Saturday, March 1, 2008

Russian Government in Bed with Big Business

While listening to the BBC World Service last Monday, I came across a story about Gazprom, Russia's largest natural gas company, and it's ties to Russian government, economy, and national and global policy. "Russia's Energy Giant Flexes its Muscles" by Duncan Bartlett, Business Reporter for BBC News Moscow, focused on Gazprom's ties with government.

Dmitri Medvedev, Gazprom's Chairman of the Board, and Putin's pick in the upcoming election, will more than likely becomes Russia's next president. With government ties to a company as dominating in the European energy sector as Gazprom is, the Kremlin is accused of using gas as a weapon. Edward Lucas, Eastern European Corrospondent for The Economist, and author of The New Cold War - How the Kremlin Menaces Both Russia and the West, addresses Russia's energy supply monopoly and worries that this amount of power is threatening to the economy. He is quoted as saying "It used to be tanks and submarines and missiles that we were frightened of, now it should be banks and pipelines, and Russia has made tremendous strides in consolodating its monopoly of gas exports."

Gazprom, a former ministry, is the largest company in Russia and provides much of the gas supply in Europe. With earnings over US$24.6 billion dollars, the company is criticized because over half of its stock is owned by the government, with the remaining half available for trade. It plans to raise its gas prices, with projected earnings expected to quadruple as a result. Gazprom is expected to invest its profits sometime in the next 6-18 months into the global market. When it does invest to create its Russian Sovereign Wealth Fund, it will introduce US$32 billion to the market. As a result, Russia will emerge as a top economic power.

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