Gazprom and Russian Government

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Gazprom global strategy and Russian Government.

First classes on strategic insights, first cases. Nokia case is a recognized business success and an example of cooperation between a government and a company.

Can we say the same about Gazprom and Russian Government?

In 2005 Russian government has become the major shareholder of Gazprom. (Kazin F 2006) Consequently Gazprom announced its strategic goal to become a leader in oil gas / energy sector (Miller A. 2005). Later Kremlin followed with the announcement saying that Russian Federation will become a leader in the world energy. A very coordinated move. Gazprom and government is a team. The Russian society reacted on the above with the development of two polar positions: the so called “imperialistic”, meaning finally a government and a business work together in order to protect and expand the country’s national interests and the “pessimistic”, meaning that Russian national resources will be sold out to the international businesses. In reality everything is not that black and white. A careful look at the same actions undertaken by Gazprom can be evaluated in the favor of both the above mentioned positions.

Gazprom is playing a very complicated and delicate game, the strategic essence of which is to maximize its access to the liberalized European market and its end user, without trading off its monopolian advantages if possible. To reach this goal Gazprom has developed the following strategic concepts forming its general strategy:

1. Pricing. Price increase for the end users both internally and externally 2. Partial liberalization of the Russian gas market as a respond to the liberalization of the European market. 3. Diversification on the energy business and end products 4. Minimization of the transit risks

1. Pricing.

Gazprom policy on pricing can be analyzed in two perspectives: internal / CIS market and external market
For the customers from the Western part of Europe Gazprom has used market conformed prices, while it is quite a different case with the former Soviet Republics as well as the internal market. The major Gazprom’s complaint is: Gazprom doesn’t sell gas in Russia, it merely distributes it. In other words, Gazprom being under the governmental thumb, is loosing money. To compensate that Gazprom must perform well on the European market. The post soviet era for Gazprom is the time when gas card can’t be played anymore to “earn” friends and allies. Gazprom, being a business structure oriented on profits gradually increases the prices, thus causing disagreements with political connotation. That’s where the government gets involved and that’s where Gazprom has to do certain tradeoffs for its interests being lobbied. I believe this will continue until Russian government will develop a sound, well balanced policy towards the “former” gas friends. This is a kind of logical consequence to the fact that Russian Federation is still “struggling” with the developing and sound political and ideological position towards the former Soviet Republics.

2. Partial reform of the Russain gas makert as a respond to the liberalization of the European market.

In 1998, the liberalization of the European market has begun, presenting a wonderful opportunity for Gazprom to get closer to the end, well paying European customer. Having an advantage of being a historical supplier and being a monopoly on its own territory Gazprom had and still has a good chance to get its market share, however to maintain it is another question .Exactly this maintenance issue is requiring some tradeoffs. Tradeoff in this case are presented in eventual Russian market liberalization. The point is EU power/energy companies have a justified demand to have access to the Russian gas premises. How far can Russian Government and Gazprom go in the internal market liberalization? On the issue of Russian energy market liberalization Gazprom and Russian government have to play as a...
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