Publication: Monitor Volume: 4 Issue: 129

Russian economic policy continues to take bizarre twists and turns. Last week, Prime Minister Sergei Kirienko triggered considerable confusion by launching–and then apparently withdrawing–a challenge to Gazprom. Just a week before, the annual meeting of the Gazprom shareholders had passed off without incident, with Rem Vyakhirev re-appointed as chairman of the executive board.

Kirienko told the government meeting on Thursday, July 2 that because Gazprom had fallen behind with its tax payments, the December 1997 trust agreement under which the Gazprom board manages the state’s 35 percent block of shares must be annulled and Gazprom’s assets “arrested.” In June, the firm paid only 1 billion rubles (US$1.8 billion) in taxes when 2.5 billion rubles were due. (Total federal tax receipts for the month came to 11 billion rubles.) There were reports that Thursday evening a squad of tax police showed up both at the Gazprom’s lavish Moscow headquarters and in various regional offices. (Russian TV, July 2)

However, also on Thursday evening, First Deputy Prime Minister Boris Nemtsov met with Gazprom officials and hammered out a compromise. Gazprom apparently owes 12 billion rubles (US$1.9 billion) in federal taxes and in turn claims to be owed 13 billion rubles for gas deliveries to state-owned customers. Nemtsov said that “Gazprom will pay all it owes to the budget, and the state will fulfill all its obligations arising from July 1. In connection with these decisions, the tax inspectorate will stop all seizures of Gazprom property.” Gazprom agreed to start making its current monthly tax payments of 4 billion rubles (US$645 million) beginning on July 6. It is still unclear, however, exactly how much back tax Gazprom will pay or whether state debts will be offset against their tax bill. State Tax Service head Boris Fedorov and Nemtsov seem to have different views on this issue: Rivalry between these two leading reformers seems to have added to the confusion. (NTV, July 2, Kommersant-daily, July 3)

Kirienko’s timing was unfortunate. When news of the decision leaked, the State Duma promptly suspended discussion of the emergency draft budget laws which make up the government’s anticrisis program. On July 2, Gazprom chief Vyakhirev was in Vienna negotiating with Shell about a joint bid for the Rosneft oil company, 75 percent of which shares are to be sold with a target price of US$1.6 billion. Shell promptly announced it was withdrawing from the deal, making it increasingly unlikely that a foreign buyer will be found for the company. Kirienko told NTV on July 5 that Shell had been asking for special conditions which the government was unwilling to grant, which sounds like bluster. Vyakhirev rushed back to Moscow for a meeting with President Yeltsin on July 3. Gazprom shares fell from 42 cents to 33.5 cents on the news, making it less likely that the government will be able to raise cash by selling some Gazprom shares to foreign buyers, as Vyakhirev had been suggesting.