The Albatross Hanging Over Gazprom's Fate

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Reputed crime boss Semyon Mogilevich has been living comfortably in his villa in the elite Rublyovka neighborhood of Moscow for the last seven or eight years. When he was suddenly arrested on Jan. 23, the logical question many asked was, "Why now?"

One of the reasons might be tied to Gazprom's recent push to be listed on the New York Stock Exchange. In order to do this, Gazprom must do some serious housecleaning, and it apparently decided to start by distancing itself from RosUkrEnergo, the gas trading company that is 50 percent owned by Gazprom. It is clear that Gazprom would have difficulty passing a thorough due-diligence investigation given its current links with RosUkrEnergo.

When RosUkrEnergo was created in July 2004, it was Gazprombank, a structure that has been linked to the siloviki, that surfaced as the co-owner of the company. In mid-2006, Gazprom announced its intention to list on the NYSE, and it started to take a close look at what skeletons were in its closet.

One of the more outspoken opponents of RosUkrEnergo has been Ukrainian Prime Minister Yulia Tymoshenko, who has demanded that RosUkrEnergo be shut down. In December, she called the company "the most corrupt scheme in the former U.S.S.R.," a statement the NYSE due-diligence investigators are sure to look at in more detail. During Tymoshenko's previous term as prime minister in 2005, the Ukrainian security service investigated Mogilevich's purported involvement with RosUkrEnergo, but the case was closed following Tymoshenko's dismissal by President Viktor Yushchenko in September 2005.

By arresting Mogilevich, the Kremlin also displayed a measure of good will toward the United States, where Mogilevich remains on the FBI's wanted list on charges of money laundering and fraud.

In addition, the arrest boosts the image of First Deputy Prime Minister Dmitry Medvedev. In October 2007, Medvedev, at the height of the controversy over RosUkrEnergo's purported debt to Gazprom of more than $1 billion, told German television that Gazprom was a "fully transparent" company and that it would most likely "review its relationship to RosUkrEnergo in 2008."

One of the many power struggles between the siloviki and the "liberal" factions within the Kremlin involves a listing for Gazprom on the NYSE. Medvedev would love to score this victory to rapidly increase the company's market capitalization by billions of dollars. Whether Medvedev will succeed will depend largely on what happens with RosUkrEnergo.

Roman Kupchinsky is a partner in the U.S.-based consulting firm AZEast.