Scale matters a great deal in business. Some people unscrew a lightbulb in an apartment building hallway, while others somehow manage to steal a steam turbine together with a turbogenerator. Obviously, the one unscrewing the lightbulb can hardly be called an effective manager. As you have probably already guessed, today we are talking about our favorites: Gazprom’s “effective managers” (EMG). I think that as we go along, many of you will better understand the cause of the recent accident at the Sayano-Shushenskaya hydroelectric power plant. So then. As we all know, some time ago EMG started feeling cramped in the gas sector and decided to move into electric power. After all, that sector also urgently needed to be “brought back to its feet” (a common Russian expression implying recovery and revival). To that end, Gazprom bought generating companies OGK-2, OGK-6, TGK-1, and Mosenergo. It all makes sense. The power sector wants investment, and Gazprom has plenty of money. Gazprom said it would share the money and develop a capital investment program for each of its energy subsidiaries. In particular, for OGK-6, which is the one that interests us here. EMG “move into” OGK-6’s management and start figuring things out: what is what, what needs to be bought, where to invest. At the same time, in June 2008, a certain company called Slavimpex goes to OAO Power Machines (one of the largest manufacturers of power equipment) and signs a contract for the supply of a steam turbine, a turbogenerator, and assorted other stuff for them. Total price: €60 million. But for the moment, only an advance payment is made: 30 million rubles. Then, a month later, EMG finally approve the investment program. And would you believe it, it includes the purchase of a steam turbine, a turbogenerator, and assorted other stuff for them for the Cherepovets district power plant. Now that is a coincidence! Amazing how that happens, isn’t it? And just two months after this whole thing got moving, Slavimpex goes to Gazprom and says: what an astonishing coincidence—you have an investment program, and we have a contract for the exact same turbine. We’ve got the goods, you’ve got the buyer. Let us sell you this contract! EMG, apparently impressed by this remarkable fact, did exactly that. They signed an assignment of claim rights agreement. For ten million dollars. Genius is simple. So what do we have? Power Machines builds the turbine using Gazprom’s money. The turbine costs €60 million, but for Gazprom it ended up costing €60 million + $10 million. Why Gazprom did not buy the turbine directly is unknown. Someone became $10 million richer. Nice business, right? Say you need a new pair of boots. That is your personal investment program. You go to the store to buy boots for 10,000 rubles. At the entrance, some guy meets you and says: You’re in luck! I set everything up beautifully. I made the arrangements. I saw boots in the store that are exactly what you need. Please pay me 2,000 rubles for my work. Then go buy your boots for 10,000. What would you say to that person? ..... Exactly. That is why you are not an effective manager. And why you do not work at Gazprom. Though perhaps the explanation is simply that you buy boots with your own money, while EMG buy turbines with someone else’s. How much of those $10 million was kicked back to EMG is still unknown. But we will get to the bottom of it. Because, as has been said many times in this cozy little journal: we do not just tell fairy tales—we get things done:
The case based on my complaint (as a Gazprom shareholder) was opened several months ago. While various investigative steps were underway, I did not publicize it much, so that EMG would not shut it down at an early stage by diverting a small portion of the stolen $10 million for that purpose. Today, Vedomosti is writing about the case, so there is no longer any point in keeping quiet. In the near future, I will send documents to all shareholders in our merry group of Gazprom-catchers so they can join the case as well. As for everyone who is not a shareholder but enjoys poking crooks with a nail-studded stick—as usual, help is needed with spreading information, insider tips, analysis, advice, and any other kind of participation. And now, smoothly, on to the moral. If Gazprom’s people shaved off $10 million on a single turbine supply deal, then how much do you think they will siphon off in total, given that Gazprom’s entire investment program in the power sector is $8.5 billion? That could make for a pretty nice boost to their retirement income. It is exactly these kinds of tricks, in my deep conviction, that caused the accident at the Sayano-Shushenskaya hydroelectric plant (Gazprom had nothing to do with that, but the principle is the same). No money for repairs... no money for modernization... everything is outdated... Of course no amount of money will ever be enough if four middlemen take a cut from every single supply contract. Nobody cares in the slightest about equipment quality, reliability, or operational safety. There is only one question: how big will the kickback be? That is how it is.