Russia's power play in Europe
Pastor Dale Morgan
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 Guardian
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.