December 10, 2007 / 3:49 PM / 11 years ago

Medvedev candidacy reinforces Gazprom's clout

MOSCOW (Reuters) - Dmitry Medvedev’s nomination on Monday as Russia’s likely next leader has underlined the power of Gazprom, the $345 billion (168.6 billion pound) gas export monopoly that he chairs, as a state within a state.

But how Medvedev will deploy Gazprom’s clout if, as appears likely, he is elected to succeed President Vladimir Putin next March 2, remains one of Russia’s many riddles.

Once a Soviet ministry, Gazprom is now the world’s largest gas company, accounting for 20 percent of global supply. It pumps a quarter of Europe’s gas, has diversified into oil, power and banking, and controls TV, radio and newspaper interests.

Will state-controlled Gazprom seek to consolidate the state’s energy interests to become a global super-major of the order of Saudi Aramco? Might Putin even try his hand at heading the gas behemoth?

“One thing we can be sure of is we don’t know what will come next,” said Chris Weafer, chief strategist at UralSib brokerage in Moscow.

Analysts, bankers and energy executives canvassed by Reuters welcomed Medvedev’s endorsement, saying that of the possible contenders the 42-year-old lawyer was the most pro-Western and the strongest advocate of a market economy.

“It’s good for the business community — he understands business a lot better than the others,” said an executive at a Western oil major who spoke on condition of anonymity.

“He’s a young guy, market friendly, liberal — I think it’s good for relations with the West,” agreed an investment banker who has worked with Gazprom in the past.

Medvedev’s likely election should boost chances that Russia will execute a plan to raise domestic gas prices into line with exports on a so-called ‘netback’ basis by 2011, meaning Gazprom would earn the same amount regardless of the buyer.

“The arrival of Medvedev will result in the implementation of the agreed gas liberalization plan,” said Steven Dashevsky, head of research at UniCredit in Moscow.

“But I would take a step further, and say that the implications are for a more reform-oriented economy as a whole.”

Investors cheered Medvedev’s nomination by sending Gazprom’s stock 2.5 percent higher, outpacing the RTS stock index, which rose 2.1 percent to a new record high.


Medvedev might, however, face the wrath of voters angered by a series of gas price hikes that will begin with a 25 percent rise for domestic customers from January 1, 2008. The increases are likely to keep inflation in double digits.

That would make Putin’s future role as the power behind the throne crucial to determining whether Medvedev would be able to win a second four-year term of office in 2012.

Having an unpopular president might in itself be no bad thing in a country where Putin has claimed high personal support ratings by pursuing a confrontational line with the West.

“I would expect Medvedev to gradually unwind this paranoid regime,” said Vlad Sobell, a Russia-watcher at the Daiwa Research Institute in London.

“It’s possible that his popularity will decline — but that would be welcome because it’s more normal.”

With Medvedev as Russian president, Russia will continue its drive to extract market prices from neighbours Ukraine and Belarus that now pay around half the going rate for its European customers.

That may generate friction, but is a legitimate goal, argues Sobell. “It’s the elimination of a subsidy,” he said.

Recent management ructions at Rosneft, chaired by the Kremlin’s deputy chief of staff Igor Sechin, could signal that the state-controlled oil major — a takeover target of Gazprom in the past — is again in play.

Russia watchers do not rule out the possibility of some attempt from Medvedev’s Kremlin rivals to stymie his leadership bid, but such an undertaking would be highly risky given Putin’s public endorsement.

“Gazprom has a pretty good security service,” said the banker. “If you try to fiddle with this one it could be seriously career-threatening.”

Additional reporting by Simon Shuster; editing by James Jukwey

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