Putin's Gas-Patch Putsch

For years Russia's economic reformers dreamed about it. Prime ministers attempted it at their peril. Western investors pleaded for it in vain and last week Vladimir Putin finally pulled it off with remarkable ease. With a deftly orchestrated boardroom shakeup, the Russian president took the first step toward taming his country's most powerful company, the natural-gas monopoly Gazprom. Putin faced no opposition as he replaced powerful Gazprom chief Rem Vyakhirev with a man two decades younger and much less famous. So obscure is Alexei Miller, 39, plucked from a post as deputy minister of Energy, that Moscow news outlets had a hard time finding his picture.

The repercussions of Miller's unlikely ascendance go far beyond the corporate intrigue surrounding Gazprom. In modern-day Russia, business is thoroughly entwined with politics. And no Russian business is bigger than Gazprom, which controls one quarter of the world's proven natural-gas reserves and accounts for 8 percent of Russia's GNP. By appointing Miller, Putin was reasserting Kremlin control over a former state monopoly that had been "privatized" years ago under President Boris Yeltsin--yet global markets welcomed the news. On the day of Miller's promotion, Gazprom shares rose 10 percent on the London Stock Exchange. It was a strange moment: global capitalists cheering as the Kremlin reconquered Russia's largest company.

Miller offers hope for change. Appointed by Yeltsin to run Gazprom in 1993, Vyakhirev had come to treat the gas industry as a private fiefdom. In recent years, allegations emerged that Vyakhirev and other Gazprom bosses were stripping assets from the company. Even as production began to fall, Vyakhirev wielded enormous power, controlling the spigot from Gazprom's massive west Siberian fields to Russian consumers, the former Soviet republics and beyond. "Gazprom subsidizes the economy through its low prices and gives gas to nonpaying customers for higher political reasons," says Sergei Glaser, an analyst at Moscow's Alfa Bank. During the 1990s Yeltsin allowed Vyakhirev to run Gazprom with a free hand. He even managed the government's 38 percent stake for a time.

For that reason, many in Moscow see the Gazprom shakeup as part of a Putin assault on Yeltsin-era tycoons. Ironically, Vyakhirev and his entangled alliance with the government were put to use against another oligarch, Vladimir Gusinsky, whose media empire was shut down last week for failure to pay debts to Gazprom. Also last week Russian prosecutors were investigating the doings of Roman Abramovich, another energy-industry oligarch hitherto believed to have cozy relations with Putin. "Essentially the vested interests that were running the country before seem to be losing power in all sorts of different quarters," says U.S. investor William Browder, one of a group of Gazprom minority shareholders. "And Vyakhirev's being fired as CEO is a very important symbol of the demise of the oligarchs." Vyakhirev will stay on as the chairman of the company's board of directors, but his power days are over.

It's hardly clear Putin's new man can change a company still dominated by insiders. His reform mandate includes boosting Gazprom production and stock prices, but it's equally clear that he is a political appointee. His main qualification is loyalty to the president. From 1991 to 1996 Miller worked under Putin in a department of the St. Petersburg city government devoted to attracting foreign investment. Former co-worker Vladimir Churov recalls Miller as "a highly educated manager" and credits him for attracting companies like Gillette and Coca-Cola to the city. "And, like all the rest of us who worked here, there's no way he can fail to carry out any task assigned by Putin."

Miller 's experience in the energy business came later. He ran a regional pipeline company for two years before graduating to his ministry job in Moscow. Gazprom share prices rose in Moscow, too, on word of his appointment. "This was all about the one quarter of the Russian economy that was withstanding all efforts to introduce any changes or reforms," says Glaser, one of many analysts who hope Miller will be the first of many "economically minded people" to arrive at the helm of Gazprom. That's a lot to hope for. In many respects, Miller represents a new generation of former bureaucrats going into business, of Putin men replacing Yeltsin men. But in a place like Russia, where the public and private sectors have merged, investors will find champions anywhere they can.