() (, sometimes transcribed as '''Gasprom''') is the largest
Russia n company and the biggest
Natural Gas extractor in the world. Gazprom supplies almost all the gas needs of
Central Europe ,
Eastern Europe , and the former
Soviet Union .
With sales of
US$ 31
Billion in
2004 , it accounts for about 93% of Russian natural gas production and with reserves of 28,800 km³, it controls 16% of the world's gas reserves as of 2004. After the projected acquisition of the oil company
Sibneft , Gazprom, with 119 billion barrels of reserves, would rank behind only
Saudi Arabia , with 263 billion barrels, and
Iran , with 133 billion barrels, as the world's biggest owner of oil and oil equivalent in natural gas.
Apart from its gas reserves and the world's longest pipeline network with 150,000km, it also controls assets in banking, insurance, media, construction and agriculture.
Due to large natural gas reserves discovered in
Siberia , in the
Ural s and in the
Volga region in the
1970s and
1980s , the Soviet Union became a major gas producer. Gas exploration, development, and distribution were centralized in a state ministry. In July of
1989 , President
Mikhail Gorbachev combined the ministries for oil and gas as part of his economic reforms, and later carved out Gazprom as the entity responsible for gas production, distribution, and sales.
Viktor Chernomyrdin headed Gazprom.
After the break-up of the Soviet Union in
1991 , Gazprom lost a large part of its assets outside of Russia - one third of its pipelines and one fourth of its compression capacity.
After the new Russian President
Boris Yeltsin appоinted Chernomyrdin to be his Prime Minister in December
1992 (replacing him with
Rem Viakhirev ), the political influence of Gazprom increased markedly.
As the new government was committed to economic reform, Gazprom began to be privatized, becoming a
Joint-stock Company in
November 1992 , and starting to distribute
Share s under the
Voucher Method , where every Russian citizen received vouchers to purchase shares of formerly state-owned companies. However, trading these shares was heavily regulated and the by-laws of the company prohibited foreigners to own more than 9% of the shares.
Gazprom slowly established credibility in the
Western Capital Market s with an offering of 1% of its equity to foreigners in October
1996 in the form of London
Depository Receipt s and a successful large
Bond issue of
US$ 2.5
Billion in
1997 .
In
1998 Chernomyrdin was fired from his position of Russia's Prime Minister by President
Boris Yeltsin . At the same time, the
Russian Government suddenly started demanding billions of dollars in back
Tax es from Gazprom. When tax prosecutors started to
Seize assets of Gazprom, the company gave in and paid. The company's records started showing a loss for the first time. The reasons are unclear and were explained either by an aging
Pipeline Transport network, by a management that was becoming increasingly
Corrupt , or by pre-existing losses that appeared because of more transparent
Accounting policies.
Gazprom conducted dubious transactions with
Florida -based gas-trading company
Itera and a Gazprom/Itera joint-venture,
Purgaz , in the late 1990s, which allegedly benefited various management members and their relatives. Additionally, large-scale asset-stripping of Gazprom was going on by corrupt management and board members through various transactions involving the Gazprom daughter
Stroitransgaz and the regional gas company
Sibneftegaz . The Gazprom auditor
PwC apparently had signed off and covered these transactions.
The
Investment Fund Hermitage Capital Management , a
Minority Shareholder of Gazprom, reported on the scandals in October
2000 : ''"Investors are valuing this company as if 99 percent of its assets have been stolen. The real figure is around 10 percent so that's good news"''.
Russian President
Vladimir Putin was actively pursuing reforms in the management of the company in the years following the scandals. This was aided by shareholder activism by Hermitage CEO
William Browder and former Russian finance minister
Boris Fyodorov . Putin installed
Alexei Miller , a former government employee, as the new CEO in 2001 to guide the reforms; Rem Viakhirev was moved to the position of Chairman of the Board, temporarily replacing
Dmitry Medvedev .
On 1st January 2006 at 10:00 Gazprom ended the delivery of gas for the .
During the night of January 3-4, 2006,
Naftohaz Ukrainy and Gazprom negotiated a deal that has resolved the long-standing gas price conflict between Russia and Ukraine, to the satisfaction of both parties.
On April 3-4, Gazprom indicated it would triple the price of natural gas sold to
Belarus after December 31, 2006. Unlike the Ukraine, Belarus has close political ties to Moscow and this action creates doubts about the supposed political motives of raising the Ukraine's fuel rates.
Until
2004 the Russian government held a 38.37% stake in the company, and had a majority on the company’s
Board Of Directors . Gazprom provides 25% of all Russian tax revenues (averaging over US$ 4 billion annually between 1993-2003) and accounts for 8% of the nation’s
Gross Domestic Product . Non-Russian investors may legally buy Gazprom shares only through Depositary Shares, which cost more than locally traded shares.
In
2004 , President Putin announced that Gazprom is acquiring the state-owned oil-company
Rosneft and that this will "eventually lead to the lifting of foreign ownership restrictions on Gazprom shares", as the stake of the Russian government in Gazprom will rise from 38.37% to a controlling position.
However, Gazprom was foiled both in its attempt to acquire Rosneft, and its earlier attempt to buy the core asset of
Yukos , when Yukos filed for bankruptcy in Houston. Fearing that it would fall foul of US law, Gazprom backed away from buying Yukos' main asset when the Russian government auctioned it in December 2004, leaving the more gung-ho Rosneft to buy it. After Rosneft had appropriated such a large and controversial asset, the technicalities of merging it into Gazprom became too complicated. Instead, Rosneft remained independent, to the delight of its own management. The state increased its stake in Gazprom to over 50% instead by paying cash for a 10.4% stake, thus fulfilling the main pre-condition for the abolition of restrictions on foreign ownership of Gazprom shares. At the time of writing, the market is still awaiting this move.
In September 2005, Gazprom bought 72.633% of the oil company
Sibneft for $13.01 billion, aided by a $12 billion loan from the west, which consolidates Gazprom's position as a global energy giant and Russia's biggest company. On the day of the deal the company was worth
£ 69.7 billion/US$123.2 billion, about the GDP of Ireland in 2004.
