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Kremlin bashes Russia

by Jerome a Paris Fri Mar 17th, 2006 at 12:15:50 PM EST


Hermitage Capital Management, the largest foreign investor in the Russian stock market and the adviser to the award-winning Hermitage Fund, confirmed today that its CEO, William Browder, has been denied entry into Russia since mid November.

Browder has been a consistent critic of mismanagement of Russian listed firms, and he was initially very supportive of Putin's big clean up of Gazprom when he came to power.

Of course, he's still a critic of mismanangement today, and it seems that the mismanagers are not the same as before...

Gazprom's Rising Costs Raise Concerns --- Russian Natural-Gas Company's Inefficient Ways Dilute Effect of High Prices (from the WSJ - the news bit, not the Op-Ed pages, 2 June 2005)

"In order for Gazprom to become a world-class company and meet growing demand for gas, they've got to bring these costs under control," said William Browder, chief executive of Hermitage Capital, a Moscow-based investment fund with a substantial share of its $1.7 billion (1.38 billion euros) in assets in Gazprom stock. Hermitage is running for a seat on Gazprom's board and using its new study to campaign for support among other shareholders.


The Hermitage study, based on Gazprom's own financial and regulatory disclosures, as well as government and other data, provides a detailed look at the challenge. Staff costs have gone up about 50% a year during the past two years, according to the study, making Gazprom's salaries among the highest in Russian industry.

Mr. Kuprianov said Gazprom needs to pay well to attract employees, particularly in its remote Siberian production units. He said average wages are about 25,000 rubles, or about 720 euros, a month, only slightly higher than in the oil industry.

Materials costs jumped 82% in the first nine months of 2004, the latest period for which detailed data are available, according to Hermitage. Gazprom blames much of the increase on a surge in prices for steel used in pipes.

But Hermitage said that the gas giant relied on an unknown Russian trading company for a large share of its purchases in 2004 and wound up paying 35% more for pipes from main supplier Ukraine that year even though market prices rose only 1%. Mr. Kuprianov said Gazprom is looking into the trading relationship.

In previous years, Hermitage has exposed similarly unusual financial arrangements that it alleged cost Gazprom billions. The company has since eliminated many of those.

Hermitage's Mr. Browder said Gazprom's apparent overspending on capital projects is particularly alarming given the company's huge need for investment. His study cites the example of one 2,700-kilometer pipeline Gazprom is building from a field in the Arctic to European Russia. According to a recent regulatory disclosure, the project cost $9 billion, or $3.3 million per kilometer, more than double what similar projects in the rest of the world cost. Gazprom officials said this week the actual cost was about $6 billion, which still is well above competitive levels.

Overvalued costs on purchases have been the other usual way for Gazprom managers to skim off vast amounts of money (the main one being skimming on the exports to non-EU countries like Ukraine, as I have extensively chronicled), so nothing new here.

Now let me say that Browder's expexctations are to some extent naive, but he is in his role. Russia chose to put Gazprom on the stock market and cannot expect shareholders not to worry about the value of their investment, and especially about the very real risk of value capture by insiders.

And they don't have so much to complain, as Gazprom's stockmarket value has gone up sharply in recent months.

But preventing the guy from coming to Russia? Sheesh.

It's... it's... like the French building "national champpions" - too much in your face!

I'm looking into the specifics of this case.  I haven't seen anything in the Russian press.

In the meantime, do you know how many businessmen/students/tourists/family members have been denied entry into the US lately?

by slaboymni on Fri Mar 17th, 2006 at 03:22:41 PM EST
So as long as Russia blocks fewer people from entering the country than the US, it's ok?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Carrie (migeru at eurotrib dot com) on Fri Mar 17th, 2006 at 04:28:21 PM EST
[ Parent ]
You have to admit that the irony is delicious.  The US is supposed to be the immigration mecca, or "melting-pot".  In reality, however, Russia has a less restrictive immigration policy for its neighbors and is working to make it even easier for them to receive a Russian passport.

The visa process is based on reciprocity.  The US has been denying visas to Russian students, businessmen, and families in huge numbers, especially since 9/11.  It's only naturally that Russia do the same.

by slaboymni on Fri Mar 17th, 2006 at 04:44:43 PM EST
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The only time I've ever had to do a HIV test was to get a Russian visa.

Russia and the USA, as well as a number of other countries, get into stupid pissing matches about visa procedures - whose victims are always the ordinary citizens or families who need to travel.

I still remember taking a full day to wait at the Russian embassy in Kiev to get a visa to go to Moscow (which I got in the end because I waived my French passport above the crowd and got admitted before the others) - and then not being controlled on the night train between Kiev and Moscow...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Mar 17th, 2006 at 05:20:48 PM EST
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If you think that's bad, you should see what the American embassy in Moscow made my wife go through to get her visa - and she was married to an American citizen.  Not only an HIV test, a full physical with bloodwork.

I fully agree about the stupid tit-for-tat visa pissing match.  I can't wait until the whole thing just goes away.

which I got in the end because I waived my French passport above the crowd and got admitted before the others

Heh, heh.  I'm surprised you made it out of there alive after that - getting in ahead of everyone else (not because of the French passport).

by slaboymni on Fri Mar 17th, 2006 at 05:34:54 PM EST
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My favorite story is actually that of a friend who went to work in Moscow and fell in love with the place and ended up asking for the Russian nationality. He had a number of formalities to fill, but most of them ended up being a variation of him being invited to share a bottle of vodka with the bureau chief after all the Africans had been kicked out to celebrate that special day when a Frenchman has actually chosen to become a Russian without any other reason than genuine love for the place... And he did get the passport, and the Moscow propiska.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Mar 17th, 2006 at 06:55:19 PM EST
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I'm speechless.  I've never heard of a Frenchman (or almost anyone else, for that matter) actually getting the Russian passport.  A lot want it, but few make it through the grueling redtape.

I could actually apply for it, since I've been married to a Russian citizen for 11 years, but we decided to limit it to our kids having dual US/Russian citizenship (especially since we're living in the US.  If we actually do move to Russia (maybe early next year), I will definitely apply for the passport, as it will make life a lot easier / cheaper than being an иностранец there.

by slaboymni on Fri Mar 17th, 2006 at 07:00:13 PM EST
[ Parent ]
Still can't find anything in the Russian press.

I'm confused how not allowing the non-Russian owner of a non-Russian company into Russia be considered "bashing Russia".

by slaboymni on Fri Mar 17th, 2006 at 04:22:15 PM EST
The title was ironic, of course.

I think the press release just came out today. I saw it via an email distribution list.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Mar 17th, 2006 at 05:17:29 PM EST
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Based on this I would say that criticism of Putin / Gazprom has nothing to do with the visa denial.  The article above is about an appearance Browder made on CNBC last December in which he "completely supported the actions of the Russian government in the economic arena, including the Yukos affair".

Following is also a quote from Browder about Khodorkovsky:

Наконец, руководитель HCM заявил о том, что в деле ЮКОСа "ответ Путина был продиктован интересами национальной безопасности", поскольку "Ходорковский пытался получить власть, используя деньги для достижения своей цели".
by slaboymni on Fri Mar 17th, 2006 at 06:55:21 PM EST
[ Parent ]
Well that discourse came after he started being denied entry, so maybe it was an attempt at getting back in the good graces of the Kremlin.

Praising the things he praises (the unification of the shares of Gazprom, which makes them accessible directly to Western investors and had long been one of they main requests to Russian authorities, the IPO of Rosneft - more business for brokers) is not incompatible with the criticism he made. Focusng on the praise at that time makes sense.

To be honest, I still don't understand why he would be kept out. He's been saying these things for years. Maybe his campaign to get a seat on the board of Gazprom was getting too much support and someone got nervous. Or maybe he got too close to some of the fishy things that went on late last year surrounding the purchase by Rosneftegas of Gazprom shares to give back 51% to the State.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Mar 18th, 2006 at 03:07:45 AM EST
[ Parent ]
Российские границы закрыты для главы Hermitage Capital Management

Does not make much sense. Hope it will be sorted out soon. On unrelated note, 720 euros mentioned by Hermitage is a pretty poor salary by both Moscow and Siberia standards.

by blackhawk on Sat Mar 18th, 2006 at 12:43:38 AM EST
[ Parent ]

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