Text version
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Hi, this is still not Navalny, but Nikita
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Kulachenkov, and today I have for you
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a story about our national treasure
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about Gazprom, that “treasure.”
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A couple of weeks ago, a scandal broke out.
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An analyst from Sberbank’s investment subsidiary
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published a critical report
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about Gazprom and was immediately fired, and then
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his boss was fired too, and then the head
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of Sberbank, Gref, had to call one
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of Gazprom’s offended contractors and
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apologize. The contractor was not Kadyrov,
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as one might assume, but Gennady Timchenko,
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a longtime friend and close associate
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of Vladimir Putin. An amazing story.
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True, reports like this are absolutely
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standard practice in the work of investment
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departments at major banks. They are issued
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regularly and are essentially reviews
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of the stock and securities market—expert
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opinions based on news about
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the company, financial statements, mathematical
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models, and forecasts. Such reports
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are sent to the bank’s investor clients,
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who in turn can
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use them to make decisions
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about which securities to buy and which to sell,
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and so on. But this particular May
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report led to a major scandal.
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People lost their jobs, and the issue was widely
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covered in the media. I’m sure you’re also
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curious: what could possibly have been written
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in this dry, formal
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document for it to end so badly?
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Today I’ll tell you about it.
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Here in front of me is that very
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ill-fated report. Let’s dig in.
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First, let’s understand what exactly this
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document is about. It’s 43 pages of text, as we can see
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from the title:
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about the Russian oil and gas sector.
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From the table of contents, we can see that the report has two
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major sections: one on Gazprom and one on Lukoil.
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We’re interested in the part about Gazprom.
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The report’s main point is stated right away in the brief
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summary on the first page.
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But before we look at it,
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we need a bit of context: Gazprom’s affairs
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have not been going well for quite a while. In 2008,
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the company was worth three hundred
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sixty-seven billion dollars, and
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as we now understand, that was the best
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time in Gazprom’s entire history.
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But at the time, it was thought to be only the beginning.
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Putin said that only victories lay ahead,
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talked about dreams coming true,
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and about Gazprom as our national
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treasure. Gazprom CEO Alexei
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Miller
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claimed that by 2016
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the company would be worth one trillion dollars.
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Want to guess how much it is worth
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now?
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A trillion? Maybe half a trillion? Well,
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maybe at least as much as in 2008—300
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billion? No. Gazprom is worth fifty-four
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billion dollars. Agree,
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for an investor who believed
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Miller and Putin in 2008, that is, to put it mildly,
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a disappointment. The company is worth 20 times
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less than was forecast, and the
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investor has less profit, fewer
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dividends, the shares are cheaper, and the dreams
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stubbornly refuse to come true. So what went wrong?
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That question has been hanging in the air for ten years, ever since
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things started going wrong. Who is to blame?
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Why did this happen? What is the reason?
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Why is a truly gigantic,
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promising company, under the close
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watch of the president and
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government, worth one and a half times
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less than the Starbucks coffee chain? Gas
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pipelines are not just a national treasure;
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they are what all of Europe rests on—not
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depends on, but literally rests on. Here,
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look at the chart: this is the market capitalization
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of well-known companies. Here
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is the most valuable, Apple; here is Netflix,
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that TV-series company—it is worth almost 100
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billion dollars; Disney is right nearby; here is
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the aforementioned Starbucks; and here is Gazprom.
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For comparison, they promised it would be up
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here,
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but instead it’s down here. That’s the context. And now
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let’s return to Sberbank’s report, because
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it tries to answer these questions, and
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its conclusion is simple: unlike normal companies, Gazprom
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simply does not have the task
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of being profitable. Gazprom has
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a different agenda. Gazprom exists not
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to generate profits
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for its shareholders—that is, the state and other
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private investors—but rather to
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enrich the contractors who service
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Gazprom. We are talking about well-known
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friends of Putin already
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mentioned—Timchenko
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and another childhood friend of the sportsman (a sarcastic reference to Putin),
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Rotenberg. Another observation from Sberbank’s analysts:
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Sberbank.
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Instead of pursuing
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economically sound projects,
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Gazprom is busy serving the so-called
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geopolitical interests
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of our country—in other words, the ambitions of that same
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Putin. That is why Gazprom’s value does not
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grow. All free cash
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that could have become profitable
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investments or dividends for
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the state and shareholders is spent on
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dubious, loss-making projects. To
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support this assumption,
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Sberbank analyzes three Gazprom megaprojects
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that we’ll now discuss. Power
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of Siberia is a pipeline between Russia and
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China. The entire project costs 60
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billion dollars, or 3.7 trillion
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rubles—meaning it costs more than all of Gazprom.
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The project was launched as part of the so-
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called “pivot to the East” in 2014.
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At that time, the Russian state decided that
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from then on, we would be friends with the Chinese and
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signed a 30-year gas supply contract.
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The Power of Siberia project effectively
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replaced the cheaper Altai route,
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which would have cost $10 billion.
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For contractors, of course, it is far more
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profitable to build something for $60 billion than for $10 billion.
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The contracts for construction of the main section
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of the pipeline were divided roughly equally
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between the companies Stroytransgaz
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and Stroygazmontazh. One belongs to
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Gennady Timchenko,
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the other to Arkady Rotenberg. They received
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multibillion-dollar contracts without any competitive tendering. The
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project has two major problems.
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First, the project benefits exclusively
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China. China will be able to dictate the terms
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because it has alternative
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suppliers.
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But for Power of Siberia, China is
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the only possible buyer, and if
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China refuses to take the gas
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at the proposed price, there will be
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nowhere else to send it. So the price will have to be lowered
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and the Chinese persuaded to buy it
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after all. Second, Sberbank analysts
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built a mathematical model and
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calculated that the project can pay for itself
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only if oil prices are above $110
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per barrel. First of all, prices have not been that high since 2014,
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and second, at that price it would be more выгодно for China
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to reduce volumes under Power of Siberia
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and buy gas from Central
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Asia or liquefied natural gas, which
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is delivered by specialized tankers. Sberbank
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writes that the net present value
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of the Power of Siberia project
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is negative, at minus $11 billion.
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I’m sure many viewers of this channel already
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know perfectly well what net
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present value is, but just
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in case, I’ll rephrase: even if you count all
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the potential future payments that
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Gazprom will receive for supplies through Power
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of Siberia,
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it still would have been
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more profitable simply not to build anything at all.
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Doing nothing would have been better by $11
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billion. The next megaproject
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analyzed by Sberbank is Nord Stream
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2.
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This is a project to expand the existing
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gas pipeline to Germany. One of the key
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reasons for building it is
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geopolitics: the pipeline will allow
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more gas to be pumped while bypassing Ukraine.
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The project is estimated at $17 billion,
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of which one-third of the costs will go
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to construction on Russian territory. And
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a month ago, one of the contractors was selected without
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a tender: Stroytransneftegaz.
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The company is half-owned by
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Gennady Timchenko. Notably,
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Gazprom tried to hide the contractor and
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blacked out the details in electronic
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documents. The only problem was that they did it
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so clumsily that journalists highlighted
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the blacked-out text, copied it into
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another document, and immediately figured everything out. Don’t
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worry, Rotenberg wasn’t left out either.
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His Stroygazmontazh is building for
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Nord Stream the initial compressor
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station. Once operational, Nord Stream 2
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may recoup the investment in 20 years, but
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its net present value
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is again negative, amounting to minus $6
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billion. The third project,
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TurkStream, is a new gas pipeline along
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the bottom of the Black Sea to Turkey.
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Here too, the desire to bypass Ukraine is clearly
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an important, if not the main,
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reason for construction. A
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pipeline directly to Turkey and
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potentially to Bulgaria would allow
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savings on payments for gas transit through
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Ukraine.
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But it still will not be possible to abandon transit completely,
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and neither project opens up any new
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export markets for Russia.
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The cost of TurkStream is estimated
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at $21 billion, of which more
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than half will fall on the Russian section.
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That means it will involve the same
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unaccountable friends and contractors as always.
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Details on the amounts and
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contractors for the Russian section of TurkStream
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are not given in the report.
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Apparently, in this case Gazprom
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blacked everything out properly in the documents. But we do know
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for certain that, for example, the compressor stations
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were built by Rotenberg’s Stroygazmontazh.
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The losses from TurkStream will be even
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greater than from the more expensive Power of Siberia.
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It will recoup its investment only after 50 years, and
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its net present value is,
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attention, minus $13 billion.
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Even if it operates for half a century,
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it would still be better simply not to build it. But that
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is not all that is written in the report. According
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to Sberbank, Gazprom’s next megaproject
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will be replacing old pipes on
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existing pipelines. Gazprom has no
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clear rules for replacing pipes: some
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are changed after 20 years, while some remain in service
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for 50. Management decides when to replace
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them. Right now Gazprom spends
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about $4.5 billion
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a year on this, but after completing
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Power of Siberia, TurkStream,
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and Nord Stream 2,
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Gazprom may be able to spend
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$15–20 billion a year on it
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for the next 15 years. This will greatly please
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those who will be supplying the pipes and their
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lay them. But why does Sberbank think that
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such a megaproject will begin? Existing
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pipe manufacturers in Russia are currently operating
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at only about 50 percent of
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their capacity. The situation is far from ideal.
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Then suddenly, near Zagorsk (now Sergiyev Posad), a new
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pipe-rolling plant is built.
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It very quickly receives approval for
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supplying pipes, along with a contract worth one point something
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billion rubles from Gazprom.
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At the same time, Gazprom terminates its old
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contracts with other pipe manufacturers.
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And again, surprise: one of the known
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owners of the new plant turns out to be
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Putin's former university classmate, Nikolai Yegorov.
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After the report was published,
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news emerged that indirectly
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confirmed the analysts' assumption
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at Sberbank about an upcoming megaproject.
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Gazprom and the Zagorsk Pipe Plant
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signed a scientific and technical cooperation
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program for 2018–2023. The plant
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will supply more and more different kinds of pipe,
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while Gazprom, with the help of its old
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contractors, will lay them. It is obvious
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that this megaproject will not bring
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Gazprom any income at all in this case.
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The profits are reserved only for
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the suppliers and contractors.
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What Sberbank's analysts wrote is
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not some kind of revelation. All of this
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has long been obvious and had been said
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before. The scandal is that, for the first time,
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such an opinion was published in
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a report by Russia's state-owned
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Sberbank. For two decades,
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Putin has been building a system in which
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it is easy to quietly
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carry out any scheme. During this time,
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Gazprom, a state-owned company that
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earns money from natural
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resources, has effectively turned into his
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personal pocket company — a company
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that serves neither you and me, nor even
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its shareholders, but simply whoever Putin wants it to serve.
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There is no need to think that this is
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a management mistake or a miscalculation. No,
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Gazprom was deliberately designed and
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organized to work this way. Today we were talking
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about the people around Putin.
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Gref, by the way, was there too 30
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years ago, in the 1990s. These people sat in the same
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offices at St. Petersburg City Hall.
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Back then, people still unknown to anyone would come to them:
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Timchenko, the Rotenbergs, and Nikolai Yegorov.
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The new pipe plant comes from the same circle. They
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studied together with Putin in graduate school.
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Medvedev was there too. He had joint business ventures
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with the billionaire cellist Roldugin.
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There are no random people there at all.
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You understand — and there cannot be any, because
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any sane person who found themselves
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in Gazprom by accident
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would immediately sound the alarm. This whole scheme
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is glaringly obvious and could have become
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the plot of some mafia TV series.
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But unfortunately, this is our
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everyday reality. But even here,
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allow me a little optimism, which
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is, by the way, shared by the dismissed authors
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of the scandalous report: if Gazprom
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gets new management — bluntly speaking, if
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all that Putin-linked crookery is thrown out of there —
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if the whole concept changes and the company
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stops pouring money into useless
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loss-making projects that nobody needs, then everything will quickly
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fall into place.
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It certainly will not be worth a trillion, but four times
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more than Gazprom is worth now — maybe. Let us
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try to make that happen as soon
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as possible. Thank you for watching our channel.
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Subscribe — they tell the truth here.