Russia denies plan to break up Gazprom

By bne IntelliNews May 21, 2013

bne -

The Russian government has no plans to break up Gazprom, a senior offical said on May 20, despite growing pressure on the state-owned gas giant to improve corporate governance and efficiency.

Speaking to state-owned paper Rossiiskaya Gazeta, Deputy Prime Minister Arkady Dvorkovich sought to scorch mounting speculation that Moscow is considering breaking up the behemoth in its quest to improve the performance of Russia's biggest tax payer.

The government is bringing significant pressure on the company however, one of the most palpable points being a plan to remove Gazprom's privileged monopoly on Russian gas exports. A vote in the lower-house Duma to approve a bill allowing privately-owned Novatek to export liquid natural gas (LNG), is due to take place in the next few months.

The obvious next step would be to split Gazprom into production and transport divisions. Following that, the company could be split again into international and domestic production units.

However, Dvorkovich insists that is not on the cards. "No plans are in the making to split the gas monopoly into an extraction and transportation companies," he said. "What matters most now is clear rules regulating access to the gas transportation infrastructure, as well as financial transparency within Gazprom in running different businesses, and also a clear understanding of what spending is connected with the gas transportation infrastructure."

Following that logic, in another move illustrating the Kremlin's determination to ratchet up the pressure, an audit of Gazprom's books was launched last week. The famously opaque gas giant has been dogged by corruption accusation for the past two decades, with top management suspected of enriching themselves using related party transactions.

That has resulted in the company becoming infamous for huge and unpredictable investment costs. The head of the Audit Chamber, Sergey Stepashin, said that the agency is now auditing Gazprom for the first time in five years, with the results due in November.

However, despite the problems at the company, Gazprom's sheer bulk allows it to perform as a geopolitical tool. The Kremlin would not be keen to see that power weakened.

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