Streetwise Professor

Gazprom/Russia is/are playing smashmouth ball over Serbia’s national oil company. Don Miller and Don Medvedev have presented Serbia with an offer it can’t refuse: to sell Naftna industrija Srbije at a fraction of its true value–and one with an unbelievably short fuse, like, you know, Friday.

In exchange for control of SIJ’s hard assets and guarantees of a monopoly position in Serbia for some period (take that Serbian consumers, Gazprom doesn’t do competition), Gazprom Neft (Gazprom’s oil affiliate) is offering an amount that has been estimated to represent well less than one-half (and perhaps as little as one-quarter) of the Serbian company’s value. The tacit quid pro quo is that Russia will support Serbia on Kosovo–but, if Russian rhetoric is to be believed (yeah, I know) they would do that anyways.

To make the deal look a little less like an abject surrender, Gazprom has also dangled the prospect of giving Serbia a stake in a future gas venture. Word of advice, guys–DON’T BELIEVE IT, and DON’T TAKE IT. Gazprom is the master of what Bob Amsterdam calls “premature contractualization.” That is, announcing deals just in time to forestall projects that are adverse to Gazprom’s interest, and then fading the deal when the threatening competing projects are shelved in response to the Gazprom announcement. Gazprom will whisper sweet promises in anybody’s ear to get what they want, and then renege when it suits them. (Nigeria–you should take note of this, as Gazprom has been wooing you too.)

Gazprom’s stratagem is analogous to a common ploy in the software business. In the 80s and 90s “vaporware” was a commonly employed competitive strategy. A software company would announce a new, improved software product in order to forestall entry by a competitor. Once the potential entrant was scared away, the new software would just fade away into the mists, never to be seen. Gazprom is essentially following this playbook–constantly announcing vaporpipelines, vaporwells, vaporinvestments, vaporstorage, vapor-you-name-it whenever a threatening project is mooted.

So, what Gazprom is offering Serbia is: a pittance in cash plus a pig in a poke in exchange for hard assets right now. Given Gazprom’s record of delivering on its big talk, the Serbs would be well advised to take cash on the barrelhead and take the promises for what they are worth–a little more than nothing.