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. Last Updated: 07/27/2016

Medvedev Would Tip Scales in Gazprom's Favor

APPutin shaking hands with Medvedev at a Security Council meeting at his Novo-Ogaryovo residence on Saturday.
If elected president, Dmitry Medvedev will most likely tip the scales in favor of Gazprom in any new acquisitions and help the state-controlled gas giant with domestic prices and taxes.

In a senior role after he leaves office, outgoing President Vladimir Putin could balance the business interests of Medvedev, currently Gazprom board chairman, said Konstantin Simonov, director of the Fund for National Energy Security.

Simonov speculated that Gazprom could also resume efforts to take over Rosneft, the state-controlled oil company chaired by Kremlin deputy chief of staff Igor Sechin. A merger between the firms fell apart in 2005 after Rosneft acquired Yukos' main production unit.

Konstantin Reznikov, an analyst at Dresdner Kleinwort, said a merger looked unlikely but the two firms could avoid impinging on each other's sectors.

"The bigger the company, the more complicated its management, strategy and planning," he said. "There's no competition between the two companies. It doesn't hurt them to work separately."

Gazprom will, regardless, likely enjoy an edge over Rosneft in any acquisitions in the oil and gas sector, Simonov said. "I think that ... Medvedev will by all means encourage such deals," he said.

Rosneft spokesman Nikolai Manvelov declined to comment.

Gazprom has an appetite for electricity assets, having gobbled up control or large stakes in the generating companies that supply Moscow and St. Petersburg and two more that cover several regions of Siberia and southern Russia. These four companies were spun off from state utility Unified Energy System.

UES chief Anatoly Chubais last month vowed to resist any further expansion into electricity by Gazprom, saying it would create a new monopolist.

UES spokeswoman Marita Nagoga said, however, that the state utility would not see a Medvedev presidency as a threat to competition.

"I don't think Medvedev wants to kill a 10-year reform by destroying competition in the sector. I would never believe this," Nagoga said. "As Gazprom chairman, he was very reasonable about this."

Gazprom's current energy holdings -- Mosenergo, TGK-1, OGK-2 and OGK-6 -- are placed in different "price zones" and therefore do not encroach on competition, Nagoga said.

Gazprom spokesman Sergei Kupriyanov said the company had no concrete plans for electricity acquisitions, but would not rule them out either. He declined to comment on how a Medvedev presidency would affect the company.

Gazprom has expressed interest in TGK-7 and a joint venture with coal miner SUEK that would control TGK-13 and Kuzbassenergo, said Dmitry Terekhov, an analyst at Antanta Capital. That would severely undermine competition on the market, he said.

Medvedev would probably think longer than Putin before giving Gazprom a monopoly position in electricity, Terekhov said. "Medvedev is more liberal," he said. "He hasn't served in the security agencies, at least."

Medvedev could also face a looming conflict between Gazprom and industrial gas consumers when domestic prices are scheduled to reach netback parity with those in Europe in 2011.

"There's a risk that a bunch of lobbyists come to Medvedev and say, 'If you raise gas prices, it will be a catastrophe,'" Simonov said. "I think Medvedev will continue to implement this idea, but it's hard to predict how it will turn out."

Oleg Zhilin, vice president of industry lobby group the Russian Gas Society, was confident that Medvedev would safeguard the efforts to raise Gazprom's domestic margins.

The government this month backed a 25 percent hike on domestic gas prices.

Medvedev could resist dramatically raising taxes on the gas industry, analysts said. Gazprom shares took a dive at the start of the year on the back of a government proposal to sharply raise the gas extraction tax. As first deputy prime minister, Medvedev managed to put off the measure, which was backed by the Finance Ministry and the Economic Development and Trade Ministry.

A government working group is developing a system that would increase the tax if gas prices go up, but would give tax holidays for greenfield projects in east Siberia with its nonexistent roads and pipelines, Zhilin said.

Andrei Illarionov, a former economic adviser to Putin who is now a harsh critic of government policy, said Medvedev had been so colorless during his days as Kremlin chief of staff and first deputy prime minister that it was tough to guess what he would do as president.

"He has not been known for anything that could be considered his personal [view] on any idea, any project, any movement, any action," Illarionov said. "That is why it is very hard to foresee in which particular area, or in any area at all, he will be able to demonstrate his interests."