In Russian authorities and state-controlled companies, there is an old division of tasks that has always been upheld: the boss announces good news, while bad news is left to the deputy. When Famil Sadygow, the deputy CEO of the energy giant Gazprom, spoke on the short message service Telegram on Tuesday, it was therefore clear that there would be no jubilation. Sadygov announced the figures for the first half of 2023 in a rather sober tone: 296 billion rubles (2.8 billion euros) net profit.

This value became particularly controversial when compared with the same period last year, which Sadygow did not report on but included in an attached financial report: According to this, Gazprom achieved less than an eighth of the previous year’s profit in the six months from January to the end of June.

But that’s not all: In the second quarter of 2023, according to the report, the energy company, once the cash cow of the Russian state, even made a loss: the equivalent of almost 178 million rubles. Losses are something that doesn’t happen very often in Gazprom’s history; the company, which for a long time primarily exploited the natural gas reserves of western Siberia that had been developed during the Soviet era, was considered the Russian industry’s money-printing machine.

Sadygow also delivered a few reassuringly meant hints. The bad values ​​on the balance sheet are due to “exchange rate differences on financial items”, according to the Gazprom deputy, and the company also has a “considerable liquidity cushion”.

Experts are skeptical about this attempt at an explanation. “I don’t think currency differences are responsible for the decline,” says Vladimir Milov, a former Russian deputy energy minister and now an exiled opposition politician. “The most important factor is a drop in revenue.”

In fact, one thing is becoming increasingly clear: Gazprom’s original business model – the lucrative sale of natural gas to Germany and other countries in the European Union – collapsed as a result of the Russian export ban, destroyed pipelines and, in the meantime, the reorientation of Western customers. In the spring of 2022, the share of Russian gas in EU imports was almost 40 percent, but this figure is now well below 20 percent. Although imports of Russian LNG are also increasing with the increasing imports of liquefied natural gas (LNG) to Europe, the country, which for decades relied mainly on pipelines, only has comparatively low LNG capacities.

In Milow’s view, there is another factor: the loss of Gazprom subsidiaries and assets frozen in the west in the course of the war mean that foreign exchange flows dry up beyond the pure gas business.

The slump poses a problem not only for Gazprom, but also for the Russian state budget, which has long been financed to a large extent by revenues from gas and oil exports. In the first half of the year, these inflows fell by half, and the budget deficit is widening.

To prevent any criticism, Gazprom Vice Sadygow also pointed out that Russia had found a new customer: the decline in exports to Europe was “partially offset by an increase in deliveries to China”, said Sadygow. These would “continue to grow within the framework of the contractual obligations”.

However, there are three fundamental problems: First, only a low-capacity pipeline currently connects Russia with China, and it will take years to expand this connection. Second, Gazprom’s deals with China are likely to fetch only a fraction of the prices it has been able to charge in the EU. And thirdly, the Chinese are currently struggling with economic problems, which should also limit the giant empire’s hunger for raw materials.

So if Gazprom, the energy giant that once scared Europe, wants to get out of this trough, the company has a lot of work to do. And the work – which is also a basic rule in Russian corporations – always has to be done by the deputy.

This article first appeared on CAPITAL.