Analysis: 'Gazprom -- Pipeline Power'

BERLIN, Dec. 14 (UPI) -- A new book sheds light into the dark corners inside the Russian energy giant Gazprom and lays open its deep internal interconnections with the Kremlin as well as the Russian intelligence realm.

Gazprom, the state-controlled Russian energy giant that employs some 400,000 people is a key player in the Russian power hierarchy.

According to Russian opposition politician Vladimir Ryzhkov, whoever controls Gazprom controls the entire country.

"Gazprom is not a subject, but an object in the Russian election campaign," Ryzhkov is quoted in "Gazprom -- Pipeline Power," by German-Russian journalist Gemma Poerzgen, published by the Europaeische Verlagsanstalt, a Hamburg, Germany-based publishing house.

That this statement (made some months ago) has at least some truth to it is demonstrated by the fact that Russian President Vladimir Putin just nominated as his successor Dmitry Medvedev, chairman of the supervisory board at Gazprom.

And in Moscow, rumors persist that "Putin after his retirement from the presidential office wants to spearhead Gazprom," Poerzgen writes.

The journalist, who grew up in Moscow and now works from her office in Berlin, with her new book tries to illuminate the dark corners of one of the world's largest companies -- from its early years in the 1990s as a remnant of old Soviet business practices to its recent ambitions to push to sell gas all over the world.

Gazprom owns the most of the planet's gas reserves and it controls a pipeline network of nearly 100,000 miles. Aided by rising gas prices, Gazprom in 2006 managed to double its profits; in the summer of 2007 it had a stock value of $237 billion, with 51 percent of shares belonging to the Russian government.

"Gazprom is responsible for roughly a quarter of the Russian budget, and therefore is sort of the cash register of the Kremlin," Poerzgen writes.

It was a bit different in the early 1990s, when Gazprom was not only created to manage the national gas reserves, but also took over several former KGB officers who otherwise would have been jobless.

The number of former spies in leading business positions grew with each year, Poerzgen writes, because the already employed spies "used every opportunity to heave former colleagues into well-paid positions."

At the end of the 1990s, corruption inside Gazprom had spread so deeply that up to $2 billion vanished per year.

When Putin took over in 2000, he installed in Alexei Miller a new chief executive officer determined to reform Gazprom.

The company branched out and acquired media firms and even Putin-critical newspapers. But it was not until early 2006, when Gazprom's image took a major beating:

In January Russia temporarily shut off natural gas supplies to Ukraine over a price row, until Kiev agreed to pay higher prices. The move also affected deliveries to Western Europe. Moscow has since been accused of using its vast oil and gas reserves as a foreign policy pressure tool -- and Gazprom as its energy weapon.

It also demonstrated a tight grip on its domestic resources. At the end of 2006, Gazprom (aided by the Kremlin) managed to drive out U.S. company Shell from its majority stakeholder position in the multibillion-dollar Sakhalin II field, the world's largest single integrated oil and gas export project. Gazprom has also managed to put a spoke in Europe's wheel when it comes to the continent trying to diversify its import regions, Poerzgen writes.

The European Union for years has tried to launch the so-called Nabucco pipeline, which aims to bring gas from Central Asia over Turkey to Europe, bypassing Russia.

In June 2007, however, the Kremlin together with Italy announced it wants to build a pipeline from Russia over Bulgaria and Austria into Europe, thus rendering Nabucco obsolete.

Poerzgen argues that because the EU member states and their companies follow nationally oriented energy policies and compete against each other, it is easy for Moscow to push Brussels into a corner.

"Gazprom succeeds repeatedly to launch bilateral projects with European companies that thwart the plans by the European Commission for a common European energy policy."

It's not all rosy for Gazprom, however.

The book forecasts huge investments (experts say $120 billion until 2012) that need to be made by Gazprom to repair old pipelines and develop new fields to meet rising demand.

One crucial project to be tackled is improving Russian energy efficiency; this can be achieved mainly, experts say, by raising the domestic gas price, which is five to six times lower than the export price. The low domestic price has led to considerable amounts of reserves being wasted due to inefficient use. Even Russian officials have now realized that these reserves could have been sold for a much better price to foreign customers.

And then of course there is the necessary modernization of the country's overall infrastructure, given the reality that Russia won't be able to blossom on energy resources alone, Poerzgen writes.

"No matter who will be in power in 2008 in the Kremlin and thus also at Gazprom, he will be responsible to set the right course for the future."