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Gazprom: rising star of new Kremlin capitalism

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Recently, the Kremlin has begun to apply the same business model to other sectors as well. Last year Russia's aircraft producers were deprivatized and merged into a single state-run conglomerate. The world's largest titanium producer, AVISMA, a profitable private company that supplies Airbus and Boeing, was taken over by the state arms monopoly Rosoboronexport. A massive state-run expansion of Russia's nuclear power industry is looming. Experts say the Kremlin has either begun, or is eyeing, forays into diamonds, forestry, telecommunications, automobiles, and banking.

"The Kremlin intends to build big industrial groups, something like South Korea's chaebol system, to stimulate Russia's economic development,"says Alexei Mukhin, director of the Center for Political Information, an independent Moscow think tank, referring to the monopolistic Korean conglomerates that have received government support.

Mr. Mukhin says the process has to be state-led, because Russia's experience in the 1990s showed that private businessmen became power-hungry and tried to buy their way into government. "Free capital is too unruly, and that's why [President Vladimir] Putin prefers to work with state officials whom he can control."

Fueling Russia's energy dominance

Gazprom's name has become a household word in the West, thanks to its recent role in forcing higher gas prices on Moscow's recalcitrant neighbors like Ukraine and Belarus, leading to brief supply disruptions and lasting political jitters in downstream Europe. Such moves have triggered accusations that Gazprom was acting as a political tool of the Kremlin.

"Gazprom is the core of the Russian state, and it expresses the will of the Kremlin," says Lilia Shevtsova, an expert with the Carnegie Center in Moscow. "It is not a normal company," but is closed, nontransparent, and unaccountable to all but its political masters, she says. "It operates like an intelligence agency."

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