Medvedev, soft spoken, competent and worlds apart from the old Soviet apparatchik, made himself known at the 2007 Davos World Economic Forum with a speech – in retrospect a kind of business card issued to the great and the good – that not only named the chief Russian weaknesses but also the ways and means to tackle them. Among the weaknesses he listed the dangerous dependence on the export of resources and, therefore, on the swings of world markets, the miserable demographic situation, the weak infrastructure, the decline of the educational system and, worst of all, endemic corruption. Medvedev argued for more openness towards the West, invited Western investment and Western technology but also promised vast investment in education, research and development. He is young enough to think of the world after oil and natural gas. He is also aware that Gazprom’s known gas reserves are enough, at current production rates, for almost 180 years. And he must be painfully aware that without very major investment in pipelines, pumping stations and new exploration and extraction huge problems lie ahead – problems not only for Gazprom but for the whole of Russia. As President, the man from Gazprom has a painful agenda to deal with.
The rise of Gazprom over the past decade has been the rise of Russia. Gazprom, going with the tide of energy prices, was the beneficiary not only of a stable business cycle among Western industrialized nations, leading to ever-increasing demand, but also of the rise of China and India and their ever growing thirst for energy in whatever form – and at whatever price. Natural gas, moreover, answers the prayers of Western nations for environmentally compatible energy, thus putting a virtuous premium on Russia’s chief commodity.
By land, by sea and everywhere
Throughout Russia, Gazprom is by far the most popular company. In a recent opinion poll one in two Russians named Gazprom as the workplace of their dreams; they may have been thinking less of Siberia’s unforgiving winters and mosquito-filled summers and more of the regular pay, the generous benefits, the assured pensions, the prestige, the housing, the hotels and hospitals the company runs, in a tradition from Soviet times. In order to attract the key personnel needed for research and development in Siberia, Gazprom does indeed, on top of high salaries, have to offer incentives otherwise unknown.
Putin’s favourite football club is Zenit St Petersburg, who won the national championship in November 2007. Not difficult to guess who the main sponsor might be. Alexei Miller, head of Gazprom, also owns the media conglomerate Gazprom Media. Both Izvestia and Komsomolskaya Pravda, the two most influential newspapers of the country, are owned by Gazprom Media. Izvestia, in earlier times a serious paper, is now part of the popular press, selling juicy but non-political stories after most of the more critical minds have left the paper. Komsomolskaya Pravda likewise would not dream of criticizing people in high places. Most conspicuous in this kind of streamlining is the TV station NTV (Independent TV). Throughout the 1990s the station could be relied upon to ruffle government feathers, but after it was taken over by the gas giant most of the journalists moved to the New Times and the Moscow Times. Film production, too, is taken care of through NTV-KINO. The internet is not left out, the popular videoportal RuTube (analogous to YouTube) is now also part of Gazprom’s omnipresence. Gazprom Media makes sure, meanwhile, that the media are friendly towards Putin and his people. One way or the other: Gazprom is Russia, and Russia is Gazprom.
A state corporation
In the Kremlin’s strategy under Putin ‘reprivatization’ – undoing the privatizations that took place under Yeltsin – has become the guiding principle of economic policy, certainly in the key areas of technology and resources. In this, Gazprom is the leader. Putin, however, in November 2007 reassured German business leaders by saying: ‘The development of state corporations is not an end in itself. They were created in order to mark the vectors of development in those areas where private business does not like to be involved. We shall not keep those state corporations for ever. We are not going to develop state capitalism; that is not our way. But without support from the state we will not be able to reconstruct some important segments of the economy.’ Putin added, somewhat cryptically, that those state corporations should ‘function under free market conditions’.
For the time being and far into the future, Gazprom functions as monopolies function. And some of its pricing policies are visibly inspired by Kremlin policies. The Orange revolution that led to the defeat of the Kremlin’s favourite in Ukraine, was followed – after many years of negotiations – by a sharp increase in prices and widespread anxiety all over Gazprom-dependent Europe. At the end of 2005 relations between Russia and Ukraine came to a grinding halt. In the past, Gazprom had supplied Ukraine with natural gas at the rate of USD 50 per 1000 cubic metres – a sweetheart deal by any standard. The rationale was that Ukrainians, faced with the choice between a cold winter and a candidate acceptable to the Kremlin, would instinctively vote for Victor Yanukovych. But he lost the 2004 elections to Victor Yushchenko.
The rulers in the Kremlin were not amused, accused Western NGOs of meddling in Ukraine’s affairs, suspected the CIA of undermining the pro-Russian candidate and feared that the Orange revolution might be a contagious disease in Russia and elsewhere. Gazprom, pretending innocence, suggested a new pricing system ‘on a market basis’, raising the price to USD 230. When Kiev refused, Gazprom sliced its exports to Ukraine on 1 January 2006-and alarm bells rang all over Europe. Europeans were not only wringing their hands over Ukraine. Given the fact that 80 per cent of Russian natural gas to Europe comes via Ukraine, they also had reason to fear the worst for their own comfort. Russia suddenly stood accused of blackmailing weaker neighbours. Who could tell what would come next?
Energy is destiny
Gazprom’s threats to cut off energy supply were in open breach of the European Energy Charter, negotiated and signed by the Russian government though not yet ratified. This contained a non-interruption rule, and failure to comply with such basic international rules of behaviour was bound to raise serious doubts about Gazprom’s reliability as a supplier, far beyond the energy dimension.
On 4 January 2006 Moscow and Kiev settled the matter on a compromise base for the next five years. Under the terms of that deal, natural gas from Central Asia – Turkmenistan, Uzbekistan, Kazakhstan – would be transported via the Russian Gazprom net to Europe and sold at a price of USD 50, while Gazprom would feed into the mix at Gazprom’s full rate of USD 230. In commercial terms, everything seemed to have been settled amicably. Politically, however, things were more complicated. By securing delivery of Central Asian gas via Russia, Gazprom saw to it that direct deliveries to Europe via the Black Sea and Ukraine would not materialize soon. Moreover, by maintaining its initial demand for USD 230 the Russians signalled what the future pricing situation would be, especially if taking into account the dollar’s decline vis-à-vis the Euro. Initially, Gazprom wanted to establish a droit de regard over Ukraine for the Kremlin. As it turned out, the crisis gave Russia some leverage over Ukraine through Europe’s anxieties.