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. Last Updated: 07/27/2016

State Flexes Muscle At Gazprom Meeting

A potentially noisy battle over a crucial Gazprom board seat turned anticlimactic at the company's shareholders meeting Saturday when the government threw its support behind the management's candidate over a representative of outside shareholders.

Russia's federal government -- which holds 40 percent of Gazprom -- won 5 seats on Gazprom's 11-member board, and six seats went to management. Analysts said the government voted for management candidates and spurned Andrei Vavilov, who represented outside shareholders Uneximbank and Renaissance Capital.

The re-election of Rem Vyakhirev as Gazprom chief executive and deputy chairman Saturday ensures that the government will continue to call the shots at Gazprom. Vyakhirev has had to walk a fine line as a former Soviet-era manager under attack by new government reformers who have entrusted him with 35 percent of the state's stake.

"It's no secret that our relationship with the government hasn't been very smooth," the 63-year-old chief executive told shareholders at the company's lavish Moscow headquarters.

Tom Adshead, head of research at United Financial Group, said "Vyakhirev knows he can be removed, because the government [as 40-percent shareholder] could just call an extraordinary meeting and oust him."

The government has already ordered a 40 percent cut in gas prices and will continue to regulate tariffs through the Federal Energy Commission, a government agency stocked with young reformers hand-picked by First Deputy Prime Minister Boris Nemtsov.

"This is not a defeat for reformers. It's actually a sign of the government feeling it has the situation under control," said one analyst. "They have enough power already, and in the end Gazprom will be heavily regulated."

The fate of Russia's economy, and that of Gazprom, have often been linked. Until now, government support has been nearly unconditional; reformers like Nemtsov and Deputy Prime Minister Anatoly Chubais want the sprawling industrial giant to transform itself into an even more profitable money-maker and taxpayer.

Gazprom and the government are also struggling to sort out the massive nonpayments crisis, particularly since only half of the gas giant's customers pay for the energy they receive. "We're observing a ripening of problems which are extremely dangerous to our company's future," Vyakhirev said.

In June, Gazprom accounted for 41 percent of the government's monthly tax revenues. It also paid off the last $608 million of its $2.5 billion tax arrears, money that the government handed over immediately to unpaid pensioners.

In addition to Vyakhirev's re-election as chief executive and deputy chairman of the board of directors, shareholders returned the government's deputy head of the presidential administration, Alexander Kazakov, to his post as board chairman.

Three new state representatives were also elected: State Property Committee deputy chairman Alexander Belousov, Deputy Fuel and Energy Minister Anatoly Kozyrev and First Deputy Finance Minister Alexei Kudrin.

Among those rejected was Vavilov, who had reportedly agreed to run for the swing-seat representing Uneximbank, which holds 4.08 percent of Gazprom stock. Uneximbank and allies such as Renaissance Capital had said they were gunning for a board seat, and most analysts said it is only a matter of time before they buy enough stock to win a place in the boardroom.

"Probably that group will buy more shares and it will be possible [to win a seat] perhaps even by next year," said Rinaco-Plus analyst Oksana Shishkova. "Still, they will only get a seat if the government wants them to."

But Gazprom took preemptive steps Saturday against additional stock accumulations by changing its charter so that private shareholders must seek board permission to acquire more than 3 percent. Under presidential decree, only 9 percent may be acquired by foreign investors.