Washington Should Be Wary of Russia's Oil Monopoly Gazprom Boss Seeks Loans for Pipeline to West

Article excerpt

Beware of Russians bearing gifts - especially in the form of gigantic "win-win" deals. In this case, we are talking of Rem Vyakhirev, who recently made the rounds in Washington. He is an old friend and protege of Russian Prime Minister Viktor Chernomyrdin who, by extension, has become a great pal of Vice President Al Gore.

Vyakhirev is chairman of Gazprom, Russia's "privatized" natural-gas monopoly, which enjoys an unusually unsavory reputation in a land of Wild West capitalism that would make our 19th-century robber barons, by comparison, look like Protestant pastors.

Gazprom's boss is in search of loans for his company - and without question, Gazprom could stand an infusion of capital. For years the company has skimped on investment, allowing its plants and pipelines to deteriorate. There is virtually no training or skills-development - at times its 367,000 employees have gone without pay. Moreover, management has taken inefficiency to new heights: Exxon generated $100 billion in revenues last year and Gazprom about $13 billion. But Exxon ran its worldwide empire with just 95,000 workers - making its work force some 30 times more efficient than Gazprom's.

Closed books

Yet the firm, a Stalinist-era industrial behemoth, inspires big ideas. It has exclusive control of Russia's natural gas, one-third of the world's reserves. How much all this is worth is not known, but estimates range up to $700 billion. How much profit it could generate is also questionable - because while Gazprom is among the world's biggest corporations, it is also one of the most opaque. No one outside its own corporate suite has seen the books. Price-Waterhouse, its own auditor, is uncertain about the company's assets.

Balance sheets aside, however, Gazprom has structural problems that are nearly without equal. By law, the company cannot cut off supplies to Russian electric utilities - its principal domestic customer - even though they frequently owe money. Worse, individual Russian consumers rarely pay their electric bills, and foreign purchasers in Eastern Europe are not much better.

But what one hand takes away, the other gives back. Gazprom has benefited from unilateral presidential decrees - not legislation - that provide it unique tax benefits not available to the rest of Russia's industrial enterprises. Though it was supposedly privatized two years ago, Gazprom enjoys a very special status. It is still quasi-state-owned - the Russian government is the largest shareholder, with some 40 percent of the corporation's common stock.

Until now, the shares have been held at artificially low prices. …