Monopoly: The price of service

Synopsis: With service shutdown simply to coerce consumer compliance, millions were left in the cold in the bleak European winter.


In this coldest winter in a century in Europe, temperatures have sunk to new lows. The ‘cold war’ competitiveness in monopoly business has caused consumer service to do the same!

The price

Globalization raises awareness of other nations as potential markets. But perhaps the fixation with dominance has made holding nations to ransom over bottomline easy.

On New Year’s Day, with temperatures in some places dipping below minus ten degrees Celsius, natural gas supplies to Europe was cut by sixty percent, and despite assurances, failed to restore nearly three weeks later.

The energy cut left helpless consumer countries – like Bulgaria, Greece, Macedonia, Romania, Croatia and Turkey - on the verge of fuel crisis not of their own making. These populations are merely collateral damage in the money war between the Russian supplier company Gazprom and the Ukranian transit carrier company Naftogaz.




Gazprom

OAO Gazprom, is the largest Russian company, and the largest extractor of natural gas in the world. It’s the third largest oil producer behind Saudi Arabia and Iran.

In 1989, the reorganization of USSR’s gas industry created Gazprom. When the union of states was dissolved a few years later, Russia inherited much of this concern. It grew giant with its aggressive acquisitions forcing Western energy firms, like BP, out of their drilling tie-ups in Siberian oilfields.

The service

Gazprom serves piped natural gas fuel to a massive clientele outside Russian borders – USA, Europe, Japan and South Korea. Many of the European union are partially, majorly or wholly dependent on the company.

Gazprom also supplies energy to erstwhile members of the former Soviet Union e.g. Belarus and Ukraine, now soverign nations. Some of these are partners in the supply chain. Ukraine, for example, is a major transit nation, carrying eighty percent of the energy reaching countries in Europe.

Gazprom controls the pipeline network, as it does prices, monopolistically. Sometime ago, importers in Belarus was told to pay more for the fuel received - $200 per unit in place of $47. When they didn’t agree to the hike, supply was curtailed - until new price $100 per unit was ‘negotiated’.

The spat

A similar dispute arose with NAK Naftogaz Ukrainy earlier in January 2006, and similar dominating tactics were adopted. Gazprom reduced Ukraine’s domestic supply, while the export to Europe remained intact. Naftogaz however tapped into the export route to first bolster her domestic needs.

Bystander nations in Europe felt the effects of the spat, when supply cut off completely. The EU imports 50 percent of its energy, a quarter of it from Russian shores. Some used the experience to create their own emergency reserves thereafter, but others remained dependent on the direct service.

In 2008, Gazprom arbitrarily raised the price in Ukraine to five times the original, besides billing 1.5 billion USD for the gas “stolen” earlier. Naftogaz in turn claimed higher transit tariffs, and threatened to disrupt the European route. With consumer service shutdown simply to coerce compliance, millions were left in the cold in the bleak European winter.

Cont’d 2…the drive for expansion