Publication: Eurasia Daily Monitor Volume: 2 Issue: 197

Corruption concerns in Italian Parliament scuttle Gazprom deal

The deal signed in May this year between Gazprom and the Italian firm ENI was supposed to be path breaking: For the first time, the Russian energy giant would receive direct access to the gas distribution market in a major European country. It had the full support of Russian President Vladimir Putin and Italian Prime Minister Silvio Berlusconi and in fact constituted a tangible result of the cordial friendship between these leaders. Yet last Thursday, October 20, the two CEOs, Alexei Miller and Paolo Scaroni, announced in only a few bland words that the deal was cancelled. Gazprom certainly had not lost its appetite for European expansion, but the Italian parliament questioned the legitimacy of the arrangement when it became known that one-third of the shares in the trading company Central Energy Italian Gas Holding (CEIGH) belonged to Bruno Mentasti-Grinelli, who happened to be Berlusconi’s old friend and partner (Kommersant,, October 21).

Miller was keen to shift media attention towards a much more important deal that was crucial for his strategy of “establishing Gazprom as a global company” (, October 20). The acquisition of Sibneft, Russia’s sixth-largest oil company, has just been finalized with the appointment of Alexander Ryazanov as its executive manager (Izvestiya, October 21). By Monday October 24, Gazprom expects to receive in full the unprecedented syndicated credit for this purchase provided by the consortium of respectable Western banks, including Dresdner Kleinwort Wasserstein, ABN Amro, Citigroup, Credit Suisse First Boston, Goldman Sachs, and Morgan Stanley (Financial Times, October 21). Compared with the cool $13.1 billion arriving to its bank accounts, Gazprom management correctly considers the $200-250 million that CEIGH stood to earn as mere peanuts (Vedomosti, October 21).

An additional advantage of the Sibneft deal is that no nosy MPs would even think about investigating the money trail towards pockets in high places. Sibneft’s Roman Abramovich, who is supposed to be the main benefactor, is an international celebrity from Chukotka to Chelsea, but his main talent is the knowledge about the need to share the wealth with the Kremlin cabinet (Ezhednevny zhurnal, September 29). Mikhail Khodorkovsky probably was a brilliant manager of his Yukos, but he rebelled against this kind of sharing – and he has just arrived at a labor camp in faraway Chita oblast (, October 21). The dismemberment of Yukos and “re-nationalization” of its assets by a small circle of Putin’s closest aides has grossly affected the investment climate in Russia and not only due to the risk of new “expropriations” of the same kind but also through a strong impetus to further growth of a phenomenon that defines the essence of Putin’s regime — corruption.

Last week the authoritative Transparency International published its annual Corruption Perception Index – and Russia was downgraded from 90th to 126th out of 159 ranked countries (Nezavisimaya gazeta, October 19). This assessment correlates perfectly with the research findings presented by the Moscow Indem Foundation earlier this year and with Russian public opinion that defines corruption as the main obstacle to economic development (Novye izvestiya, October 19). According to the Indem estimates, the average size of a bribe has reached $135,000, and this figure appears to be rather conservative. The Tax Service official who was detained by the Federal Security Service last week with a million dollars in his briefcase had allegedly demanded $3.5 million from the bank he had been inspecting (, October 19). Even President Putin, while announcing a package of generous welfare initiatives, had to address public concerns that the promised money would just disappear inside the overgrown vertical power structure.

According to a recent report from a special mission of the International Monetary Fund, rampant corruption and massively increased profits from oil exports have caused a slowdown and even a full stop in economic reforms in Russia (Vedomosti, October 21). Paul Wolfowitz, the new president of the World Bank, refrained from any such criticism while visiting Moscow last week. He was all smiles and even tried to say a few words in Russian to his interlocutors, including Putin and Prime Minister Mikhail Fradkov. That gesture apparently helped him to convince the Russian leadership that even if the country were awash in oil money, it still could use some World Bank support to reform its judiciary. A new $100,000 credit would not miraculously restore the credibility of courts that were deeply compromised by the Yukos affair, but it could be a start (Kommersant, October 21; RosBusinessConsulting, October 20).

An editorial in Vedomosti (October 21) reminded about the anti-corruption operation “Clean Hands” that had radically altered the political landscape in Italy in the early 1990s. The business-oriented newspaper acknowledged that in present-day Russia two crucial elements of such a penetrating campaign – determined prosecution and independent media – were missing. Nevertheless, a paroxysm in the opaque but fierce struggle for political power could trigger a chain reaction of corruption scandals, so the editor invited readers to invent scenarios for a Russian-style “Clean Hands” operation.

Gazprom’s setback in Italy could provide a clue for such a scenario. For years, this state-owned behemoth of a company has worked in close cooperation with several German partners enjoying energetic support from President Putin. Besides personal friendship with Chancellor Gerhard Schroeder, Putin has plentiful contacts in Germany, some of which go back to his KGB service in Dresden in late 1980s – and look distinctly suspicious (Wall Street Journal, February 23). The forthcoming change in the German leadership might bring somewhat less friendly attention to these contacts, and a minor revelation of a not entirely altruistic relationship could lead to major investigations into Gazprom’s strategic contracts, from the pipeline under the Baltic Sea to the Shtockman gas field.

The point is that a committed effort at cleaning Russian hands could be launched in Western Europe, whatever its dependency on energy imports, but hardly inside the country. The Bank of New York affair, which has just ended with a symbolic fine of $14 million, did send a serious signal to the Russian elites in the late 1990s (, October 21); perhaps, a new signal to Putin’s courtiers is overdue.