Russia's Gazprom to triple long-term investments

Oct 27, 2006, 11:20 GMT

Moscow - Russia's gas monopoly Gazprom plans to triple the amount of money it will sink into long-term investments to 6.4 billion US dollars in 2007 as it moves from its core natural gas business to claim a hold on all areas of energy creation.

The company's board of directors on Friday also approved the purchase of a nearly 20 per cent stake in Russia's second-largest electricity generator, Mosenergo, increasing the company's reach in the sector.

A 2.1-billion-dollar Mosenergo share issue scheduled for March is expected to give Gazprom a controlling stake in the utility.

'On account of the integration of new energy segments like Mosenergo with Gazprom's traditional areas of activity, [we] will create a vertically integrated company that will be the world leader,' Gazprom said on its web site.

The company will as a result have to alter its 2006 budget, the Internet statement said.

The jump in the gas giant's 2007 long-term spending, which could likely be used to fuel the acquisition of even more assets, comes as part of a 68-billion-dollar spending programme over the next three years.

President Vladimir Putin's administration has attempted to turn the state-owned company into what the Russian leader hopes will become the largest energy corporation on the globe.

The supplier of one-quarter of Europe's natural gas needs, many in the West have feared the Kremlin is using the monopoly as a foreign policy tool, manipulating gas prices for different countries to reflect their relations with Moscow.

A pro-Western government in Kiev collapsed last January after Gazprom stopped the flow of supplies into the Ukraine for three days, ostensibly over a price dispute.

In addition to its expected acquisition of a controlling stake in Mosnergo, Gazprom has branched out from its core business of natural gas production with the purchase of Russia's fourth-largest oil producer and plans to make inroads into the Spanish, Ukrainian and Russian electricity sectors.

While most of the company's total investments of 68 billion dollars will go toward maintenance like improving pipeline infrastructure and technologies at existing natural gas deposits, the lion's share of the 6.4 billion dollars in long-term investments could go toward new assets.

Gazprom's purchase last year of Sibneft, then the country's fourth-largest oil company, for example, was made via funds allocated for long-term investments.

Company officials, however, said that not all of the funding would be put toward purchasing shares in other companies or other new assets.

Approximately 1.8 billion dollars will go toward developing fields the company already owns in Vietnam, the Bay of Bengal and at various sites in Russia.

But, as a government official close to Gazprom's board of directors told business newspaper Vedomosti, the company's growth may be a bit frightening to some.

The Kremlin, the unidentified source said, will have to 'pay close attention to what exactly is hiding behind that shocking amount of financial investment.'