Schröder’s paymaster menaces Ukraine supply

Date: 22/12/05

Gerhard Schr�der's job with Russian energy giant Gazprom has left critics wondering whether Russian President Vladimir Putin is using a company essential to Europe's energy security as a tool to reward friends and bludgeon his adversaries.

Whatever the relative merits of Schr�der accepting a job with Gazprom so soon after stepping down as German chancellor, few failed to view a link between his appointment and his close relationship with Putin.

Building on the bonhomie he enjoyed with Putin while in office, Schr�der will now represent the companies involved in the controversial trans-Baltic pipeline project linking Russia with Germany, principally Gazprom, the state-controlled firm which has a 51% stake in the project.

For Schr�der to be inside Putin's circle of friends will mean a healthy bank balance and at least one more dose of power after leaving office.

He will principally be representing a company which produces 20% of the world's natural gas - more than Iran's share of total proven reserves - and one third of Russia's substantial oil output.

According to the company's own figures, Gazprom accounts for 8% of Russia's gross domestic product with earnings of EUR 26 billion in 2004.

But if Schr�der has felt the benefits of being inside Putin's circle, Ukraine has suffered the drawbacks of departure from it.

A year on from the country's Orange Revolution and Russia wants to increase gas prices to $220-230 (EUR 185-193.3) per 1,000 cubic metres, from the current rate of around $50 (EUR 42).

If a deal is not reached by 1 January, Gazprom says it will turn off the taps, depriving not only Ukraine but also the EU of a major source of its gas supply.

While Ukrainian Energy Minister Ivan Plachkov is adamant this will not happen - Gazprom wants to sell the gas as much as Ukraine and Europe want to buy it, he said confidently during a recent visit to Brussels - in the throws of the Ukrainian winter and just months before parliamentary elections, Ukrainian politicians are not so sanguine.

One minister privately admitted that the dispute with Gazprom was one of the worrying problems that the country faced today.

From the beginning of next year Lithuania - another country which wandered from the Russian circle of friends - will also see a 46% increase in gas prices, up from $83 to $123 (EUR 69.75-103.4) per 1,000 cubic metres.

By contrast Belarus, which remained close to Russia, will receive 21bn cubic metres at a price of $46.68 (EUR 39.2) per 1,000 cubic metres.

Schr�der's appointment and Ukraine and Lithuania's woes have fuelled speculation that Putin is using Gazprom to reward friends and punish adversaries.

But not everyone sees Gazprom's actions as retribution for Ukraine and Lithuania leaving the circle of friends.

According to Nikolay Petrov of the Moscow Carnegie Centre, the introduction of market prices could signal a shift away from state interference, despite initial appearances to the contrary.

"It could represent the re-economisation of the Gazprom, instead of using Gazprom as a political tool," he said. "Gazprom was angry that they were forced by the Kremlin into artificial gas prices [in Ukraine]."

The increase, he said, could be seen in the short term as a political event "but introducing market prices can only be done once...stabilisation at a new level will take place, along with a decrease in dependency on Russian gas".

Putin's apparently imminent agreement to lifting restrictions on foreign trading in the company's stock may also indicate that Gazprom is slowly opening up and becoming transparent.

And there may be an even bigger sign that Gazprom's independence from political interference will be assured in future.

The latest theory coming from Moscow's political rumour mill is that in appointing Schr�der, Putin may be preparing the ground for moving himself to Gazprom after he steps down as president in 2008.

Given Russian political history it is unlikely he will want to walk into a job that is controlled by his successor.