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Last Updated: Sunday, 25 March 2007, 15:50 GMT 16:50 UK
The changing nature of Russia's Gazprom
By Emma Simpson
BBC News, Yugorsk, Western Siberia

Geographically, Yugorsk is in the middle of nowhere, yet it is at the heart of Gazprom's pipeline network.

Compressor equipment (Photo Dmitry Saltikovsky)
Gazprom controls both reserves and the distribution network

Not only does the Russian energy giant produce most of the country's vast reserves of natural gas, it also controls the pipeline infrastructure and gas exports.

In this corner of Russia, there are 17 underground pipelines pumping gas across the country and to Europe, some 5,000 kilometres away.

This part of the Gazprom empire is run by Tyumenstransgaz.

"We transport 80% of all the gas Gazprom produces today," says the company's deputy boss, Oleg Vasin, as he looks across the world's largest compressor station, surrounded by fir trees in the Siberian countryside, where they monitor the flow of gas.

"The gas comes from the fields in the North and it's sent as far as Germany, Holland and Italy," he says.

"You can hear the sound of it now. We have 210 of these compressor stations all along the route maintaining the flow of gas so our customers get a clean supply."

Central power

It is not an easy job to supply gas 24 hours a day, 365 days a year without a hitch when the temperatures can drop to as low as minus 40 degrees Celsius.

"We're certainly proud of what we do," says Mr Vasin.

"It's a special feeling to be part of this work. The responsibility is too enormous to think about."

Gazprom is more than just a business.

Tyumentransgaz headquarters (Photo Dmitry Saltikovsky)
Tyumenstransgaz is one of Gazprom's many subsidiaries

It is Russia's most important company, with more than 300,000 employees, and it provides the state with half the energy it needs to run the country.

It also accounts for at least 15% of Russia's hard currency earnings.

"It's a very unusual company," says Jonathan Stern from the Oxford Institute for Energy Studies.

"As of 2005, it became majority owned by the Russian state and therefore de facto, and by law, controlled by the Russian government, particularly by the Russian president.

"Because gas is so tremendously important to the Russian economy, Gazprom has a tremendously important position, and I think President Vladimir Putin views it as too important a company for foreign or even private Russian interests to get control of."

Benefits for workers

Gazprom is often referred to as a state within a state.

Here in Yugorsk you can see why.

There are more than 31,000 people living here and almost every worker is employed by Gazprom.

The company has a string of places like this all along the pipeline network.

Karl Ott helped to build those first pipelines more than 40 years ago.

Back then, it was the Soviet Ministry for the Gas Industry that employed him.

After the collapse of the Soviet Union, the gas industry was partially privatised and turned into a company called Gazprom.

But even today, it's still expected to provide the kind of benefits that hark back to the past.

Over a meal at his apartment, Mr Ott tells of how Gazprom provides workers with cheap housing, utilities and free flights.

"Gazprom not only preserved the best features of socialism, they've actually doubled them," he says.

"Every month I'm subsidised. I get an extra Gazprom pension as well. I'm paid like an Olympic champion.

"That said, I've given away not only my health, but also that of my wife through 40 years of work, so that has to be compensated."

Global giant

Gazprom certainly knows how to take care of its own.

Compressor control room (Photo Dmitry Saltikovsky)
Controlling the gas flow means controlling energy supplies

It has to in order to attract skilled workers here.

At the local sanatorium there is room after room full of hi-tech equipment and staff offering a multitude of treatments from colonic irrigation and laser therapy to oxygen cocktails to revive weary workers - and all of it virtually free for Gazprom workers.

The company itself has also undergone something of a transformation, explains Chris Weafer, chief strategist of Alfa Bank in Moscow.

"From a technical point of view, the company has completely changed," he says.

"The share price has almost tripled in the last two years as the Kremlin removed previous restrictions on foreign investors buying the 49% of shares not owned by the Russian state.

"As a result, Gazprom is now one of the largest companies in the world."

But even more important than that, he says, is how the state is now using Gazprom as it capitalises on its energy resources.

In the last few years, Gazprom has bought an oil company from the Russian oligarch Roman Abramovich.

It is getting into the coal business and it is buying up electricity power generating companies.

Gazprom also controversially secured a controlling stake in Shell's Sakhalin 2 project in Russia's far east.

Corporate governance

President Putin has turned Gazprom into a national energy champion, a company that has become an important political tool as the Kremlin pursues its global energy ambitions.

But the question that is now increasingly being asked is whether Gazprom is now more about politics than profit.

At Gazprom's grand headquarters on the outskirts of Moscow, President Putin ally Alexei Miller is in charge.

Another of President Putin's old colleagues, Dmitry Medvedev, Russia's Deputy First Minister and possible successor to Mr Putin, is the chairman.

Yet Alexander Medvedev, Gazprom's head of exports, rejects any assertion that Gazprom is an arm of the Russian state.

"I think that's a very primitive view," he says.

"We are obviously a company with the state owning 50% plus one share.

"The majority of the seats on the board of directors are occupied by representatives of the state, but it's not the only example in the world.

"The state is executing its rights through the rules of corporate governance, not through telephone calls from the Kremlin.

"The management committee of Gazprom is responsible for the day-to-day running of the company but the strategic decisions are made by the board of directors. We are following a policy of transparency."

Gazprom export sales rise by 43%
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