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. Last Updated: 07/27/2016

Tenure of Gazprom Head in the Balance

Reindeer can be finicky eaters, or at least that's what Rem Vyakhirev discovered when he brought a few as pets to his estate, where they turned up their noses at the grass. No problem for the chief executive of Russia's largest company. He simply sent a corporate jet to the Arctic to fetch grass they would like.

Vyakhirev related the story during dinner with the Gazprom board of directors a few months ago, but it was hardly the first time the energy baron had used the Russian natural-gas monopoly for unconventional ends. For years, according to critics, Vyakhirev and his managers have run Gazprom as a personal fiefdom, siphoning off assets, undermining investors and stiff-arming anyone who tried to rein them in. (See editorial, page 12.)

The next week or so will tell whether President Vladimir Putin will put an end to Vyakhirev's tenure over the state's most valuable resource — and more broadly, in the view of analysts, whether he is committed to serious reform in a country in which corruption and profiteering still reign. Vyakhirev's contract expires May 31 and the state, with its 38 percent share of Gazprom, holds the votes that will determine whether it will be renewed.

The issue amounts to more than a mere boardroom struggle. Wrapped up in power, money and politics, the fight for control of Gazprom already has spilled over into other arenas. Determined not to surrender, Vyakhirev's team has lashed out with a fury. It orchestrated the takeover of independent NTV television last month, a move some saw as a response to an order from Putin's Kremlin, or at least an attempt to curry favor with him. And management's allies in recent days have launched a flank attack to purge their leading critic from the board of directors and cripple his investment bank.

"This is going to be an enormous fight," said Chris Weafer, research director at Troika Dialog. "This is the big issue for the country. This is definitely the crossroads. The stakes are so high that people are positioning themselves."

On the line is not merely a big company, but an economic and political powerhouse. Often called a "state within a state," Gazprom controls a quarter of the world's natural-gas reserves. It also represents the most visible symbol of the struggle to establish Western-style rules of corporate governance and investor rights. Minority shareholders say Gazprom insiders benefit from shady deals while the company has been stripped of valuable properties.

Reformers have pinned their hopes on Putin, who last month called for more transparency in Gazprom and announced a commission to consider changes. Putin's government controls five of 11 seats on the board, including the chairmanship, held by Kremlin Deputy Chief of Staff Dmitry Medvedev. Along with Boris Fyodorov, the minority shareholders' lone representative, that would constitute a majority that could oust Vyakhirev.

"If you cannot do something about Gazprom, well, probably talking about structural reform in Russia is kind of irrelevant because this is such a big part of Russia," Fyodorov said in Washington in April. If Putin makes no change at the top, "it would be a very big signal that the current administration is very weak, not making enough progress and losing this window of opportunity."

But the Gazprom camp has counter-attacked Fyodorov, who has angered Vyakhirev's team repeatedly with his public criticism and calls for greater accountability.

A series of lawsuits filed by a company allied with Gazprom in recent days has frozen 2 percent of Gazprom stock controlled by Fyodorov's bank, United Financial Group. Overall, Fyodorov's bank is custodian for between 6 percent to 8 percent of Gazprom's outstanding shares, according to financial market sources. The same Moscow court that sanctioned Gazprom's takeover of NTV ruled this month that Fyodorov and three other UFG nominees could not be stand as candidates for the Gazprom board at the annual shareholders meeting June 29.

Gazprom announced Friday that it would strike Fyodorov's name from the ballot. Charles Ryan, the UFG chairman who was also banned from the ballot, said in an interview that the firm would ask Putin's government to intervene and file a lawsuit to postpone the shareholders meeting until the court decision could be overturned.

"It's pretty crude, isn't it?" Ryan said of the legal assault on UFG. "And the interesting thing about it is all the attacks on us can be summed up in one neat notion, which is this is what happens when you call for transparency."

The anti-Fyodorov move was cloaked in mystery. Initially, the lawsuits did not even disclose the plaintiff. Vedomosti reported that the suits were filed by Yava Invest, a firm founded by Valery Yazev, a lawmaker considered a lobbyist for Gazprom interests in parliament.

A group calling itself the Minority Investors' Rights Protection Association filed the suit on Yava's behalf. The association's president, Sergei Karpov, said he formed the group in January to investigate Fyodorov because he was involved with "vulture" investors from the West and was threatening Gazprom with "soft blackmail."

Karpov confirmed Yava's involvement but denied any direct ties with Gazprom. The company has said it was not involved. Vyakhirev did not respond to requests for an interview and Gazprom said no other officials would comment.

The suits targeted Fyodorov by claiming he violated Russian law through "gray market" structures allowing foreign investors to buy domestic shares of Gazprom reserved for Russians or Russian companies. Such structures, however, are common among investment houses here and have not been challenged by the authorities. Karpov said lawsuits will soon be filed against other firms representing foreign investors as well.

The move has convinced some analysts that Putin will not move against Vyakhirev. But others hold out hope that Putin and the Kremlin believe that Gazprom needs reform. "It's important that they know that the world's watching and the world's going to draw a very serious message about the commitment to reform from this," said Ryan. "If they don't do the right thing in this, I think you're going to see a lot of investment dry up."