Gazprom: Feeling the Pain

Gazprom (OGZPY.PK), the Russian energy giant, has fallen on hard times. The plunge in commodity prices has caused the company's stock price to fall 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.

Disclosure: None

Comments

[Ferdinand E...:]

I didn't know that Gazprom wanted to because the largest and most powerful company in the world, and I know a lot about the natural gas world. But if I had known it, and had any money, I certainly would have bought some of their stock, and if its stock price fell as much as you say in this article, I would buy a lot more. All of this is hypothetical of course because I don't have any money,

Gas and a big future demand for gas, housing, resorts on the Black Sea, probably skiing resorts. Some firms have all the luck.

2008 Dec 31 09:06 AM

[searcher:]

Government and attendants are always a growth industry. You can bet, even in diminishing revenue, the resorts are well employed.

2008 Dec 31 03:01 PM

[Amvet:]

Eddy says <<<The plunge in commodity prices has caused the company's stock price to fall by 76%. >>

Edddy, this is total crap. Much of Gazprom´s sales are priced by contracts, not by what the US and Swiss futures traders dictate. The 76% decline in the stock price was caused by panic selling by leveraged funds needing cash to stay alive.

Jan 01 06:58 AM

[123:]

what if gazprom defaults on its debt?

Jan 05 09:52 PM

[123:]

or the people running it (Putin et all) decide they'd rather steal 100% of the profits instead of passing them along to SH? Or they decide that the government should buy out the 40% or so it doesn't already own for $5/share?

Jan 05 09:53 PM