President Vladimir Putin squashed market hopes of quick reforms at Gazprom on Friday, saying the government opposes plans to break up the gas giant.

"The state does not support any plans to split or break up Gazprom," Putin said at a reception held to celebrate the monopoly's 10th anniversary.

This was Putin's strongest statement yet against Gazprom reform. Under CEO Alexei Miller, Gazprom has strongly fought Economic Development and Trade Ministry plans to split off its production units from its pipeline network in a bid to increase efficiency, even though daughter companies would remain 100 percent Gazprom-owned.

Miller has argued such a shake-up would endanger Russia's gas supplies.

"Gazprom, as a strategically important company, should be kept, and has been kept, as a single organism," Putin said. "Gazprom is a powerful political and economic lever of influence over the rest of the world," he was quoted by Prime-Tass as saying. "Gazprom is light and heat in the homes of the population. It is the activity of enterprises."

"Taking this into account, the state has been very careful about reforming the gas sector. We will continue to be careful in the future," he said.

Analysts said Putin was being pragmatic ahead of next year's presidential elections. An overhaul of the gas sector could lead to an unpopular surge in gas prices. But they also said the government would eventually have to allow hungry oil giants access to Gazprom's pipeline since its gas production alone would not meet growing demand abroad and at home.

Yukos, TNK, LUKoil and Surgutneftegas have invested hundreds of millions of dollars in gas refineries and fields in hopes of gaining part of the market as debt-laden Gazprom struggles to meet mounting demand.

Stephen O' Sullivan, head of research at United Financial Group, said holding out the promise of future gas pipeline access was a good way to keep powerful oligarchs in Putin's camp through the elections. "This is a useful bargaining chip for Putin," he said.

Gazprom has acknowledged that it can keep production at 530 billion cubic meters per year only for the next decade.

Brunwsick UBS Warburg estimates that will mean a shortfall of 50 to 70 bcm by 2007 or 2008 for export and domestic needs. At an energy strategy meeting Friday, Prime Minister Mikhail Kasyanov said the lack of gas market competition could "put the brakes on economic growth," Interfax reported.

The government is planning to create a gas exchange this year where independent producers, including oil companies, will be able to sell gas domestically at market prices.

"This is the beginning of the end of Gazprom's monopoly," said Paul Collison of Brunswick UBS Warburg.

Though siding with management against restructuring, Putin nonetheless rebuked the company for its opacity.

"The opaqueness of Gazprom's [financial accounts] could have a serious impact on attracting investment into the sector," Interfax quoted him as saying.

Under former CEO Rem Vyakhirev, the company became a byword for financial scams under which independent board director Boris Fyodorov claims up to $1 billion in revenues were siphoned off annually into crony companies.

But at the 10th anniversary celebrations, Putin had high praise for Vyakhirev, whom he sacked in May 2001 as well as for Viktor Chernomyrdin, the former prime minister who founded Gazprom.

Putin thanked them for "maintaining the sector, for preserving its potential for maintaining it as the foundation of the Russian economy."

(The Moscow Times 17.ii.03)