Putin’s Mentor Elected to Gazprom’s BOD

by Roman Kupchinsky

The June 26, 2009 shareholders meeting of OAO Gazprom, the Russian state-owned gas monopoly, did not produce many surprises. Management received large bonuses while shareholders complained that they were being victimized by the company as their dividends shrank.

One of the most interesting developments was the election of Valery Musin to the company’s board of directors as an independent director. Musin, head of the Civil Procedure Department at St Petersburg University Law Faculty, is the former research supervisor of Russian President Dmitry Medvedev and teacher of Prime Minister Vladimir Putin.

Musin received the second most votes from shareholders at the meeting after Alexei Miller, the company CEO.

Musin’s relationship with Putin solidified during their days together in the St. Petersburg Mayor’s office where Putin headed the department of foreign economic relations. Musin worked in this department as a legal expert. Other employees in the section were Alexei Miller, the present CEO of Gazprom, Valery Golubev, a former KGB officer who is now a deputy CEO of Gazprom, and Igor Sechin, the Deputy Prime Minister responsible for energy policy in Putin’s cabinet who is also chairman of the board of directors of the state-owned oil company Rosneft.

At the time of this posting, the Gazprom website had not yet posted a full biography of Musin indicating only that he was head of the Civil Procedure Department.

While Musin might not have much clout on the Gazprom board, his election appears to be the result of Putin’s and Medvedev’s efforts on his behalf. According to an article in Kommersant Daily, "The Prime Minister cut the list (of candidates for the board) apart," our source in the Government said. However, another well-informed source claims that the amendments were made by President Dmitry Medvedev.”

Whatever role Musin is expected to play as an independent director, there is no doubt that his election to the board will only strengthen Putin’s hold over Gazprom. As a legal expert Musin will no doubt provide invaluable advice to Russia’s champion company, its managers and behind-the-scenes power brokers.

Turkmen-Russian Gas Relations Continue to Sour

by Roman Kupchinsky

Compounding Russia’s ongoing problems with its European and C.I.S. gas clients is the geopolitically sensitive case of Turkmenistan. On June 2, 2009 The Moscow Times reported that Gazprom demanded that this prime Central Asian gas producing country either slash the price of gas it sells or reduce the volume it ships to Gazprom. The reason for the request was that Gazprom had no immediate need for expensive Turkmen gas at a time when its own exports had dramatically decreased due to depressed Ukrainian and E.U. demand for gas.

The Turkmenistan conundrum has placed the Russian government in a dire squeeze. It exposes the total failure of Russian Prime Minister Vladimir Putin’s strategy to maintain total control over Turkmen gas production which was meant to: A.) Supplement declining gas production in Russia; B.) Prevent Turkmenistan from supplying gas to the Nabucco pipeline.

The announcement was made by Valery Golubev, a former KGB agent who is now a deputy director of Gazprom responsible for sales to C.I.S. countries. Golubev stated: "Since Europe is not taking the gas anymore, we said, 'Dear colleagues, there is no market for your gas at such a price.” But it was Putin who in late December 2008 announced that he had made a deal with Turkmen President Gurbanguly Berdymukhammedov to buy Turkmen gas at “world prices.” Did Putin grossly miscalculate the demand for Turkmen gas or was he guided by other, more personal motives? It is well known that Turkmen gas was sold on the European market not only by the discredited company RosUkrEnergo, but also by various subsidiary companies of Gazprom Germania, Centrex and other Gazprom-affiliated intermediaries.

Golubev, speaking in the Urals city of Chelyabinsk, reminded Turkmenistan that they have no choice but to ship their most valuable export through Russia since no other pipeline routes exist, at least not for the next five years.
"There are no alternatives. Gas to Europe can be supplied from Turkmenistan mainly through the Central Asia-Center gas pipeline system," he said, the news agency reported.

A Turkmen official said last week that if talks failed, it could take Russia to the International Court of Arbitration. Presumably the Turkmen government would attempt to prove that Gazprom was not meeting its obligations under a “take or pay” contract signed with Turkmenistan. However, the contract between Turkmenistan and Russia has not been made public and it is not clear what the payment terms were.

At the same time Gazprom kept insisting that Ukraine meet the terms of its “take or pay contract” and while Putin was forced in mid-May 2009 to forego penalizing Ukraine for not meeting its contractual commitments it remains unclear if this a tactical move to give his pro-Russian friends in Kyiv room to maneuver and win the upcoming presidential elections or was it a slight of hand to cover-up his inept handling of the gas purchase agreement with Turkmenistan in December 2008?