The problem with state management of business

NY Times:

A year ago, Gazprom, the Russian natural gas monopoly, aspired to be the largest corporation in the world. Buoyed by high oil prices and political backing from the Kremlin, it had already achieved third place judging by market capitalization, behind Exxon Mobil and General Electric.

Today, Gazprom is deep in debt and negotiating a government bailout. Its market cap, the total value of all the company’s shares, has fallen 76 percent since the beginning of the year. Instead of becoming the world’s largest company, it has tumbled to 35th place. And while bailouts are increasingly common, none of Gazprom’s big private sector competitors in the West is looking for one.

That Russia’s largest state-run energy company needs a bailout so soon after oil hit record highs last summer is a telling postscript to a turbulent period. Once the emblem of the pride and the menace of a resurgent Russia, Gazprom has become a symbol of this oil state’s rapid economic decline.

During the boom times, Gazprom and the other Russian state energy company, Rosneft, became vehicles for carrying out creeping renationalization.

As oil prices rose, so did their stocks. But rather than investing sufficiently in drilling and exploration, Russia’s president at the time, Vladimir V. Putin, used them to pursue his agenda of regaining public control over the oil fields, and much of private industry beyond.

As a result, by the time the downturn came, they entered the credit crisis deeply in debt and with a backlog of capital investment needs. (Under Mr. Putin, now the prime minister, Gazprom and Rosneft are so tightly controlled by the Kremlin that the companies are not run by mere government appointees, but directly by government ministers who sit on their boards.)

...

Investors are now fleeing Gazprom stock, once such a favorite that it alone accounted for 2 percent of the Morgan Stanley index of global emerging market companies. Gazprom is far from becoming the world’s largest company; its share prices have fallen more quickly than those of private sector competitors. The company’s debt, amassed while consolidating national control over the industry, is one reason.

After five years of record prices for natural gas, Gazprom is $49.5 billion in debt. By comparison, the entire combined public and private sector debt coming due for India, China and Brazil in 2009 totals $56 billion, according to an estimate by Commerzbank.

Mr. Putin used Gazprom to acquire private property. Among its big-ticket acquisitions, in 2005 it bought the Sibneft oil company from Roman A. Abramovich, the tycoon and owner of the Chelsea soccer club in London, for $13 billion. In 2006 it bought half of Shell’s Sakhalin II oil and gas development for $7 billion. And in 2007, it spent more billions to acquire parts of Yukos, the private oil company bankrupted in a politically tinged fraud and tax evasion case.

Rosneft is deeply in debt, too. It owes $18.1 billion after spending billions acquiring assets from Yukos. And in addition to negotiating for a government bailout, Rosneft is negotiating a $15 billion loan from the China National Petroleum Corporation, secured by future exports to China.

...

It was so much easier for the communist when they could just seize companies. Still this shows how governments can mismanage assets in ways prudent business people never would. It also highlights the dangers the US faces with government meddling in the auto business. If Democrats think they know more about running the auto business than auto executives they are as delusional as Tom Friedman. The auto companies are capable of making enough mistakes on their own without amateurs forcing them to do things that will not work in the long run.

It would be interesting to see a similar story on the Venezuela oil monopoly run by Chavez. I suspect it is even worse off.