Gazprom plots UK expansion, but buying Centrica is a pipe dream

By Danny Fortson, Business Correspondent
Monday, 2 June 2008

Gazprom plans to grow its UK market share by a factor of 10 within five years but has no near-term plans to buy Centrica, the chief of the UK business said.

"We are the vehicle of Gazprom to implement their strategy to become the world's leading energy company," said Vitaly Vasiliev, the head of the company's UK business, Gazprom Marketing & Trading (GM&T), in an exclusive interview with The Independent. "Our market share is very small, 1 to 1.5 per cent [of the retail market]. We can grow that to 10 per cent, even 15 per cent, but ...only if it is profitable."

He downplayed the possibility that Gazprom would use its massive war-chest to buy its way into the UK through a major acquisition. Centrica, the country's biggest gas supplier, has been mentioned in the past as a possible target. Mr Vasiliev said the group, which counts Manchester United and Chelsea football clubs among its customers, prefers organic growth. "It takes a lot of time to build what Centrica has, what EDF has. You can't do that overnight. It's a long process but that's the intention," he said. "Gazprom has a lot of money, but is also has a lot of projects. It is not a question of how much money you have, but how efficiently you spend it."

It's an important point. Mr Vasiliev said he is trying to build GM&T gradually into a "trusted brand". So far, the business, headquartered in a riverside building in Kingston upon Thames, has not been hurt by the image of the mother company as a political tool of the Kremlin. Distinguishing between the two is becoming increasingly difficult. Before becoming Russia's new Prime Minister earlier this year, Dmitry Medvedev ran the gas giant. The company also spooked Europe last year when it reduced gas supply to Ukraine – through which a fifth of Europe's gas flows – in a dispute over pricing.

GM&T has so far rolled on unscathed. Its customer rolls – mainly small- and medium-size businesses and larger industrial users – quadrupled in the last year. According to financial results filed recently at Companies House, turnover last year jumped by three quarters to £2.5bn year, while profit increased by nearly 50 per cent to £34m.

The UK operation – established in 2004 as Gazprom Marketing & Trading – is the springboard for the mother company's push into liberalised European markets. Among it targets are Ireland, Belgium, Holland and France, where it recently entered the market focusing on selling gas and electricity to large industrial users.

Mr Vasiliev said the next step is to target the wider retail market. Though the day when household customers will be able to switch from their current supplier to Gazprom, he said, is still "several years" off. The company makes most of its money from its trading operations, where it buys and sells everything from carbon permits to gas and electricity to liquefied natural gas. It buys half of its gas from Gazprom. It gets the rest on the open market or through contracts with North sea suppliers.