Gazprom Is Feeling the Pain

Gazprom, the Russian energy giant, has fallen on hard times. The plunge in commodity prices has caused the company’s stock price to fallen by 76%. At one time, Gazprom wanted to become the largest and most powerful company in the world. Today, it might need a government bailout.
As ugly as American capitalism can often appear in practice, nothing really comes close to Gazprom. The company is merely a collaboration of the Kremlin and business. There’s barely any recognizable difference. Like Lola, whatever Gazprom want, Gazprom gets.
The worst thing that can happen to an enterprise like Gazprom is to see initial success in its operations. As gas prices rose, they thought they really had a sound business and used their cash flow to renationalize Russia’s oil industry. Once prices turned south, then the whole house of cards began to fall.
For a time, Gazprom, a company that evolved from the former Soviet ministry of gas, had been embraced by investors as the model for energy investing at a time of resource nationalism, when governments in oil-rich regions were shutting out the Western majors. In theory, minority shareholders in government-run companies would not face the risk their assets would be nationalized.
The New York Times reports:

But with 436,000 employees, extensive subsidiaries in everything from farming to hotels, higher-than-average salaries and company-sponsored housing and resorts on the Black Sea, critics say Gazprom perpetuated the Soviet paternalistic economy well into the capitalist era.
“I can describe the Russian economy as water in a sieve,” Yulia L. Latynina, a commentator on Echo of Moscow radio, said of the chronic waste in Russian industry.
“Everybody was thinking Russia had succeeded, and they were wondering, how do you keep water in a sieve?” Ms. Latynina said. “When the input of water is greater than the output, the sieve is full. Everybody was thinking it was a miracle. The sieve is full! But when there is a drop in the water supply, the sieve is again empty very quickly.”

Perhaps Russia should do what America would do: appoint a Czar. No wait, bad idea.

Posted by on December 30th, 2008 at 10:29 am

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