The Presidential Pipeline

Gazprom is the kind of corporate backer even a U. S. presidential candidate could want on his side. Russia's natural-gas giant has annual sales of $16 billion--not to mention an airline, a collection of newspapers and a one-third stake in NTV, one of Russia's most influential TV stations. And while most of Russia' s oligarchs were crippled by last August's financial crash, the partially privatized Gazprom, with its solid hard-currency sales to Western Europe, has gone from strength to strength.

Now, as elections loom, the Kremlin is trying hard to ensure that Gazprom's almost bottomless war chest is at its disposal--and, just as importantly, doesn't fall into the hands of its main rival, Moscow Mayor Yuri Luzhkov. But the Kremlin has a problem, and his name is Rem Vyakhirev, Gazprom's 65-year-old CEO. During Boris Yeltsin's 1996 re-election campaign Vyakhirev was generous with campaign funds and sympathetic media coverage. But more recently Vyakhirev has moved closer to Luzhkov. In March 1998, Gazprom guaranteed a $300 million loan to the Luzhkov-friendly Media-Most group, which in partnership with NEWSWEEK publishes the weekly news magazine Itogi. And early this year, Vyakhirev transferred regional Gazprom accounts--used to collect revenue from its regional consumers--to Moscow, where profit tax is collected not by the Russian state but by Luzhkov's city government, revenue which made up nearly a third of city hall's income.

Vyakhirev's flirtation with Luzhkov apparently infuriated the Kremlin. No less an authority than oligarch Boris Berezovsky, a key Yeltsin ally, said publicly that the Gazprom chief's days were numbered. But it wasn't quite that simple. Vyakhirev, in the words of one former employee, is "tsar and god" of Gazprom. Even the corporation's former head and later Russian prime minister Viktor Chernomyrdin worried that the whole structure of the company--which employs nearly a third of a million people--would unravel. The Kremlin hit on a compromise: government representation on the board would be increased, and Gazprom's taxes would go to the federal budget.

Gazprom's other shareholders will be glad that Vyakhirev has been brought to heel by the Kremlin. He can now concentrate on a far larger geopolitical battle with a much more formidable opponent--Washington. Russia's gas-rich neighbors Kazakhstan and Turkmenistan should be thriving energy exporters, with the world's third-largest gas reserves. But in 1993, Vyakhirev taught the Central Asian gas producers a lesson in market economics by refusing them access to Gazprom's trans-Russian pipelines. It was a ruthless piece of economic realpolitik--shutting out Kazakhstan and Turkmenistan as competitors for the lucrative European gas market not only helped Gazprom but also kept the two former Soviet states economically weak and politically dependent on Russia.

Now Gazprom wants to further expand its business. Its plans include building an unprecedented $4 billion, 506-mile partially undersea pipeline--dubbed Bluestream--from Dzubga on the Black Sea coast to Turkey, Europe's fastest-growing energy market. Washington has other ideas; the Clinton administration is backing a group of U.S. companies that want to build a $3 billion, 1,260 mile pipeline direct from Turkmenistan to Turkey, skirting Russia entirely. For the Americans, the pipeline is a strategic imperative--it would help cement the Caspian Sea region's independence from Russia. The Russian government and Gazprom, by contrast, see Bluestream as a way to protect its dominance in the European market--and also to ensure that Central Asia remains needy and thus obedient. Both projects claim to be on the verge of obtaining firm commitments from financiers. One thing is sure--when it comes to the political-wheeling-and-dealing side of the negotiations, Gazprom will be the hands-down expert.

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