17-02-02 Rem Vyakhirev still has a comfortable office at the Moscow headquarters of Gazprom. But nine months after he was replaced as head of the Russian gas monopoly, the once mercurial figure has become muted in board meetings, and most of his former senior colleagues have left. Since Alexei Miller took over the CEO suite last May, the gradual replacement of senior personnel from the "old guard" has been one important sign of change at the company -- partly triggered by concerns of mismanagement raised by shareholders.
Core assets removed from Gazprom, and curious investments made, are being reclaimed; non-core businesses accumulated over the years prepared for sale; and fresh efforts made to tighten financial controls. Most investors, clients and analysts alike have greeted the reforms with cautious optimism, while remaining wary about how far and fast the reforms will proceed.
A year ago, minority shareholders -- including the state itself with a 38 % stake -- were increasingly troubled by allegations of asset-stripping totalling several billion dollars. There were particular concerns about links with Itera, a Florida-based company that was growing rapidly thanks to loans and the purchase of businesses from Gazprom. Both companies denied any wrong-doing.

PwC, Gazprom's auditor, itself came under criticism for not identifying such practices in the past. The situation had changed sharply by last summer, when the company's 2000 annual accounts were released in the wake of Mr Miller's appointment by President Vladimir Putin, and a series of open revelations.
The accounts highlighted a catalogue of "related-party transactions" that had gone unreported, by which the company had conducted business with entities partly controlled by Gazprom executives or their families. These included Sibur, a petrochemicals group, Stroitransgaz, a pipeline construction company, and Interprokom, which carried out trade in eastern Europe.
A separate report published last summer into the relations between Gazprom and Itera was also carried out by PwC, in spite of minority shareholder demands that another auditor be used. It found no evidence that Gazprom executives owned Itera shares, but identified several transactions that arguably were carried out on non-commercial terms.

There were few immediate signs of response from the new Gazprom management. The Itera report was never circulated to minority shareholders. The sale of up to $ 1 bn in non-core assets was repeatedly promised and delayed. Communication with the media remained limited. Mr Miller, who appears timid in public, was rumoured to be losing out to the "old guard" and would be dismissed.
Yet Mr Miller appears to be consolidating his control. He has been putting his own people in key positions -- from the accounting, finance, legal and security departments. The head of Gazprombank has been replaced. In one of the more striking recent examples, Mr Vyakhirev's own son Yuri resigned last month as head of Gazexport, the principal export sales subsidiary.
The recovery of assets has followed. The Gazprom board acted late last year on one of the few clear-cut options to recover assets from Itera identified in the PwC report. It exercised a "call" option to regain a stake in Purgaz, a gas field operator with significant reserves that it had sold to Itera for a nominal sum. It began bankruptcy proceedings against Zapsibgazprom, another former subsidiary.

Most strikingly, it attempted to negotiate the return of $ 800 mm in loans and to reconsolidate its control over Sibur, an alliance of petrochemical companies. When amicable discussions broke down, Gazprom provided information to the general prosecutor's office in January, which raided Sibur's headquarters and arrested three top officials.
Yakov Goldovsky, Sibur's CEO, and his deputy remain in prison, charged with asset stripping. And Gazprom, while still pushing to negotiate the return of its money, has instituted bankruptcy proceedings to maintain pressure on the company. Boris Fyodorov, anon- executive director of Gazprom who was elected by minority shareholders and who was one of the most outspoken critics of the former management, has welcomed the changes.
He says plans are now being developed for centralised purchasing and tenders that could save the company up to $ 2 bn a year. The contracts with Stroitransgaz may be among those to change as a result. But a number of other reforms at Gazprom remain untouched. Erik Wigertz, oil and gas analyst with Brunswick UBS Warburg in Moscow, says: "Asset recovery is good, but it is not going to make or break Gazprom."

Where Gazprom's interests clash with those of the state, the company has lost out. Price rises have been modest and a broader restructuring has been deferred. Meanwhile, there has been little sign of progress by the Kremlin in implementing planned share reforms.
The promised liberalisation of domestic trading of its shares and the abolition of the "ring fence" limiting foreigners to purchases of its New York-quoted American depositary shares have not materialised. That leads many to fear that the Kremlin and the new management -- which sided with outside investors last year -- may now be less concerned about them. "My concern is that they stop focusing on growing the pie and start thinking about redividing it," says one adviser to the company.