"Gazprom is a dinosaur." Why is the government delaying reform?

Alexey Gromov, Principal Director on Energy studies at the Institute for Energy and Finance, gave an interview to Novye Izvestia about the need to reform the gas industry in Russia.

"Gazprom is proposing a new management structure — a vertical of power in the company instead of a "strong subsidiary" — a weak center." Why would a monopolist need complete control over the group's money?

— In the Gazprom Group, which includes not only the gas business, but also the oil business, it is clear that the main profit is generated by the oil sector, Gazprom Neft (GPN). In order to ensure at least the appearance of effective management in the eyes of shareholders, it is necessary to optimize the company's organizational structure and distribute revenues from the oil business to the entire chain.

If left as it is, the company's shareholders will see that Gazprom's gas business is at a deep loss. Losses will persist in the coming years, because Russian exports are limited and do not bring the same income that the European direction brought.

— Against the background of the crisis, isn't it time to start reforming the gas industry?

— If you don't worry about Gazprom's problems, but worry about the problems of Russia and the market, then it is clear that Gazprom as a structure looks like a dinosaur. Gazprom became the corporate embodiment of the Ministry of Natural Gas Industry and consolidated the production, transportation, and distribution of natural gas, becoming a natural monopoly.

— Why wasn't the gas industry reformed along with the oil industry?

— The Russian oil industry has taken a different path. The pipeline component was isolated from it, which is what the state-owned company Transneft is doing now, and the group of oil producing companies that defines the contours of the Russian oil industry today.

This was not done in the gas industry, because Gazprom had long-term natural gas export contracts with EU countries. And there have always been fears that if the dinosaur of the 80s and 90s was crushed, it would negatively affect exports to Europe and require a rewrite of contracts.

— And what should be the next logical step?

— The next step is the reform of the domestic gas market and Gazprom. Such a giant company looks redundant for the Russian Federation. The framework conditions have changed fundamentally.

— How will the reform affect Gazprom itself?

— Reforming the gas market will inevitably entail reforming Gazprom, and in fact, its division into a transport company, producing assets, and gas distribution, and the consequences of this reform are difficult to predict even in the expert community.