Gazprom chief does business in Kremlin's shadow

MOSCOW (Reuters) - The head of Russian gas company Gazprom, Alexei Miller, faces a serious obstacle to his dream of turning his firm into a $1 trillion bluechip company: he owes his loyalty to the Kremlin.

That tension was in evidence this week when Miller was at the center of a gas row with Ukraine that cut off gas supplies to Gazprom's customers in Europe.

Miller, 46, went to Brussels for crisis talks with European Union leaders. But it was his mentor, Prime Minister Vladimir Putin, who appeared to be calling the shots for Gazprom.

"The Russian authorities have purposely turned Gazprom into a political instrument," said Vladimir Milov, a former deputy energy minister and now a Kremlin critic.

Miller's career has always been closely aligned with -- and in the shadow of -- Putin.

In the 1990s they worked together in the mayor's office in St Petersburg, Russia's second city. Miller left to work in the city's port, then for a local energy firm.

In 2000, when Putin was elected Russian president, Miller moved to Moscow to become deputy energy minister. A year later he was appointed Gazprom chief executive.

Putin made no secret that he wanted to boost Gazprom's role when he chose Miller. "Gazprom is more than just a joint stock company. The country's entire economy is based on the gas industry," Putin said.

FABULOUS WEALTH

In the intervening years Miller has taken steps to move Gazprom away from its origins as the Soviet ministry of gas.

The most radical measure was to liberalize the company's share structure, scrapping a "ring fence" that gave foreigners access only to special shares that were more expensive than the stock held by Russian shareholders.

That triggered a rush of foreign interest that, since the liberalization, has driven up the firm's share price 30 times over and made many investors rich.

By May 2008, before the global financial crisis erased two thirds of its value, Gazprom was the world's third biggest listed firm with a market value of $350 billion.

Miller faded from view in 2007 when illness kept him away from work for almost six months. "It was a question of survival," said a Gazprom source who asked not to be named. Russian media said Miller suffered from kidney stones.

Despite the absence, Miller's status and confidence rose along with his company's share price. BP CEO Tony Hayward felt Miller was sufficiently important to fly to Moscow several times a month for talks.

Miller predicted his company would one day be the most valuable in the world, worth $1 trillion.

But some investors say the firm sacrifices the bottom line too often to satisfy the Kremlin, for example by selling subsidized gas to Russia's former Soviet allies.

"I don't see major changes at Gazprom. It is a big inert machine. Made in the USSR. Full stop," said Ivan Mazalov from Prosperity Capital Management, who helps manage $2 billion of assets, including some shares in Gazprom.

But it is his political masters and not shareholders who have, on occasion, forced Miller to scale back his ambitions.

Miller has said repeatedly that he wants to expand into the oil sector and he made a bet he would shave off his mustache if he failed to buy the assets of bankrupt oil firm YUKOs when they were sold at a state-run auction.

The assets went to state-run oil company Rosneft, and Miller is now clean-shaven. Analysts said the Kremlin feared Gazprom would be too powerful if it acquired the assets.

Miller himself seems reconciled to having to take second place to political priorities. "We are a weapon to the same extent as any other business," he said last year.

(Reporting by Dmitry Zhdannikov; editing by Elizabeth Piper)