Gazprom urged to rethink strategy

Gazprom urged to rethink strategy

By Nikki Tait and Sarah Laitner in Brussels and Neil Buckley in Moscow

Published: May 18 2008 19:44 | Last updated: May 18 2008 19:44

Gazprom, the Russian state-controlled gas monopoly and the main supplier to the EU, should concentrate on supplying its domestic market to avoid shortages at home, one of the country's leading liberals has argued.

Anatoly Chubais, architect of Russia's 1990s privatisation programme and now the head of its former electricity monopoly, said: “I think that, in strategic terms, our priorities should not be Europe or China.

“We have this western stream, northern stream, south stream,” he added, referring to pipeline projects such as Nord Stream and South Stream to export Russian gas to western Europe. “What I believe we need is a Russian stream. The Russian domestic demand is growing a lot. I think that Russia needs to restructure its strategy in this sector.”

Gazprom supplies a quarter of the EU’s gas. But there are concerns in the EU over the company’s continued ability to meet foreign demand and the way that it uses bilateral deals to divide member states .

Yet while suggesting Gazprom should focus on ensuring supply in Russia, Mr Chubais said the EU should not seek to restrict access for Gazprom.

“For Europeans to limit participation on the European market is strategically unreasonable,” he said. “The only result is increase of gas prices in Europe. If I was the European Commission I would support as many suppliers as possible.”

Mr Chubais’ comments, in an interview with the Financial Times in Brussels, came as he nears the end of one of Russia’s biggest and most complicated post-Soviet restructurings. As chief executive of Unified Energy System, Mr Chubais has privatised most of the country’s generating capacity and created a free market in wholesale electricity.

He recently signed off on a €119.7bn ($187bn, £95bn) investment programme in the power industry.

But risks still loom – chiefly over whether there will be sufficient supply of natural gas, and whether Russia's restructured power sector can keep pace with mounting demand.

Mr Chubais said: “Still in Russia, to get connected to the grid is a real problem. To be able to satisfy all the demands for grid connection . . . will lead to a much higher level of growth.

“Having GDP growth [of] 8.1 per cent last year and electricity consumption growth of 2.4 per cent – it is [un]balanced.”

Even with the agreed 20-fold increase in annual investment, it would take at least four to five years before access to the grid would be available to all.

“There is a double effect on economic growth – and [a] contradictory effect. It definitely slows down economic growth by small businesses.

“But at the same time, the investment programme creates a huge demand – demand for energy machines . . . electrical equipment . . . construction materials."

Mr Chubais’ UES will cease to exist at the end of June. Though the liberalisation plans, first suggested in the 1990s, have been delayed and modified, he overcame political and commercial opposition to push through the transformation.

“I believe we will definitely have future mergers in the power sector in generation,” Mr Chubais added. “Now we have 20 generating companies and I believe that it will be less eventually."“