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Originally published March 19, 2013 at 9:00 PM | Page modified March 20, 2013 at 6:22 AM

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The Russian solution to the bailout crisis in Cyprus

Gazprom, the giant Russian energy company, has offered a private bailout plan to Cyprus.

The New York Times

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MOSCOW — When the European Union said it would bail out Cypriot banks by seizing a percentage of deposits, Cypriots erupted. Russian government officials also raged, on behalf of Cyprus’ many Russian depositors.

Meanwhile Gazprom, the giant Russian energy company, quietly acted by offering a private bailout plan. Rather than tax deposits, Cyprus could raise money to right its economy by selling Gazprom exploration rights to offshore-gas deposits in the Mediterranean Sea.

The fate of this proposal is uncertain. Gazprom refused to confirm it even made an offer.

But it illustrates how a sprawling, wealthy company so entwined with President Vladimir Putin, of Russia, that it is often called a state within a state is willing to seize an opportunity and exploit weaknesses and divisions within Europe to cement its position and power.

Gazprom already has vast gas deposits in Siberia. But the emergence of an independent gas industry in Cyprus could further undercut Gazprom’s monopoly pricing power in Europe, already threatened by the global gas glut from the U.S. shale gas boom.

Ownership of Cyprus’ promising though undeveloped reserves, lying beside similarly large deposits found recently off the coast of Israel, would prevent potential competitors from obtaining them and ensure a supply of gas — and Gazprom’s continued power — for generations to come.

Gazprom, the world’s largest natural-gas company, accounts for about a 10th of Russia’s gross domestic product as it earns billions of rubles by providing Europe with about 40 percent of its imported gas.

While the Gazprom proposal was widely interpreted as an effort to elbow aside the EU and the International Monetary Fund, it was at the very least audacious: A private company was in effect offering to save a nation’s economy.

On Sunday evening, a day after the EU announced its plan, the banking subsidiary of Gazprom, called Gazprombank, owned by the employee-pension fund, had, according to a Russian news agency, delivered its proposal to the office of the president of Cyprus.

Gazprombank’s maneuver, while clearly aimed at benefiting the parent company, also highlighted the deep dependence of Russia’s business and political elite on Cypriot offshore banking. They have used it to avoid taxes and political risk at home and to access Cyprus’ relatively reliable court system to adjudicate disputes.

Russian depositors in Cypriot banks risk losing about $3.1 billion to what the EU is calling a stabilization tax on bank savings, from a total of $31 billion held by Russians in Cypriot banks, according to a report by Moody’s.

The Cypriot Parliament on Tuesday overwhelmingly rejected the 10 billion euro-bailout package that would have placed a tax on bank deposits. It was unclear, however, whether a Russian alternative might still be considered viable.

The Cyprus government wanted U.S. energy companies to develop its offshore assets as a hedge against possible Turkish meddling, said Dimitry Afanasiev, the chairman of Egorov Puginsky Afanasiev & Partners, a law firm that advises Russian companies on Cypriot investments. Afanasiev has been an advocate for a Russian alternative to the EU proposal.

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