem Vyakhirev. He spent his birthday on the tenterhooks. Foreign leaders showered him with gifts but an invitation from the Kremlin never came. Boris Yeltsin sent a congratulation telegram while Vladimir Putin sent him a diploma “For Services to the State in Development of Russian Gas Industry, Ensuring Stable Gas Supply for the Economy of the Country and Long Reliable Work”.
Apart from spreading alarming rumor the government took some resolute steps. Offices of several subsidiaries of Gazprom, including Gazsibkontrakt and Sibur, were searched.
A shareholder’s meeting on August 26 went as smoothly as ever. Five representatives of the government were elected to the board of directors. Rem Vyakhirev kept his position. State Property Minister Farit Gazizullin said that documents to prolong the trust agreement with him were being prepared.
“I want like to hold both of the elections, and then, you know, start leaving this stuff,” Vyakhirev said before the voting for the second board of directors. He has never come in conflict with authorities after that.
The Successor Operation
Unlike Vyakhirev, Alexey Miller was not a gas industry professional. He did a degree at the St. Petersburg Financial and Economic Institute and went to work for Anatoly Chubais a few years after the graduation. Chubais, the new first deputy chairman of the City Executive Committee in Leningrad [now St. Petersburg] and chair of its economic development committee, was looking for young people with economic background. In the economic development committee, Miller was running a project to transform Leningrad into a free economic zone, but the idea was soon dismissed as hopeless. Anataly Sobchak was elected St. Petersburg Mayor in summer 1991, the City Executive Committee was abolished, and Chubais moved to Moscow in November to head the State Property Committee.
“Miller was the weakest in Chubais’s team,” one of his former colleagues says. “That’s why Chubais didn’t ask Miller to go to Moscow with him.”
Those people from the City Executive Committee who did not follow Chubais went on to work in different committees of the newly set-up St. Petersburg city hall. Miller was one of the few who found himself in the foreign relations committee which was then run by future President Vladimir Putin.
In 1996, Mayor Anatoly Sobchak lost the election to Vladimir Yakovlev. Sobchak and Putin’s team left the city hall, and Miller went to work at Sea Port of St. Petersburg as director for development and investment. In 1999, Miller was appointed director general of Baltic Pipeline System and was running the company without any particular achievements up until 2000 when his former boss Putin invited him over to Moscow.
Those who worked with Miller in St. Petersburg recollect that Miller “would listen to you attentively and take everything down in his notepad”. Miller was never the one to make big decisions right away. He would spend several days over his notes and would probably ask somebody for advice.
“Miller is a pretty good functionary, an almost ideal deputy but that’s it,” the former colleague of him says. “He has no initiative whatsoever. He is trying not to take any decisions that are not sanctioned by authorities and avoids any responsibility.”
“His major advantage is the ability to take a good bow,” another colleague of him recalls. “He was walking the line. Absolutely plain. He was living like a shadow and serving like a shadow…”
Indeed, Millers reminded of a shadow during his first months in Gazprom. He was almost always locked in his office where he would arrive early in the morning and leave after midnight. Gazprom managers recall that he was entering his own office on the fifth floor in such an insecure manner as if he were afraid that someone would drive him out of there. It took him a while to get used to the idea that he was now the master of Gazprom.
“Millers struck everyone as amazingly hard-working,” says Alexander Semenyaka, former head of Gazprom’s financial department. “He would come at eight in the morning and leave at midnight. Unlike then, he is almost always away now.
Miller was trying to get a good idea of everything, Semenyaka says. He was a nice person to talk was, interested in pretty much everything but afraid to make decision on the spot. He would hold meeting, hear his subordinates out and make decisions several days later. He also made it a point to demonstrate succession.
The only snag to it was that there was hardly anyone in Gazprom who thought that Miller would be able to keep the position for at least one year. Despite overwhelming support from Putin, Miller had a hard time at Gazprom at the start. On October 29, the Strana.ru website posted a report citing a source in the presidential administration that said Miller had allegedly handed in resignation as Gazprom’s CEO. The article was taken off the website and the source was fired from the administration. It is still not known whether Miller really handed in his resignation. But clearly his resignation would never have been accepted as it would mean Putin was admitting he made a mistake by appointing Miller at the head of the country’s biggest company. Miller was like a ship never to sink not because he made no mistakes but because Putin was ready to overlook them. Once Vyakhirev said to close friends: “Miller will hang himself in a month.” One month was over but Miller still would not hang himself – at least because no one allowed him to.
On July 31, 2001, Vyacheslav Sheremet was celebrating his 60th birthday. The party attracted not only his old friends but Alexey Miller as well. “Everyone was saying toasts,” a person from the party recalls. “Vyakhirev and other Gazprom people were congratulating Sheremet. Then Miller took the floor. He was terribly nervous and embarrassed. The guests were looking at him with sympathy. Finally, Miller could not think of anything better than reading out a congratulation telegram from then Energy Minister Igor Yusufov. After that, Miller finally retired to the background and left very soon.”
One month later, Miller stripped the 60-year-old Sheremet of the right of the financial signature and oversight over finances at Gazprom. Another month later, high-placed guests from Sheremet’s birthday party who were sneering at Miller’s awkwardness while reading of the minister’s congratulation had to leave their positions in Gazprom to give way to new people. In early September 2001, Miller overhauled Gazprom’s personnel. Among those ousted were Rem Vyakhirev’s staunch allies, Alexander Pushkin, who ran gas business in countries of the former Soviet Union, and top manager Nikolay Guslistoy. St. Petersburg native Pyotr Rodionov, who was known to be opposed to Vyakhirev, became Miller’s confidante for a short while. But Rodionov never got the right of the financial signature and was fired several months later.
Like Putin, Alexey Miller was shaping his team in Gazprom giving preference to friends and people from his home town. For example, Miller appointed his St. Petersburg friend Elena Vasilyeva chief accountant. Until this moment, the biggest company she had worked in was Sea Port of St. Petersburg with profits of $19.5 million. Now Vasilyeva had to be responsible for balance sheets of a concern with export revenues worth dozens of billion dollars and provide one-fourth of Russia’s tax receipts. Apparently, it was not professional qualities of the applicant but her personal loyalty that played the crucial role in the appointment. Miller had worked in the same companies as Vasilyeva and had already been her boss.
New appointees had little regard for Gazprom’s old-timers. Former head of Gazprom’s board of directors Alexander Kazakov recalls the day when Vasilyeva appeared: “I went to work and saw a lady in my office. She said she liked my office and asked to take my things out of there. What was I to do? I didn’t want to force her out.”
A few months later, Kazakov resigned.
A lot of Miller’s old acquaintances who were fortunate to have worked with him at Sea Port of St. Petersburg or Baltic Pipeline System made a dazzling career at Gazprom.
“I was aware that I had to go and hand my post to somebody from Miller’s circle,” Gazprom’s former main financial official Alexander Semenyaka recalls. “Gazprom has always been a caste-based company, and the new team made a clear distinction between their people and the old-timers. I was clearly an old-timer in their eyes.”
In April 2002, Semenyaka left Gazprom to hand over one of the company’s key financial department to Miller’s 32-year-old friend Andrey Kruglov. The St. Petersburg native made a brilliant career in just two years to become Gazpom’s financial director.
The personnel reshuffle at Gazprom was swift. Semenyaka recalls that one top manager went to work to see that his entrance card was not working anymore. Another one was summoned to Moscow from holiday to hear: “You’re fired.”
Over less than two years, Miller’s former subordinates at Sea Port of St. Petersburg Kirill Seleznev moved up the career ladder from the CEO’s aide to director general of Mezhregiongaz, responsible for the sale of gas on the Russian market. The office of the board was headed by Miller’s co-worker from Baltic Pipeline System, Mikhail Sereda.
Another key department, the property one, was entrusted with another St. Petersburg friend of Miller, Alexey Krasnenkov, director general of Astoria Hotel. Astoria became a joint-stock company in October 1995 when Vladimir Putin was working at the St. Petersburg city hall. However, Miller had to sack Krasnenkov less than a year afterwards following a scandal over advertising and sponsorship spending which was oversight by the property department. Krasnenkov left the company but he still takes an active part in its property deals and sits on the boards of Gazprombank, Sibur, Stroitransgaz and Nortgaz reaping annual remuneration of several million dollars there.
Non-Gazprom people viewed those changes as random. But Gazprom insiders say that the reshuffles were carried out under a well-thought plan based on a good knowledge of the company. Miller was putting his people on key positions as quickly as possible for the trustees to gain control over Gazprom’s financial flows as soon as possible and seize Vyakhirev’s assets which had been withdrawn from the company. Former chief of Gazprom’s security service Sergey Lukash says that each of the key appointments at Gazprom was agreed with the president personally.
# posted by Deval : 5:36 PM
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