Publication: Monitor Volume: 4 Issue: 129

That the state tries to “beat out money” (a Nemtsov phrase) from Gazprom is nothing new. The same thing happened last year. Government revenues are slow in the first half of the year, but expenditures continue, and by June, a crisis is reached. In June 1997 the government even borrowed US$700 million from George Soros to tide them over for a week. Last week, Russia took delivery of the latest IMF US$670 million loan tranche, but it seems that was not enough to meet the government’s current needs. So in desperation the government once again turned to Gazprom.

The economics of the confrontation are murky. Gazprom earns US$16 billion a year from the export of natural gas, half of which goes straight into the government’s coffers as excise tax. Gazprom reports sales of US$7 billion worth of gas domestically, but only about 15 percent of that is paid for in cash. Gazprom relies on profits from exports to keep its production and domestic distribution going. Gas output fell 5 percent last year, signaling that Gazprom is not investing enough to open up new supplies. It could be that Gazprom managers are creaming off excess profits. However, Vyakhirev could also be telling the truth when he warns that the government’s crude tax-raising efforts may kill the goose that is laying the golden eggs. The European natural gas price has dropped 40 percent over the past six months, so the financial squeeze on Gazprom will not ease anytime soon.

The politics of the incident are more straightforward. Kirienko’s clumsy initiative gave plenty of free ammunition to his numerous opponents, all too eager to portray him as inexperienced and lacking political allies. Few commentators accepted Kirienko’s claim that “it wasn’t a happenstance or a mistake. The government knew what it was doing.” (Russian TV, July 2) Nezavisimaya gazeta opined that “The Gazprom affair has demonstrated beyond doubt that the White House provincial managers are neither politicians nor technocrats.” (July 3) Gennady Zyuganov describing the government as “running around the empty cash desk.” (Nezavisimaya gazeta, July 2) Sergei Zverev, deputy head of Gazprom, said “The country has lost money. Its reputation has been damaged. The whole world is laughing at us.” (TV6, July 5) However, some suggested that the wily Yeltsin approved the Gazprom assault in order to weaken the company, which he sees as a potential resource-base for a future presidential rival. (Izvestia, July 4)