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. Last Updated: 07/27/2016

Gazprom Dumps Vyakhirev as CEO

Veteran Gazprom chief executive Rem Vyakhirev was ousted Wednesday and replaced with a longtime associate of President Vladimir Putin's in a move that signaled an imminent overhaul of the natural gas monopoly.

However, the board meeting that sacked Vyakhirev also chose him as its preferred candidate to fill the post of board chairman, leaving the balance of power in the company unclear.

Walking out of the meeting, government board representative Dmitry Medvedev said that the voting was unanimous on both points, meaning that Vyakhirev voted with the board to terminate his own contract.

Deputy Energy Minister Alexei Miller was tapped to head Gazprom.

Gazprom shares soared to record highs in ruble terms on the Moscow Stock Exchange after the announcement. At midday, the stock price hit 12.39 rubles ($0.42), a 5.4 percent increase on Tuesday's close. Shares later closed at 12 rubles. On the London exchange, Gazprom's American Depositary Receipts closed up 10 percent at $8.90. A single ADR is equal to 10 ordinary Russian-traded shares.

In the days and hours leading up to Wednesday's announcement, analysts and the media scrambled to predict Vyakhirev's fate. The Financial Times reported that Deputy Prime Minister Viktor Khristenko was the front-runner to become chief executive. Other media suggested Vyakhirev would remain CEO until the company's annual shareholders meeting June 29 and that a successor would be named at a later date.

Speculation picked up steam around noon Wednesday when Putin called the Gazprom board to the Kremlin for talks. It was unclear what was discussed.

Wednesday evening, Putin said at a meeting attended by Prime Minister Mikhail Kasyanov, Miller and Vyakhirev that he hoped that "this kind of leadership arrangement will allow us to keep a good balance between new strengths and experience."

"Vyakhirev's experience can and must be utilized," Putin said.

The president has been seen as a vital force pushing for reform at the monopoly ever since he announced plans in April to raise the cap on foreign ownership and increase transparency. Currently, the cap on foreign ownership is 20 percent.

Miller said his first priorities would include increasing the company's capitalization, ensuring the transparency of expenditures and maximizing investments.

"Management's task is to build on [Gazprom's] achievements," he said.

Vyakhirev said he was satisfied with the board's decision.

"We went through all the basic points and under what conditions all this would take place," Vyakhirev said. "When I say 'conditions,' I mean that Gazprom management can't be broken up and thus allow the chaos evident in our other industries."

Vyakhirev started his career in the Soviet Gas Ministry and took the reins at Gazprom when his predecessor, Viktor Chernomyrdin, was named prime minister in 1992.

Investors have harangued Gazprom for months for its lack of transparency, and minority shareholders have accused its management of asset-stripping.

Analysts say that shares in Gazprom — the world's largest gas producer, the largest natural gas supplier to Europe and the biggest contributor to Russia's federal coffers — should be among the most valuable in Russia.

"I feel good about this [decision] because we've been waiting for it for a long time," said James Henderson, head of research at Renaissance Capital. "With the backing of Putin, Miller will at least be able to get in there and make the situation more transparent.

"But it's clearly a massive bureaucracy that's been operating for many a year, and he's a relatively young guy with little experience. There's a lot of incumbent management in place, and he could be effectively ignored."

Former Finance Minister Boris Fyodorov, a Gazprom board member representing minority shareholders, has led the fight for Vyakhirev's ouster. He was the first to accuse Gazprom of asset-stripping last year. "I hope that with the coming of the new CEO we will be able to calm passions and that talks with the management will take a normal and constructive direction," Fyodorov said.

Fyodorov also expressed doubt that the six current board members representing management will make it onto the next board of directors. The Simonovsky District Court on May 24 froze 5.5 percent of Gazprom shares owned by management. That effectively prevents management from voting with those shares at the annual meeting.

Although Vyakhirev's ouster breathed new life into Gazprom shares, some observers said they were less optimistic than investors and feared that any overhaul at the company was a long way down the road.

"Nothing will really change," said Vladimir Pribylovsky, head of the Panorama think tank. "Except for Vyakhirev, the same people will be at the helm."

Chernomyrdin told Interfax that Gazprom's operations will keep their "continuity" and that little is likely to change.

Corporate governance issues have plagued the company since its inception, Pribylovsky said. Past dividends, which amounted to kopeks, have been a "pure mockery" for Gazprom's common shareholders, who have looked on while top managers have received salaries upward of $10,000 a month.

The government owns 38 percent of Gazprom, while Russian shareholders have about 50 percent. Twelve percent is in foreign hands.

Gennady Krasovsky, an analyst at the NIKoil brokerage, was upbeat about Miller's appointment, saying it could mark a turning point for the company.

Krasovsky pointed out several recent Gazprom corporate governance violations, including the transfer of $2.8 billion to a Gazprom-managed fund of doubtful importance in the fourth quarter of last year. "If it weren't for that, Gazprom's 2000 net income would have exceeded $4 billion instead of the $2.2 billion announced," Krasovsky said.

And hundreds of pages of documents uncovered or reviewed by The Moscow Times show that top Gazprom managers have stripped assets potentially worth billions of dollars from the company.

Itera, an independent natural gas producer, has also benefited from Gazprom's philanthropy. Gazprom has sold gas to Itera for below-market prices and sold it subsidiaries at nominal value.

"Without a CEO change, there was no chance," Renaissance Capital's Henderson said. "But Putin took some concrete action. It shows that Putin is committed to change. Let's hope that the next few steps show the same thing."