Russian government investigates into Gazprom-Itera relationship

Dec 11, 2000 01:00 AM

The board of Gazprom was forced to publicly discuss the company's relationship with Itera Group, a closely held Russian gas company that is widely believed to be illegally siphoning off assets from Gazprom.
Former Russian finance minister Boris Fedorov, who sits on the board as an outside director representing minority shareholders, led the charge with the blessing of the Russian government, which owns 38 % of the company. Fedorov presented a list of questions to Gazprom asking it to, among other things, account for why it is transferring its reserves to Itera while its own production of gas is falling, and has asked that the board hire an independent auditor to investigate the relationship.
For the largest company in Russia, often called the Ministry of Gas, to open even a small window into its financial affairs is a progressive step in President Vladimir Putin's plan to introduce transparency into the Russian economy, straighten out the tax collection system and attract foreign investors.
The story of Russian privatisation to date has mostly been controlled by corrupt oligarchs with a rapacious appetite for looting and funnelling wealth out of the country. Putin's predecessor, Boris Yeltsin, coddled a corrupt inner circle that many watchers refer to as criminal-gang capitalists.

Such criminal leadership has had a baleful effect on the economy. According to the European Bank for Reconstruction and Development, the Russian gross domestic product has fallen to 60 % of its 1989 level, when privatisation began.
According to Paul Klebnikov, author of Godfather of the Kremlin: Boris Berezovsky and the Looting of Russia, many Russian companies set up such trading companies in order to skim off profits and funnel it to the company's management.
Putin's previous efforts to put the hammer to the oligarchs have been met with accusations of personal vendettas and media suppression. For instance, in June, media baron Vladimir Gusinsky was charged with embezzlement and thrown in jail.
Those charges were dropped after Gusinsky agreed to transfer Media-Most -- his conglomerate of newspaper and broadcasting properties that includes the leading television station in Russia -- to Gazprom for $ 300 mm. Gusinsky, now a wanted man living in exile, says he agreed to the transaction while in jail and under duress.
While that episode may be unusual in many respects, Putin is revealing an even-handed approach to financial reform in going after Gazprom, according to Klebnikov. This sends a clear message that the Russian government does not play favourites and is serious about financial reform.
As for the financial future of Gazprom, Klebnikov says, "It should be the great giant of Russian industry, but it's not." With reserves of $ 40 bn and a market capitalization of only $ 7 bn, "Gazprom is not being looted nearly as bad as other Russian company's. Its biggest issue is the problem of domestic non-payments," he says.

Source: Forbes.com
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