RUSSIA - Profile - Rem Vyakhirev

An old friend and protege of interim PM Chernomyrdin, Vyakhirev is the president of Gazprom and chairman of its management board, or committee. He was given this post by Chernomyrdin in late 1992, when the latter became prime minister. His first name, Rem, is an acronym for revolution, Engels and Marx.

Vyakhirev, now aged 64, has become a very influential figure in the oil industry and the gas sector. Previously he was a high executive in the oil industry, which he left because he was not too happy with the advent of foreign companies as partners in this sector. He was once Chernomyrdin's boss at an oil refinery in Siberia.

While the oil industry is fractured into more than a dozen holding companies and a number of JVs, Vyakhirev has managed to keep Gazprom intact as a state monopoly. In a February 1996 study by a local business magazine, Vyakhirev was listed first among the most powerful businessmen, or oligarchs, in Russia. Vyakhirev is a member of the Economic Liaison Council, grouping the oligarchs or "robber barons", formed in June 1998 to advise the government on economic policies.

A Gazprom delegation will make a presentation at the 12th Annual APS Conference to be held in Beirut on Oct. 12-13, 1998. (For details, please view the APS website at: www.aps-energygroup.com).

During Kiriyenko's premiership from March 23 to Aug. 23, 1998, Vyakhirev fought battles with the government over tax payments, attempts to break the Gazprom monopoly and other reform efforts. He had battles with the reformists in the previous government, which was under Chernomyrdin but from March 1997 was overshadowed by two 1st deputy MPs: Anatoly Chubais and Boris Nemtsov.

Under a trust agreement signed by the two sides in December 1997, Vyakhirev lost full control over Gazprom and his independence within the company. The agreement, signed on the state's side by Kiriyenko in his capacity as energy minister and Nemtsov's replacement as overseer of Gazprom, stipulated that a board of ten state officials overseeing Gazprom were to vet Vyakhirev's decisions. Before that, he used to have more control over 35% out of the state's 40.87% holding in the company, under a trust agreement signed in 1994.

Vyakhirev's power struggle was mainly with Kiriyenko, who in November 1997 was made energy minister and chairman of the board overseeing Gazprom on behalf of the government, and with Nemtsov who until Dec. 21, 1997 was chairman of that board. Nemtsov and two allies from the government were ousted from the overseers' board hours earlier - after intervention by then PM Chernomyrdin and the oligarchs' chief spokesman, Boris Berezovsky. The overseers' board was

established by Nemtsov in April 1997, weeks after he was brought from Nizhny Novgorod (where he was the governor) by President Yeltsin to assume the role of 1st PM alongside Chubais. Chubais played a key role on the side of Nemtsov and Kiriyenko, so he was also involved in the power struggle against both Vyakhirev and Chernomyrdin as well as with Berezovsky.

Nemtsov's biggest crusade since he joined the cabinet in March 1997 had been to renegotiate the terms of Gazprom's 1994 trust accord with the government. Although the trust agreement signed in December 1997 by Kiriyenko and Gazprom's head reappointed Vyakhirev as manager of 35% of the state equity, but under government supervision, the deal also deprived the company's management of some of the biggest perks which had sparked complaints from Nemtsov since March 1997. The most significant was the management's lucrative right to buy out 30% of Gazprom from the state at part value.

Chernomyrdin's prompt intervention by getting Kiriyenko to replace Nemtsov led to a revision of a draft agreement prepared by the latter. Although the details of the trust agreement that was signed by Kiriyenko were kept secret, observers said the revision allowed excessive salaries to Gazprom's managers.

In late May 1997, Nemtsov had forced Vyakhirev to sign an agreement under which the Gazprom head's salary was to be calculated as a percentage of the dividends the company paid the government and he was to submit quarterly reports to the 1st deputy PM in his capacity as head of the board overseeing the company. That replaced a 1993 agreement which used to give Vyakhirev some freedom to set the level of his salary and Gazprom executive rights to buy controlling options at bargain prices. A decree signed by President Yeltsin at end-May 1997 detailed and enforced proposed measures for the segregation of foreign and domestic ownership of Gazprom shares. It restricted new foreign holdings in Gazprom to a total of 9% but excluded shares already held by foreign interests, which could be traded without any limitations. That was to enhance the value of Gazprom shares.

The power struggle took another turn in June 1998 as Nemtsov was accused of trying to remove Vyakhirev from Gazprom. The local press quoted officials as saying the government was under IMF pressure to get Vyakhirev out of the way and break Gazprom into a number of entities.

However, Vyakhirev survived the company's annual shareholders' meeting on June 26, which was tense, as Nemtsov said he had no intention of changing the CEO and denied that the IMF had asked for Gazprom to be broken up. Vyakhirev was re-elected chairman of the management board. After a fierce battle, the shareholders voted down Andrei Vavilov, president of the powerful financial group MFK, as a prospective member of the directors' board. His election would have significantly tilted the balance of the 11-member board in favour of the government and would have called into question Vyakhirev's position as CEO. A last-minute attempt to have Chernomyrdin's Berezovsky nominated as a director failed as Chubais was strongly against the nomination.

Four government representatives elected to the board, including reformist deputy finance minister Alexei Kudrin, were to strengthen the state's influence over Gazprom. But the minority shareholders failed to elect a representative and this was a defeat for the government reformers who had lent their tacit support. Then privatisation minister Farit Gazizullin was elected

chairman of the board and the shareholders approved a dividend of 30 kopec (5 US cents) per share. A provision limiting foreign ownership in Gazprom to 9% was removed from the company's charter. But the Federal Security Commission, the industry regulator, will enforce the limit which was enshrined in the presidential decree of end-May.

Vyakhirev announced the creation of a separate company, Gazprom Invest Holding, to help address the company's financial concerns. It would act as a central treasury, co-ordinating attempts to raise additional capital in Russia and abroad. He said Gazprom had raised more capital abroad than all other Russian companies combined. But it would not rush fund-raising initiatives, including share sales and a Euro-bond issue.

Later the Communist and nationalist members of the Duma, rallying to the company's cause, described Gazprom as the sole guarantor of Russia's unity and independence. But it was not long before Nemtsov and Kiriyenko resumed their offensive on the company over its delay in paying tax dues to the government. As part of its fight back, Gazprom stated that it was paying its employees' salaries regularly and its media drummed up the company's contributions to both the society and the economy. Gazprom has contributed considerably to the funding of the electoral campaigns of Chernomyrdin and other allies in the political leadership. Vyakhirev said in July 1998 that, although Gazprom contributed 25% of the state's total tax receipts, the company was suffering from chronic non-payments in the domestic gas sector. He said that, while two- thirds of Gazprom's production was consumed in Russia in 1997, only half of that was paid for and in barter, rather than cash, was the favoured method.

Yuri Vyakhirev, son of Gazprom's CEO, is the managing director of Wingas which is a JV between Wintershall and Gazprom operating in Germany.

Andrei Vavilov, a former 1st deputy premier in Chernomyrdin's previous government, has been an advisor to Chairman Vyakhirev since March 1998. He used to be a right hand man for Chernomyrdin in the government until he left the finance ministry in 1997 and became president of investment bank MFK, an affiliate of Uneximbank. Evgenia Selikhova is another advisor to Vyakhirev on matters relating to pricing tariffs and payments. Gennady Yezhov, Vyakhirev's press secretary, said in mid-1998 Gazprom fully complied with a 1997 government decree requiring it to open up 15% of its pipeline capacity to independent gas producers.