Gazprom’s failures are affecting its CEO who started to get rid of inconvenient associates last year. However, this is not a sign that Russia’s energy policy is changing, rather it’s Miller’s attempt at cementing his own weakening position. Moscow’s energy policy is designed by the Kremlin and Gazprom is its tool, nothing more – writes Mariusz Marszałkowski, editor at BiznesAlert.pl.
Gazprom’s hiring policy
Recently a number of Gazprom’s highest ranking officials have lost their jobs. For the past 20 years all of them together with the company’s CEO Alexey Miller have been contributing to building Gazprom’s incredible position on the gas market.
These changes caused a big stir among commentators who follow Russia’s energy scene. Some suggested that the adjustments were caused by the management’s failure to complete the Nord Stream 2 pipeline, the lost court battles against Naftogaz at the Arbitration Tribunal and the transit deal via Ukraine, which was extremely bad for Gazprom. Others claim that the changes were made because the company was changing its strategy and overall philosophy of governance. However, it is unlikely that the reshuffle is really a manifestation of such transitions.
Changes in Gazprom in three parts
The revolution in Gazprom’s management started in February 2019 when two deputy CEOs quit – Valery Golubev responsible for the internal market and Alexander Medvedev who supervised foreign markets and Gazprom’s external relations. Both Golubev and Medvedev were considered Alexey Miller’s major rivals, which is why he chose to gradually limit their power within the company. Their position was very strong because of close ties with Vladimir Putin.
Medvedev entered the company’s board in 2002 and Golubev in 2003. The first blow struck Medvedev in 2014 when he was replaced by Elena Burmistrova as head of Gazprom Export, a company responsible for selling gas to the so-called far abroad, i.e. Central and Eastern Europe (except for the Baltic States), Western Europe and Turkey. Later on, he represented the company during its dispute with Naftogaz at the arbitration court and negotiated the new transit deal with Ukraine. After leaving his post as deputy chairman he went on to handle the company’s International Business Congress.
In April 2019 Miller’s close colleague Kirill Seleznyov parted ways with the company. He was the Director General of Gazprom’s subsidiary Mezhregiongaz. Andrey Kruglov, Deputy Chairman of the Management Committee left for Russia’s Finance Ministry in May 2019. In the same month the company let go of Mikhail Sirotkin responsible for managing corporate spending. Sirotkin was the last one of all the people who had started working for Gazprom in the early 2000s together with Miller. Those who lost their jobs belonged to the so-called „Petersburg clan”, a close-knit posse of people with strong ties to president Vladimir Putin since the onset of his presidency in 1999.
The end of the Petersburg era
The generational shift that took place in the first half of 2019 is even more interesting when one looks at the whole numbers. 3 out of 5 deputy chairmen said their goodbyes and 6 out of 15 board members left. Only 4 out of 24 department heads who had worked with Miller before joining Gazprom survived. Miller’s long-term co-workers with a strong position on the board were replaced by managers without enough power to pose a threat to the CEO.
The most recent stage of the purge took place on 17 February 2020 when the company revealed that two deputy chairmen of the management committee were leaving. One of those people is Elena Vasilieva, Gazprom’s chief accountant who had decided to go on retirement. Vasilieva has been working with Miller since the 90s. They met while working at St. Petersburg’s harbor where Miller was the port’s head of investments and Vasilieva managed its accounting team. At the end of the 90s they both joined a company called Baltic Pipeline System where Miller held the position of CEO from 1999 until 2000.
The other fired deputy chairman was Mikhail Sereda whom Miller met at Baltic Pipeline System. While at Gazprom Sereda headed the management committee administration. However, Sereda did not leave the company, instead he was appointed a deputy to Elena Burmistrova at Gazprom Export. This particular reshuffle may mean Miller is trying to gain more control over Burmistrova who is governing Gazprom’s most profitable entity, which is crucial considering the dropping gas prices and growing competition from, e.g. US LNG.
Miller does not formulate the strategy, he follows it
Most probably these significant staff reshuffles are not a sign that Gazprom’s investment strategy will be changing nor are they a punishment for the failures of Nord Stream 2 and the Power of Siberia.
Gazprom’s main characteristic is its total dependence on decisions made at the highest echelons of power. Even though the company’s potential is gigantic it is just a tool in the hands of Kremlin decision-makers who use it to achieve specific political goals. In fact, there are other enterprises whose objectives are more business-oriented. The main one is Rosneft, a major exporter of oil and oil products.
This is because of the contribution these companies make to the general budget. Gas is responsible for about 7% of revenue to Russia’s budget and oil for about 35%. This is why despite numerous political issues oil has almost never been used by Russia to blackmail other countries for political gain. A perfect example of this is the 10-year transit deal between Transneft and UkrTransNafta signed in December 2019. In contrast to the gas transit agreement with Gazprom, the oil deal did not spark any disputes. This does not mean that Transneft is more agreeable as opposed to a quarrelsome Gazprom. Rather it reveals the true motives of the Russian decision-makers.
However, if it turned out that Russia’s top politicians disagreed with Gazprom’s investment plans the first victim of this discontent would be the country’s energy minister Alexander Novak. Simply enough he would not be appointed to his old office by the new prime minister Mikhail Mishustin. You can read more on Russia’s new government from an energy-oriented perspective at BiznesAlert.pl.
Alexander Novak has been the energy minister since 2012. He is the main architect behind’s Russia’s contemporary energy policy together with Dmitry Kozak and earlier Arkady Dvorkovich. It was during his term when the Nord Stream 2, South Stream, Turk Stream and the Power of Siberia projects took root. All gas-oriented and mostly politically motivated. Novak also authored the OPEC+ group deal whose goal is to limit oil output. Dismissing the shale revolution in the US and failing to develop Russian LNG capabilities are two of his biggest failures. Actually, Gazprom, which remains under his supervision, only managed to build one LNG terminal on the Sakhalin.
He kept his office despite these mistakes. Before the new government was put together there was a lot of speculation as to Novak’s possible promotion to deputy prime minister. However, in the end it was Yury Borisov who became the Deputy Prime Minister Responsible For Fuel–Energy Complex, Defense And Space Industry. This means Borisov will handle the mining and petrochemical industries as well.
All chairmen change, except for Miller
The reshuffle at Gazprom, whose third act was revealed in mid February this year, is process that originated a long time ago. It is a manifestation of the internal fights between different interest groups. At the same time, it remains true that Gazprom’s defeats do not prop up Alexey Miller’s position on Russia’s political scene and this may be the reason behind the purge among top managers.
However, it seems highly unlikely that these decisions were made to punish the employees for the company’s failures. Actually, the people responsible for these are politicians who, fortunately for Central Europe, didn’t do well at persuading their partners to Gazprom’s vision. This includes their inability to successfully negotiate Denmark’s approval for Nord Stream 2 construction, their failure to change the EC’s take on South Stream and their lack of success in convincing Turkey to build 4 lines of TurkStream. Turkey agreed to two.
If a decision to alter Gazprom’s strategy is made, the first thing that will change is the name of the politician responsible for energy, i.e. the energy minister. However, nothing suggests this will take place in the near future. Even if Gazprom’s current tsar is replaced, it won’t mean Russia’s huge projects will be abandoned.