An Interview With Gazprom's Alexander Medvedev

Not long ago, Russia's state-controlled energy giant Gazprom was among the world's largest companies in terms of market capitalization, and as it grew so did the perception—fervently denied by company executives—that it was an arm of the Kremlin and that its goals were as much geopolitical as commercial. NEWSWEEK's Michael Freedman met recently with Alexander Medvedev, Gazprom's deputy chief executive, to discuss the economic crisis, the Ukraine gas dispute and foreign investment in the Russian energy sector. Excerpts:

Freedman: The last time we met, in London in 2006, Gazprom executives were saying the company could hit a $1 trillion market cap, and Gazprom had big plans for expansion. Have those plans been scaled back in the current environment?
Medvedev: Let's start with the $1 trillion: if we believe that the stock exchanges around the world will come back to the normal way of reflecting the real value of companies, not the speculative value, we are sure that Gazprom, which was undervalued before the crisis and heavily undervalued during the crisis, with all the fundamentals we have in place today, will be in the position to reach the $1 trillion figure even if the dollar depreciates.

By when?
It will take more time, but after we come out from the economic crisis it's still the same. The time to overcome the crisis, plus five to seven years.

What kind of oil prices did you plan for?
Between $45 and $65.

It's recently been below that. You have debt to pay off, employees to pay. How do you prioritize?
All the priority projects will go forward—the Bovanenkovo gas field, the Shtokman gas field, the North Stream project. But if the situation continues to deteriorate, then obviously we should look at how the demand will look in Europe and in Russia. We will make our long-term plans as usual based on the long-term investment cycle. We are not eager to react immediately because of this crisis.

Since the dispute with Ukraine, there's been a lot of concern in Europe about Russia's reliability as a gas provider. How do you perceive Gazprom's position in the marketplace, reputationally and otherwise?
We value our reputation very highly. That's why we have done everything possible to prevent the crisis. Unfortunately we became hostages of the political situation in Ukraine and a commercial dispute went out of the commercial terms. The political fight between Viktor Yushchenko and Yulia Tymoshenko and other political forces created this situation. I don't want to go into the specifics of Ukrainian political reform, but it looked very strange, and the behavior of Mr. Yushchenko after the agreements had been reached highlighted what the source of this crisis was.

People hear what they say are bellicose comments coming from your prime minister. They look at Russia as the majority shareholder in Gazprom, and they wonder if Russia is using gas to intimidate its neighbors.
If anybody really believes that gas could be used as a political weapon, then it's a question why it was not used before, during or after the Orange Revolution.

They say it was. Not before, but after.
If it was our intention to do so, then there was no better time in Georgia or in Ukraine than to use it to influence the result of the elections. But at that time we had contracts in place both with Ukrainians and with Georgians, and when we have a contract we are always in compliance. Even during the South Ossetia crisis we continued to supply gas to Georgia because it's a contract. We didn't pursue any political purposes. We are a company with a mixed capital. The state has a majority of the stock and a majority of the seats on the board of directors. But it's a very primitive and naive idea that Gazprom is managed from the Kremlin.

Vladimir Putin has spoken about the need for more foreign investment. Is there concern that if oil stays at current prices, given the risk many energy companies believe they face in Russia, that investors will think twice about investing in big projects?
On the corporate level, see how Conoco is cooperating with Lukoil. It's a very successful story. Chevron lost the competition in Shtokman, but they have a joint venture with Gazprom Neft for exploration in Siberia. So it depends on the strategic vision of the corporation.