In­dia’s GDP data get re­cal­cu­lated, Chi­nese-style

Bloomberg Businessweek (North America) - - Contents -

Rus­sia shelved plans to turn Tur­key into a con­duit to Europe af­ter the Turks downed a Rus­sian war­plane near the Syr­ian border in Novem­ber.

Gazprom’s “ex­port pol­icy has al­ways been bal­anced and adap­tive,” says spokesman Sergei Kupriyanov. He ar­gues that Euro­pean cus­tomers have be­come more in­ter­ested, not less, in Rus­sian gas, given Europe’s own de­cline in pro­duc­tion.

The Krem­lin’s tra­di­tional hard­line ap­proach to cus­tomers was on dis­play last year when ten­sions over the cri­sis in Ukraine led to the worst breach in re­la­tions with the West since the Cold War. “Europe has lost,” Gazprom CEO Alexey Miller de­clared af­ter Rus­sia signed its first gas sup­ply deal with China. He said an­other deal would come in the “near­est fu­ture” that would al­low Rus­sia to re­di­rect some Eu-bound gas from deep in West Siberia to Asia.

In Septem­ber 2014, Gazprom started to limit gas de­liv­er­ies to some EU mem­bers, in­clud­ing Poland and Slo­vakia. They had been sup­ply­ing gas to Ukraine to re­place sup­plies that Rus­sia had cut off in a pric­ing dis­pute with its neigh­bor. Rus­sia warned that the con­flict with Kiev could dis­rupt sup­plies to Europe, as had hap­pened in 2006 and 2009. In both those episodes, Gazprom cut off gas to Ukraine. Be­cause Europe got most of its Rus­sian gas via Ukraine, Gazprom’s ac­tions im­posed short­ages on the EU as well.

In Jan­uary 2015, Miller told the EU’S new en­ergy chief, Maros Se­f­covic, that Gazprom would cut off ship­ments to Europe via Ukraine af­ter the cur­rent pipe­line con­tract ran out in 2019. That would force cus­tomers to build new pipe­lines. “We don’t work like this,” a stunned Se­f­covic told re­porters in Moscow.

But since the spring, the pres­sure has been grow­ing on Gazprom. The plunge in gas prices has be­gun to bite. Gazprom expects rev­enue in Europe in 2016 to be down 16 per­cent, the low­est in 11 years. Its gi­ant Siberian fields are op­er­at­ing far be­low ca­pac­ity. It says pro­duc­tion this year will fall to a record low be­cause of weak de­mand, pri­mar­ily from Ukraine, which isn’t buy­ing much.

In April, Brussels un­sealed an an­titrust com­plaint al­leg­ing Gazprom sold gas to Poland and the Baltic states at prices up to 21 per­cent higher than the av­er­age. If the charges are proven, the gas gi­ant could pay as much as $3.8 bil­lion in fines, VTB Cap­i­tal in Moscow es­ti­mates. Gazprom de­nies all the charges.

In ne­go­ti­a­tions to ex­port more gas to China, talks have stalled. Af­ter a Septem­ber visit to China again failed to yield a deal to ex­pand ship­ments, Gazprom hastily signed a pact with five big EU com­pa­nies in­clud­ing oil ma­jor Shell and util­ity E.ON to build a pipe­line un­der the Baltic Sea to Ger­many. Rus­sian of­fi­cials say they’re ready to of­fer lower prices to gas cus­tomers that help fund con­struc­tion, as well as con­ces­sions to en­sure the pact wins EU ap­proval. The com­pany later made a for­mal of­fer to set­tle the EU’S an­titrust charges.

Miller has pub­licly backed off from threats to cease ship­ments via Ukraine af­ter 2019. Gazprom is also giv­ing in to Euro­pean clients’ calls for more pric­ing flex­i­bil­ity. Slowly, Gazprom is learn­ing how to op­er­ate like an or­di­nary com­pany that has to work on its cus­tomer re­la­tions.

�Elena Mazneva, Anna Shiryaevsk­aya, and Kelly Gil­blom, with Ilya Arkhipov, Tino An­dresen, and Alex Mo­rales

“The po­si­tion of Gazprom and the Rus­sian side is be­com­ing flex­i­ble in light of the chang­ing sit­u­a­tion, de­fend­ing our in­ter­ests but also tak­ing into ac­count the de­mands of the Euro­pean side” The bot­tom line As Rus­sia tries to defuse ten­sions with the West, Gazprom is blus­ter­ing less and promis­ing more.

growth model. “You’ll have smaller sub­si­dies com­ing from the cen­tral gov­ern­ment, you’ll have a smaller black econ­omy, and you’ll have crony cap­i­tal­ism cur­tailed to some ex­tent,” Mukher­jee says. “While each of th­ese re­sets will be very pos­i­tive for the coun­try from a long-term per­spec­tive, all of this in the short term is ex­tremely neg­a­tive for GDP growth.” �San­drine Rastello

The bot­tom line The gov­ern­ment says In­dia’s econ­omy grew 7.4 per­cent last quar­ter, but ac­tual busi­ness ac­tiv­ity sug­gests oth­er­wise.

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