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. Last Updated: 07/27/2016

Gazprom Calls Rival Itera Audit 'Illegal'

Natural gas monopoly Gazprom on Friday described as illegal attempts by minority shareholders to conduct a rival audit to the one awarded by the company's board to PricewaterhouseCoopers.

A Gazprom news release made clear that the company firmly opposed an initiative by the minority shareholders to hire Deloitte & Touche to carry out an independent audit of the company's relations with fellow gas firm Itera.

"The invention of other control mechanisms contradicts existing legislation and the principles of business ethics," the release said.

Gazprom's links with Itera have raised questions among some analysts about corporate governance and transparency at the company, and investors in London said last week that the issue could hinder Gazprom's plans for a debut international bond.

An investors' rights group has said PricewaterhouseCoopers, Gazprom's regular auditor, should turn down the audit of Gazprom's links with Itera because there could be a conflict of interests. But Gazprom defended its position, saying it had always been open and law-abiding, providing financial results to international accounting standards since 1995.

"Attempts to compromise Gazprom and its official auditor through speculative inventions in the mass media ultimately damage not only the interests of shareholders, but also the prestige of Russia," it said.

Boris Fyodorov, a Gazprom board member representing minority shareholders holding a stake of about 10 percent, said Thursday at a news conference that PricewaterhouseCoopers had audited Gazprom for five years and had never reported on the company's links with Itera.

Fyodorov said minority shareholders would pay for the audit, which they wanted done by June, ahead of the annual shareholders meeting. The government owns 38.37 percent of Gazprom.

The Civil Code "states that 10 percent of minority shareholders have the right to initiate an independent audit, independent of the Gazprom management," Fyodorov said.

The United Financial Group brokerage condemned Monday Gazprom's refusal in its morning comment, saying Gazprom's move "suggests very strongly that there is something to hide."

Fyodorov is the main shareholder in UFG.

"We had expected that Gazprom would try to hinder the audit, although we imagined that it would have tried to do this in a more sophisticated manner than through a blatant violation of the Civil Code," UFG wrote.

"The company clearly wants to buy some time so that no inconvenient information gets released," the brokerage said.

Ivan Mazalov, oil analyst at the Troika Dialog brokerage, questioned Gazprom's statement that an independent audit was against the law, unethical, against shareholders' interests and could cause damage to Russia.

Mazalov said he expected Fyodorov to insist that Gazprom recognize the provision for an independent auditor in the Civil Code.

Sergei Stepashin, head of the State Duma's budget watchdog, the Audit Chamber, said Thursday that it would also be looking into Gazprom's ties with Itera with help from the U.S. General Accounting Office, as Itera is registered in the United States.

He added that Gazprom CEO Rem Vyakhirev agreed on the necessity of such a check.

Itera is a minor gas producer but a major exporter of indirectly purchased Gazprom gas to former Soviet states. It exports some 80 billion cubic meters per year via Gazprom pipelines.

(Reuters, MT)