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Abu Dhabi, UAEWednesday 3 March 2021

Timely reminders in the death of Russia's gas giant

Viktor Chernomyrdin's story reminds us that while leaders cannot control the vast, impersonal forces of history and economics, they can give them a human face and shape them, for good and ill.
Viktor Chernomyrdin, the former Russian prime minister, pioneered the corporatisation of the communist system. Reuters
Viktor Chernomyrdin, the former Russian prime minister, pioneered the corporatisation of the communist system. Reuters

We wanted better but it turned out as always," observed Viktor Stepanovich Chernomyrdin, the former Russian prime minister who died last Wednesday, on the chaotic 1990s privatisation of the Russian economy.

Mr Chernomyrdin's career was in many ways emblematic of the later Soviet Union and the path that Russia has taken since its dissolution. But he was not just a passive observer; his actions helped establish some of the key features of Russia's distinctive capitalism.

Most of his adult life was spent in or around oil and gas. Beginning as an oil refinery mechanic, he worked his way up into leadership positions in the gas industry.

Mr Chernomyrdin was also a leading figure in the turbulent governments led by the former president Boris Yeltsin, serving as the prime minister from 1992 to 1998 - holding the position longer than any incumbent before or since.

On the cusp of the Soviet Union's dissolution, he pioneered the corporatisation of the communist system when, in August 1989, the old ministry of gas became a company, Gazprom. By 1994, a majority share had been privatised and 9 per cent was opened to foreign ownership.

Mr Chernomyrdin was thus an architect of the modern brand of state capitalism, including the sometimes uneasy acceptance of private investors, although it is unlikely he perceived this clearly at the time. As well as dominating the successor states of the Soviet Union, elements of this economic model feature in successful Asian countries such as China, as well as in the Middle East.

By gathering up most of Russia's gas assets in one place and granting Gazprom a monopoly over gas transport and exports, Mr Chernomyrdin ensured the gas industry avoided the fragmentation that befell the oil sector under billionaire tycoons such as Roman Abramovich and the now-jailed Mikhail Khodorkovsky.

Gazprom was therefore a vital source of budget funds during the time of low oil prices leading up to the Russian debt default in 1998, and beyond.

Like other Russian politicians subsequently, he was thus unable to steer the Russian economy away from the Soviet era's unhealthy dependence on petroleum earnings. Gazprom today produces 17 per cent of the world's gas and still accounts for a tenth of the Russian economy.

Yet Mr Chernomyrdin, the creator of Gazprom, so nearly became its destroyer. In the late 1990s, under his premiership, Gazprom engaged in tax-avoidance schemes. Its management, with Mr Chernomyrdin's apparent connivance, sold prize assets to the independent gas trader Itera at knock-down prices.

It was inevitable that Vladimir Putin, whose doctoral thesis was on Russia's need to control its natural resources, would reverse this state of affairs. Becoming Russian president in June 2000, Mr Putin promptly sacked Mr Chernomyrdin as Gazprom chairman and installed his protege, Dmitry Medvedev, now his successor as president. Under new management, Gazprom cut off Itera's access to gas pipelines and hence strong-armed it into returning the looted assets.

Its history means Gazprom's Soviet-style practices have survived to the present day. Monopolistic and extending its tentacles into other parts of the Russian economy, Gazprom is now as much a brake on progress as an enabler. It served as a bridge for Mr Putin's return, if not to communism, then at least to statism.

And under Mr Putin's tenure, it strengthened its grip as an instrument of Russian foreign policy, particularly in maintaining Russian influence over the gas-producing states of central Asia and some European consumers, notably Ukraine.

But the Itera episode showed the weakness of the Russian state - first in losing control, then in having to resort to commercial bullying rather than legal action to enforce its rights.

As prime minister, Mr Chernomyrdin, aged 54 when appointed, was important as a political insider. The young reformers, led by the economist and privatisation minister Anatoly Chubais (then 37) and the economy minister Yegor Gaidar (then 36), wanted to smash the whole Soviet economic system, to ensure communism would never return.

Mr Chernomyrdin was a vital bridge with old-style factory managers and party bosses, yet his instincts for compromise sometimes tried to reconcile the irreconcilable, and preserve Soviet relics. As Vladimir Pribylovsky of the Panorama political research group sees it, "He didn't have anyone killed but in all he was a negative figure for the country and one of the fathers of Russia's corrupted system of bureaucratic capitalism."

Mr Chernomyrdin's modest background and his plain-speaking style, littered with homely aphorisms and grammatical mistakes, were an important counterpart to the smooth young reformers and flashy, westernised leaders in Mr Yeltsin's administration. Mr Chubais recognised as much in his epitaph to Mr Chernomyrdin who, he said, had several times saved the country.

And as his negotiations to free hostages in the war against Chechen rebels showed, he was more humane and more humble than others with whom he worked, and Mr Putin who later followed him as prime minister.

As Leo Tolstoy would have seen it in War and Peace, Mr Chernomyrdin was more like General Kutuzov - wise enough to let history direct him, rather than Napoleon who vainly sought to change it. As Tolstoy said: "In historical events great men … are but labels … A king is history's slave".

Mr Chernomyrdin's story reminds us that while leaders cannot control the vast, impersonal forces of history and economics, they can give them a human face and shape them, for good and ill.

Robin Mills is a Dubai-based energy economist and author of The Myth of the Oil Crisis

Published: November 9, 2010 04:00 AM

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