Due West: Putin’s Intervention in Gazprom Probe Set to Backfire

© Photo : KommersantKonstantin von Eggert
Konstantin von Eggert - Sputnik International
Vladimir Putin has confirmed something that everyone knew anyway: Gazprom is not a business, but rather a large department of the Kremlin.

Vladimir Putin has confirmed something that everyone knew anyway: Gazprom is not a business, but rather a large department of the Kremlin.

In response to the investigation launched by the European Union’s anti-monopoly watchdog into Gazprom’s activities in the EU, the Russian president issued a decree banning “strategic” Russian state companies from disclosing any information to foreign government bodies without Kremlin permission.

The message is very clear: “Messing with Gazprom means messing with the Kremlin.”

The decree was written with lightning speed and took all the companies on the “strategic list,” which includes such giants as Rosneft, Russian Railways and several major arms producers, completely by surprise.

This hasty defence of Russia’s natural gas monopoly, the biggest corporate taxpayer and, as many suspect, the Kremlin’s purse, has the potential to backfire drastically.

Firstly, this is a blow to Gazprom in its tug-of-war with the EU. Before Putin’s decree, Gazprom argued it was being investigated not because of unfair competition practices (as the anti-monopoly watchdog claims) but because it refuses to lower prices on gas delivered to EU member states in Central and Eastern Europe, whose economies have yet to recover from the economic crisis. Gazprom and its lobbyists pursued this line in Brussels and in the media.

Putin’s decree, which amounts to an admission that Gazprom has something to hide, instantly wrecks that argument.

Moreover, the Kremlin’s de facto order that Gazprom’s representative offices abroad not submit to the legitimate demands of official bodies will only make matters worse for the gas giant. Investigators will be that much more determined to dig as deeply as possible into Gazprom’s affairs.

Secondly, other Russian state companies find themselves in an awkward position. Many of them have foreign subsidiaries, which naturally operate according to the laws of the host countries. So, when a U.S. Department of Justice officer, say, pops into a Rosneft office in Houston for a routine check of hospitality bills in accordance with FCPA compliance procedures, he will be told to come back later when the Kremlin grants its permission? That is not going to work very well, with the Americans or anyone else.

Thirdly, Western strategic investors in the Russian energy sector, like ExxonMobil, Statoil and ENI, are bound to be unhappy. Putin’s decision damages Russia’s reputation just as these oil and gas giants initiated widely-publicized and long term plans for asset swaps with Rosneft – something Putin himself lauded in his speech at the St. Petersburg International Economic Forum last June.

“The Russians have an amazing ability to shoot themselves in the foot,” a friend working for a major European energy company in Moscow told me.

“This decree will serve as yet more proof of their unpredictability at a time when they badly need a different image. And it antagonizes foreign regulators, who will now look at all Russian business activity abroad with even greater suspicion and mistrust.”

It may well be that the unfortunate decree will be conveniently forgotten or waived once its negative aspects become evident to the Russian government. Or once the Russian state giants lobby the Kremlin hard enough for it to be quietly rescinded.

However, it seems it has already left an unpleasant aftertaste among Russians and foreigners alike.

The views expressed in this article are the author’s and may not necessarily represent those of RIA Novosti.

What is Russia's place in this world? Unashamed and unreconstructed Atlanticist, Konstantin von Eggert believes his country to be part and parcel of the "global West." And while this is a minority view in Russia, the author is prepared to fight from his corner.

Konstantin Eggert is a commentator and host for radio Kommersant FM, Russia's first 24-hour news station. In the 1990s he was Diplomatic Correspondent for “Izvestia” and later the BBC Russian Service Moscow Bureau Editor. Konstantin has also spent some time working as ExxonMobil Vice-President in Russia. He was made Honorary Member of the Order of the British Empire by Queen Elizabeth II.

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