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. Last Updated: 07/27/2016

Gazprom Begins Bypassing Distributors

Gazprom, Russia's monopoly natural gas supplier, has launched a campaign to strengthen its hold on the domestic market by stealing local distributors' most lucrative customers, industry officials and Western analysts said Friday.

"Gazprom has already taken away about 10 percent of our business for this year," said Vyacheslav Linyov, vice president of Rosgazifikatsiya, the national association of local gas distributors. "They have struck direct deals with consumers to supply 23 billion cubic meters in 1995."

Vladimir Podelyakin, a press spokesman for Gazprom, confirmed that the monopoly has decided to push local networks aside, focusing on industrial clients that pay the highest tariffs.

"We do not need local distributors between us and the customers, we would rather deal with factories ourselves," Podelyakin said. "Hardly anybody pays for our supplies regularly, but in the case of industrial consumers we can agree on various forms of repayment, like barter."

Russia's 528 local distributing companies manage gas pipelines carrying gas from Gazprom's mainstream lines to households, schools, hospitals and other municipal institutions, as well as to industrial consumers.

Industrial contracts are the source of most of the local distributors' incomes, which collect 12 percent of the payments, but many industrial customers have been opting for cheaper direct supplies from the giant Gazprom.

"In Ryazan, Gazprom has signed a deal with one of the largest customers, the Dyagilevskaya Heat Electric Plant, which accounts for about 40 percent of the total local consumption," Linyov said.

The blow was all the stronger as industrial users are charged 80,000 rubles ($21) per 1,000 cubic meters, or 40 times more than household and municipal consumers, thus subsidizing the latter, according to Linyov. Industrial supplies account for about 88 percent of total supplies.

A Western energy expert, who declined to be named, said Gazprom bypasses local distributors by building direct links from its system to the consumers. Podelyakin said that such links were more cost effective for Gazprom, which he said does not have the money to pay for much-needed repairs on the local networks.

Podelyakin argued that the company was desperate for cash to pay it's workers, while consumers in the former Soviet Union currently owe it 15.5 trillion rubles. "We are stretched to the limit," Podelyakin said. "We are surviving on our exports. It is their problem to find money for maintenance," he said, referring to the local distributors.

Linyov said that as a result of Gazprom's policy in Ryazan, as well as in the city of Saratov in central Russia, those local distributors have failed to qualify for about $70 million in loans which the World Bank had been prepared to provide for reconstructing the pipelines. "After they started losing big customers, they realized they could not guarantee repayment of those loans," Linyov said.

In the meantime, financing is necessary to repair and modernize local systems which, according to the Western energy expert, were not built to world standards and in their present state could threaten safety and regular supply.

Linyov said Rosgazifikatsiya sent a letter Thursday to First Deputy Prime Minister Anatoly Chubais complaining about Gazprom's actions, asking that the government take measures to defend the local distributors.