RAO Gazprom

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RAO Gazprom was created by presidential decree on Nov. 5, 1992, as the Russian national gas company responsible for all production, transmission and distribution of natural gas. Gazprom controls more than 95% of Russia's gas production, oversees 8 production associations, owns and operates Russia's 86,000-mile (140,000km) gas pipeline grids, runs 26 trading houses and marketing joint ventures in 13 European countries. Gazprom controls 30% of known world gas reserves and produces one third of the world annual output. It owns 51% of 20 subsidiary companies, which make up the United Gas Supply System of Russia and owns 100% of some 30 other companies involved in natural gas production and transmission. Gazprom is also the main sponsor of Yamal gas pipeline, a $40 billion project to transport gas from Yamal (Russia) to Western Europe through a 2,500-mile pipeline. The privatization of Gazprom began in late 1993 with a nominal founding capital of $103 million (236.7 billion rubles) and proceeded in stages (1993 - 15%, 1994 - 28.7%, summary numbers for other years are not available). Most of that equity was privatized through voucher programs and domestic auctions. In Sep. 1996, an 1% equity stake in Gazprom was sold through an issue of American Depositary Shares in London, with reported revenues of $373.3 million. By 1997, the shareholders were the Russian government (40%), employees (20%), indigenous populations of regions where Gazprom operates (29%) and other private investors (11%). In Dec. 1998, the Germany company Ruhrgas acquired a 2.5% stake for US$ 660 million; in May 1999, Ruhrgas acquired another 1% for US$ 250 million and Gerosgaz acquired 0.5% for US$ 28 million (Gerosgaz is a joint-venture between Ruhrgas - 49% - and Gazprom's subsidiary GasExport - 51%). Valuation of divestiture revenue is extremely difficult because the equity was divested partly in national auctions at one single price, partly in closed regional auctions with varying prices and partly abroad at mostly higher prices than in domestic issues. Further privatization in Russia proceeded by various means (voucher and cash). On April 28, 1997 Russian president Yeltsin signed a decree ordering the government to retain indefinitely its 40% equity stake in Gazprom, with two additional decrees on May 13 and May 28 which substantially increased the state's role in managing Gazprom. Gazprom is undergoing an extensive five-year rehabilitation of its gas trunkline system at a total cost of $300 million. Most of the financing for this rehabilitation ($225 million) comes from an EBRD loan approved in Dec. 1996. RAO Gazprom is also the main developer of the $38.7 billion Yamal pipeline project (an estimated $12 billion for total cost excluding gasfield development). Yamal gas pipeline consisted in 2,500-mile transmission pipeline system that will transport gas from Yamal, Siberia, to Western Europe. The project will consist of two parallel pipelines running from Yamal to Frankfurt/Oder, Germany via Belarus and Poland. The first pipeline will be fully operational in 1999. If the project were late, Gazprom would have to start paying penalties. The second pipeline will be completed in 2010. The construction of each line was divided into four main parts which, in turn, are divided in several parts. The four main parts are the Russian, Belarussian, Polish, and German one. The Russian section is entirely developed by Gazprom. Gazprom obtained $5.5 billion for the financing required for its participation in Yamal pipeline. Gazprom signed up a $3 billion loan form a consortium of 12 banks led by Credit Lyonnais and Dresdner Kleinwort Benson. The year syndicated loan signed in Nov. 1997 is backed by revenues from Grazprom's gas exports to Europe. During the summer 1997, Gazprom also mandated Goldman Sachs adn ABN Amro to arrange a $2.5billion financing package, consisting of convertible bonds and debt eurobond. By June 1997 some 1,200km of the first circuit of the 4000km pipelines mostly near fields in Yamal and in Belarus had reached an advanced stage of construction. As of December 31, 2009, 38.373% of OAO Gazprom issued shares were directly owned by the Government. Another 11.629% were owned by Government controlled entities, giving the government an overall 50.002% controlling stake in the company.