by Jerome a Paris
Fri Mar 17th, 2006 at 12:15:50 PM EST
LARGEST FOREIGN INVESTOR IN THE RUSSIAN STOCK MARKET DENIED ENTRY INTO RUSSIA
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!