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. Last Updated: 07/27/2016

Miller: No Gazprom Breakup

Investors should not expect to see the sprawling Gazprom monopoly broken up any time soon, the company's CEO Alexei Miller said.

The government has said reforming the gas giant is one of its top priorities and the overhaul could include the division of its operations. The appointment of Miller early this summer was seen as a step toward that end.

But Miller, speaking in an interview with Ogonyok magazine, said no quick solution can be reached because of Gazprom's $7 billion debt load, the need for approval from shareholders and various legal issues.

"Splitting up Gazprom would pose at least two serious problems: Who would become the legal successor responsible for the debt repayments and be able to guarantee the fulfillment of export contracts?" Miller said.

The law on gas supplies forbids the breakup of companies that are part of the unified gas supplies system, Miller said.

Moreover, he said, any major changes would require the approval by 75 percent of the board, meaning that consolidated decisions would be required by all shareholders and not only those representing the state's 38 percent stake.

"Thirdly, Gazprom has promised to run by foreign lenders all deals involving assets worth more than $1 billion," he said.

"So talk about breaking up Gazprom can only be considered as theoretical."

Gazprom controls 90 percent of all gas production in Russia and the entire gas transportation system. It is also a key moneymaker for the government, bringing in a quarter of all budgetary revenues. The main advocates for the breakup of the monopoly are Russian oil majors, who are eager to transform into oil and gas companies.

Analysts agreed with Miller, saying that splitting up Gazprom is not necessarily a priority and any steps toward the reform should be taken with caution.

"The importance of Gazprom's role in the Russian economy is so crucial that there is no need to expect a wholesale, speedy reform," said Vladislav Metnev, an oil and gas analyst at Renaissance Capital. "The price of a mistake in this process would be huge."

Leonid Mirzoyan, oil and gas analyst with Deutsche Bank, said the breakup of Gazprom was much less of a time-sensitive issue than that of another natural monopoly, national power grid Unified Energy Systems.

"There are some indications that work on the reform will start sometime at the end of next year," Mirzoyan said.

"Maybe it is not even Miller's task to reform Gazprom," he said, adding Miller may be more interested in cleaning up house, harnessing the company's assets and making it more profitable.

Miller said in the interview that he plans to shed "hundreds of companies" that are not part of Gazprom's core business.

Gazprom has already said that it intends to next year spin off one noncore unit, the media arm Gazprom-Media that controls NTV television.

Boosting gas exports to Europe will also be a main strategy, Miller said. Gazprom already supplies one-quarter of the gas consumed in Europe. Miller suggested Gazprom would also be looking east, saying the Chinese market could one day rival Europe's.

Meanwhile, Miller said Gazprom is working on alternative technologies that would allow it to replace gas with coal-based fuels at power stations. Currently, natural gas accounts for a disproportionately large share in fueling power stations across the country. In some regions gas takes up 60 percent to 80 percent of all fuel supplies, Miller said.