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Daily Telegraph: Gazprom goes after 10pc of UK gas market

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(Vitaly Vasiliev believes Britain has too many stereotypes about Russia and Gazprom)

Last Updated: 1:02am BST 29/05/2007
Russia’s gas giant may co-build power stations in this country, its UK chief told Russell Hotten. But British firms should not be suspicious of its intentions

Gazprom, Russia’s gas monopoly, has drawn up ambitious plans to seize control of 10pc of the UK gas market by 2010.

As part of the plan Gazprom is considering building power stations in the UK in partnership with other energy firms, Vitaly Vasiliev, chief executive of Gazprom Marketing and Trading (GMT) told The Daily Telegraph.

However, despite rumours that Gazprom considered bidding for UK domestic gas supplier Centrica, Mr Vasiliev said that his company has no plans to enter the residential market. “Our strategy is to stay where we are [supplying business and industrial users] and grow organically,” he said.

Gazprom’s expansion in Britain may nevertheless increase unease about the company’s influence on the energy market. The UK’s growing dependence on imported gas coupled with suspicion about Russia’s emergence as an energy superpower have put the spotlight on Gazprom’s activities in western Europe.

The company no longer just takes gas to the Russian border and sells it to the highest bidder. In the past few years, Gazprom has struck a series of supply deals and asset swaps with Europe’s energy companies, and is investing in a pipeline network to enable it to deliver gas direct.

Gazprom’s growth is underlined by figures just released showing that UK-based GMT, which trades in gas, oil and carbon emissions throughout Europe, had revenues of £1.5bn last year. This compares with £594m in 2005 and £324m in 2004.

Gazprom supplies 25pc of Europe’s gas, with almost 4pc coming to the UK, up from 2pc at the start of last year. GMT also brings in almost 4pc from other sources, mostly gas from Norway. But Vasiliev expects supplies directly from Russia to the UK to top 10pc by 2010-12, with gas brought in from other sources to also rise sharply.

The company has become an established supplier to some 2,000 small businesses in the UK as well as Headingley cricket ground and York Minster. But the extent of suspicion Gazprom generates was evident last month when it bid for supply contracts with the National Health Service.

There was talk of “potentially horrendous” implications because the company was not a reliable gas supplier and Russia’s president, Vladimir, Putin could not be trusted.

Vasiliev, 34, is conciliatory, but slightly frustrated: “I understand certain sensitivities of supplying gas to the NHS. But I was surprised by certain interpretations that Mr Putin can take the decision to supply the NHS, or not to supply it; or take a decision to switch off gas supply.

“The UK market does not work like that. We as a commercial organisation bid for contracts against competition from many other sources. If, for some reason, supplies were stopped, gas would be supplied by the wholesale market and we would have a lot of [financial] penalties,” Vasiliev said.

Gazprom faced deeper opposition early last year amid speculation that it sounded out politicians and regulators about a possible bid for Centrica. While the Government’s public position was that Centrica’s future would be left to market forces, behind the scenes there was concern.

Mr Vasiliev is equivocal about the Centrica story, saying first that Gazprom “did not even talk about it” and then that “it looked at all possibilities in the UK”.

So, did Gazprom consider bidding for Centrica, yes or no? “Let me put it this way,” he says. “Gazprom looked at the different opportunities in the UK to try to understand what made sense for us. Based on these considerations, we have decided to grow organically.”

Gazprom did buy a company, a tiny gas supplier called Pennine, which Vasiliev said gives his company the skills needed to build its European trading arm. “We now have what we need in terms of the people and IT systems to build our position in the market,” said the Moscow-born executive.

One strategy might be to build power stations in the UK. Gazprom has signed such deals in mainland Europe. “I am not excluding this type of project in the UK with a partner. But we do not have a detailed project now which I can announce to the public,” he said.

Does Vasiliev understand that this, rightly or wrongly, would encounter opposition in some quarters? “When I open the newspaper, I see images of this big bear coming to get you in Britain. I understand certain concerns because you [in Britain] have never worked with Gazprom, with Russia,” says Vasiliev.

“The UK is learning about Gazprom, and Gazprom is learning about the UK.”

And yet it is not just in the newspapers, or in British political circles, where concerns have been voiced about Gazprom’s expansion and influence. Throughout the European Union there is unease about Russia’s growth as an energy superpower.

In January 2005, Europe woke up to its reliance on Russian gas when supplies were disrupted briefly in a dispute between Moscow and Ukraine. The knock-on effect hurt the UK, with gas prices rising sharply. Other disputes have intensified suspicion.

The company has supplanted Royal Dutch Shell as majority shareholder of the vast Sakhalin-2 gas field. And Gazprom looks like emerging as the principal beneficiary of a dispute over the Kovykta project, run by BP’s Russian joint venture.

For Vasiliev, whether such events are good or bad depends on “interpretation, where you put the accent”. He says: “There are certain issues between Britain, the European Union and President Putin. But my job is not to be a politician and solve problems on that level. My job is to be a businessman.”

It was the same with questions about whether the Litvinenko poisoning might damage business relations between Britain and Russia. “You are mixing politics with business. What I am trying to do is separate them,” Vasiliev said.

Yet, Gazprom knows it has an image problem. Last week The Daily Telegraph disclosed Gazprom documents admitting that it must overcome hostility by politicians and the media if it is to grow a successful business in the West.

“Of course I recognise that there are concerns,” Vasiliev says. “Our potential clients may read things and they will be a little bit cautious. But with our existing clients our name is strong. They know professionals.”

For Vasiliev, Britain has too many stereotypes about Russia and Gazprom. “It is not right to judge Gazprom without meeting us and understanding our strategy. It is not black and white. There are colours. And it is only through dialogue that you can see the colours.”

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