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Monday, January 30, 2006

Europe Heeds Its Gazprom 'Wake-Up Call'

27.01.2006 The Moscow Times - by Catherine Bolton - World leaders increased calls for reducing Europe's dependency on gas supplies from Russia on Thursday as freezing temperatures forced cutbacks from Gazprom for the eighth day running and Russia continued to snipe at Ukraine, a vital transit country. As political and business leaders gathered in Davos for the World Economic Forum, Poland's prime minister and U.S. billionaire George Soros said the recent disruptions in gas supply meant Europe should find alternate sources. Soros called Russia's recent standoffs with Ukraine and Georgia over prices "a wake-up call for Europe" as Russia used its might to gain leverage over its neighbors, while Polish Prime Minister Kazimierz Marcinkiewicz said his country wanted to diversify supplies. "Trust is measured on practice and the practice we have seen in January of this year was not promising," Marcinkiewicz told reporters in Davos, Reuters reported. He said his country was now considering building a liquefied natural gas, or LNG, plant. Hungary and Croatia followed suit. At a joint session of both countries' Cabinets in Budapest they vowed to reduce their dependency on Russia, and their prime ministers signed a deal Thursday for a new LNG terminal on the Adriatic coast. "We want to do everything possible to become independent in terms of energy supplies," said Croatian Prime Minister Ivo Sanader. But amid the growing search for an alternative to Gazprom, the company hit back by again blaming Ukraine for the cutbacks to Europe. In its strongest statement yet, Gazprom accused Ukraine of illegally taking 326 million cubic meters of Russian gas bound for Europe over Jan. 19-25. Ukraine's maximum daily off-take from the pipeline was 80 million cubic meters, Gazprom said -- an amount equal to Italy's daily consumption. "The cold snap has shown that Ukraine is the only transit state that flagrantly violates international gas business conventions," Gazprom deputy CEO Alexander Ananenkov said in a statement. The standoff between Russia and Ukraine over gas prices earlier this month led to Russia cutting off Ukraine and shortfalls to Europe, which receives 25 percent of its gas supplies from Russia, mostly through Ukraine. Coming so soon after this month's bitter price dispute between Russia and Ukraine, the cutbacks brought on by the region's severe cold snap have only increased Europe's jitters. Italy, which reported a shortfall of 8 percent Thursday, has called on industrial customers to switch to alternate sources of fuel and for domestic consumers to save energy. Meanwhile, Russia's Jan. 4 deal with Ukraine has been looking increasingly shaky since officials on Wednesday again postponed signing the contracts that would give the agreement legal force. While both sides continued to try to hammer out terms, Gazprom has been upping the rhetoric. "We don't plan to put up with the fact that gas destined for European customers is being used in Ukraine," Gazprom spokesman Sergei Kupriyanov told Channel One television earlier Thursday. "We understand it's cold, but Ukraine isn't the only place where it's cold. No one gave Ukraine the right to take more gas than contracted." In Kiev, a spokesman for Naftogaz Ukrainy, Dmitry Marunich, admitted that Ukraine had been taking more gas than it should have done, and said the Ukrainian government, which is trying to crack down on customers who use too much, could face sanctions from Gazprom. "Under intergovernmental agreements, we might have to pay more for this gas," Marunich said. Gazprom declined to comment on what measures Ukraine might face at the end of the month, which is also the deadline for the signing of the contracts underpinning the Jan. 4 deal. Marunich said the deal, as a framework agreement, was not yet legally binding. It would become so after individual contracts were signed, he said. A key sticking point has been the proposed creation of a joint venture to distribute gas inside Ukraine between Naftogaz and Rosukrenergo, the mysterious Swiss-registered gas trader that was granted a monopoly on sales to Ukraine. Questions over Rosukrenergo's ownership have increased the pressure on Ukraine to rethink the deal. Gazprom owns half of Rosukrenergo, while Austria's Raiffeisenbank holds the other half on behalf of unidentified investors. "Before signing this, we should know into whose hands we've signed our energy security for the next five years," said Grigory Nemyria, a foreign policy adviser to former Ukrainian Prime Minister Yulia Tymoshenko. Prime Minister Yuriy Yekhanurov said Wednesday that Rosukrenergo's ownership should become clear in the next 12 to 18 months, when the trader plans to list its shares internationally. But Ukraine's anti-monopoly commission has said it needs to know who the owners are before it can approve the deal. Marunich said, however, the deal would likely be signed by the end of the month. "Ukraine has to have gas supplies," he said.

Thursday, January 26, 2006

Gazprom to Be Frozen out of Italy

01-26-2006 Kommersant - In the environment when the frost prompted Italy, Hungary, Romania and Poland to curtail gas consumption of industrial consumers by between 7 percent and 10 percent, and Russia's Industry and Energy Minister Viktor Khristenko vowed to readdress all gas claims of the EU to Ukraine, ENI seized the chance to slap Gazprom, saying it couldn't be trusted to enter the retail market of Italy. It appears ENI just wants to add its own intermediary to system of gas deliveries to the country. Of 440 million cubic meters of gas that Italy daily consumes in winter, from 40 million cubic meters to 45 million cubic meters are to be saved starting from today, said Italian Industry Minister Claudio Scajola. The situation is similar in Hungary and Romania, which suffer from the 15-percent decline in Russia's gas delivery. Nearly all large enterprises and two big heating power plants have reduced gas consumption in Poland. Germany and Austria are in the different league. Lucky to have the gas pumped via Belarus, they have never complained of Gazprom's failure to execute contractual obligations. It is Italian ENI that has staged the most powerful attack on Gazprom, warning the European Union to prevent Russia's gas monopoly from reaching end consumers. The interesting point is that ENI has actually promised to Gazprom to set up a joint venture and transfer its domestic contracts for 2 billion cubic meters of gas. The parties have not agreed on the intermediary yet, said a source familiar with the progress in talks. Anyway, ENI CEO Paolo Scaroni said yesterday he would soon go to Moscow to negotiate.

Wednesday, January 25, 2006

Gazprom gives ex-USSR a new year hangover

RMG: Rye, Man & Gor Securities January 2006 RYE, MAN & GOR Securities - Gazprom shares got off to a great start in 2006 thanks to share market liberalization, and the effect was magnified by perception that the company’s New Year agreement with Ukraine will mean increased revenues from gas supplies to that country in 2006. But this is a tricky agreement. It is warped by the role of RosUkrEnergo (RUE), which has succeeded Itera and Eural Trans Gas as the middleman in supplies of gas from Central Asia to Ukraine via Gazprom’s Russian pipelines. The agreement also has dangerous political ramifications Itera was chased from the lucrative Central Asia-Ukraine transit business after its protector, Rem Vyakhirev, quit Gazprom. Its successor Eural Trans Gas was closed down after embarrassing, detailed revelations about huge unjustified mark-ups. However, Austrian-registered RUE has key officials in common with its predecessors and its ownership structure is equally hazy: 50% is held by the Gazprom institution, Gazprombank, and 50% is held by Raiffeisenbank Investment (a subsidiary of Austria’s Raiffeisenbank), which says that it is acting in the interests of unnamed individuals. According to the New Year agreement, RUE will buy about 55bcm of Central Asian gas at about $65 per 1000cm and 17bcm of Russian gas at $230 per 1000cm and will sell to Ukraine for about $95 per 1000cm. These figures immediately looked odd, because Ukraine needs only 75bcm per year and produces about 20bcm of its own gas. Indeed, the Ukrainian national gas company soon explained that it will buy no Russian gas in 2006. Apparently, all of Gazprom’s 17bcm will be sold on by RUE to European customers. The initial impression that Russia will start selling its gas to Ukraine at a much higher price than $50 per 1000cm (the 2005 level) is therefore false – Russia should sell zero gas to Ukraine in 2006. But there should still be a significant gain for Gazprom: in 2005 it sold about 25bcm to Ukraine for about $50 per 1000cm, instead of which it will now be able to sell at least 17bcm of gas to Europe for about five times more. It is not clear, though, why RUE deservers to get a cut of the takings. Also the figure of $50 per 1000cm in 2005 is very hazy because the Ukrainians were mainly paid in kind (in gas) for providing a transit service (carrying Russian gas to Europe) and the settlement sums are unverifiable. It is also important to note that the Ukrainians have secured an increase of $0.5 per 1000cm per 100km for transit from January 1, 2006. Calculating roughly, Gazprom gets an extra $200 per 1000cm on 17bcm in 2006 – i.e. total $3.4b. And, assuming that transit across Ukraine is about 1000km and 2006 exports to Europe will be about 100bcm, the extra transit cost paid by Gazprom will be $500m. The potential net gain for Gazprom and loss for Ukraine in 2006 is, therefore, nearly $3b. RUE also does well out of the deal. However, it is more than likely that Central Asian suppliers will be angry: volumes, which they previously sold to Gazprom far below world prices will now be sold at the same inadequate prices to a middleman (RUE), who will add insult to injury by selling the gas onto Ukraine with a 50% mark-up. It is clear that Russia chose its moment to play the gas card against the semi-hostile Ukrainian administration of President Yushchenko. Ukrainian parliamentary elections are due in March, and Yushchenko has decided to accept a bad deal with Russia quickly instead of risking gas starvation in mid-winter and a resultant debacle at those elections. Yushchenko’s opponents in Ukraine’s parliament, mainly ethnic Russian forces led by the man whom Putin backed against Yushchenko in the fraught presidentials of late 2004, seem upset that Putin and Gazprom have let Yushchenko off the hook so lightly. So last week the Russian faction in the Kiev parliament voted no-confidence in the Ukrainian government for accepting a deal imposed by… the Russians. Where this will end is anybody’s guess. But we think that a $3b bird in the bush does not justify a Central Asian gas price revolt, hardening of anti-Kremlin sentiment in Ukraine, and (most worryingly for Gazprom) a crisis of confidence in Europe over reliability of Russian gas supplies.

Rosneft to Offer Stocks before the Company´┐Żs Consolidation

01-25-2006 Kommersant by Anna Skornyakova - Rosneft is to issue additional stocks for the initial public offering before its subsidiaries are consolidated, Vladimir Nazarov, the head of Russia's federal property agency, said yesterday. State officials apparently decided against the consolidation of Rosneft's assets before the IPO to avoid suits from minor shareholders and unwilling to see YUKOS among shareholders at the presentation for overseas investors. This move may cost Rosneft $2 billion it would not get at the IPO. A decision to convene Rosneft's board of directions to endorse the additional issuing of the company's stocks for the IPO will be made in January, according to Valery Nazarov. "The additional issuing will be held before the consolidation," the official pointed out. Rosneft was set to issue extra 20 percent of stocks after it consolidates and sell its 12.67 stake to clear the $7.6 debt of its subsidiary, Rosneftegaz. 27.5 percent of new stocks of Rosneft, including the sold 12.67 percent, would go on the market, YUKOS' shareholding in the company would drop to 4.3 percent and the share of unpredictable minor shareholders of subsidiaries would fall to 2.1 percent. The placement on the market would let Rosneft cover $12.1 billion debts. Still, the additional issuing before the consolidation of the oil company's subsidiaries makes the later consolidation utterly senseless. The non-consolidated Rosneft is assessed 17 percent cheaper, so the Russian firm is to get $2 billion less from the IPO than it could have.

Gazprom leads Russian stock market

RBC, 25.01.2006 - Moscow 11:57:31.Today's trade on the Russian stock market has started with growth in most securities. Gazprom is in the highest demand. In the first few minutes of trade the gas holding's securities grew by 0.5 percent on the St. Petersburg Stock Exchange, 0.75 percent on the RTS and 0.9 percent on MICEX. The RTS index opened 0.04 percent higher (1,307.53 points) and grew by 0.4 percent after the first 15 minutes. The RTS index may slide a little today due to profit fixing on LUKoil's shares and other oil securities. The Russian stock market may grow by 1-2 percent today, an expert told RBC. In New York yesterday, Gazprom's ADRs, as well as those of LUKoil and Surgutneftegas, were in high demand, which attributed to the market's higher opening today, the expert noted.

Freeze exposes Gazprom's hidden reserves

01-25-2006 Analytical department of RIA RosBusinessConsulting - Unusually cold weather in Russia, which led to an increase in gas consumption across the country, made Gazprom appeal for help to independent producers of natural gas. Nortgaz said last Friday it was supplying as much gas to the Gas Transportation System as it could. Another gas producer, LUKoil, also said it had significantly raised its supplies from the Nakhodka field. Earlier, Gazprom refused some other gas companies access to the Gas Transportation System, citing the restricted capacity of the pipelines. The change in Gazprom's attitude to independent producers reveals the hidden capacity of the system, analysts say. This winter will show the real potential of Russian gas pipelines. Growing demand for gas prompted by the spell of cold weather forced Gazprom to step up gas production. "Gazprom has recently reported a record high production of 1.7 billion cubic meters of gas a day, an increase of 50 million cubic meters over its previous record," said Mikhail Korchemkin, Managing Director at the US-based East European Gas Analysis. Gazprom also cut its exports to supply more gas to domestic users. Polish Economy Minister Piotr Wozniak said Gazprom's deliveries to Poland had dropped by 36 percent. The Russian gas monopoly reduced its supplies to Hungary, Bosnia and Herzegovina by 20 percent. Italy was luckier, with only a 5.4 percent decrease in Russian gas deliveries. Yet, all this did not help, and Gazprom had to seek help from independent producers. Nortgaz said it had been supplying all its gas output – 12 million cubic meters a day – to the Gas Transportation System starting from 17 January, a representative of REDI UK, a minor shareholder in Nortgaz, told RBC Daily. The gas remains property of Nortgaz. Its officials refused to comment on what would happen to the gas after the cold spell was over. Yamalneftegaz, part of LUKoil-West Siberia, also said on Monday it had stepped up gas production. Daily output at the Nakhodka field on January 17-18 stood at 18.5 million cubic meters, and 19 million cubic meters on January 20, against the planned 18 million cubic meters, said Yamalneftegaz General Director Ilgiz Gareyev. "We will keep production at the same level, between 17 and 19 million cubic meters, as long as there is an increased need for fuel," he stressed. A source in Gazprom confirmed that the gas company was taking more gas from independent producers. "They would also like to increase supplies but this is impossible due to the limited capacity of the Gas Transportation System, especially in the regions where gas is produced," he added. Experts were surprised that Gazprom was able to pump so much gas into the Gaz Transportation System. About a year ago, it refused some independent producers access to the pipeline network citing its restricted capacity. "Partly this is due to weather conditions. Pressure in the system dropped because of cold weather, allowing Gazprom to pump more gas there," Dmitry Tsaregorodtsev, an analyst at FIM Securities, told RBC Daily. Mikhail Korchemkin noted that the system had a reserve capacity of about 3 percent, which could be used in emergency situations, including in cold weather. Some analysts offer other a different explanation. "This is a sign that the Gas Transportation System had a reserve capacity of about 7-10 percent. Gazprom used it as a political element in its relations with other gas suppliers," Tsaregorodtsev said. Earlier, Gazprom was interested in a lower estimation of the Gas Transportation System's potential, to keep independent producers away from the pipeline. Now, the real capacity of the pipeline network could be revealed," Korchemkin said.

Gazprom, Norway discuss Shtokman gas field cooperation

MOSCOW, January 24 (RIA Novosti) - Alexei Miller, the head of Russian energy giant Gazprom, met Tuesday with Norwegian Minister of Petroleum and Energy Odd Roger Enoksen to discuss using Norway's advanced geological survey technologies to develop the Shtokman gas field, Gazprom's press service said. According to Enoksen, the Norwegian government will help promote Gazprom's cooperation with the country's leading energy companies Statoil and Hydro, which are on Gazprom's list of potential partners for the first leg of the Shtokman project. The list also includes France's Total and U.S. companies Chevron and ConocoPhillips. In early 2006, Gazprom is expected to select two or three partners to launch the project. The Shtokman gas condensate field is located in the central part of the Russian sector of the Barents Sea, 650 km from the port of Murmansk. The deposit contains an estimated 3.2 trillion cu m of natural gas and 31 million metric tons of gas condensate. Norway is the second largest exporter of natural gas to Europe. In 2004, the country exported 75.4 billion cu m of gas to European consumers. Oil and gas account for 15% of Norway's GDP. Norway's natural gas reserves in the North Sea total some 3.29 trillion cu m.

Tuesday, January 24, 2006

Gazprom to buy 9bn m3 of Uzbek gas for USD 60 for 1,000 m3 in 2006

24.01.2006 IntelliNews Today - According to gas major Gazprom’s head Alexei Miller, the company is going to buy 9bn m 3 of natural gas from Uzbekistan for USD 60 per 1,000 m 3 in 2006, which means a 28% increase compared to the price paid in 2005. What is more, the price, which Gazprom will pay Uzbekistan for transit of Turkmen gas through its territory was set at USD 1.1 for dispatching 1,000 m 3 of gas for the distance of 100 km. To remind you, in Feb 2005 Gazprom reserved all Uzbekistan ’s transit capacity for 2006-2010 period. At the same time, the gas company failed to agree with the Uzbek side on reconstruction of Central Asia-Center natural gas transit pipeline. As earlier reported, Gazprom would like to finance the modernization of the pipeline on Uzbek territory in exchange for production licenses for three major gas deposits in the country. The negotiations are still underway.

MICEX Launches Gazprom

Jan. 24, 2006 Kommersant – MICEX launched Monday its first trading in stocks of Russia’s gas monopoly, Gazprom. The debut proved clearly successful with the trading size of over 1.46 billion rubles.
MICEX started trading in Gazprom stocks first time in its history yesterday, January 23, 2006, and attained an impressive result in this undertaking. With Gazprom’s overall turnover of more than 1.46 billion rubles on the first trading day, MICEX rounded out the leading trio of St. Petersburg Stock Exchange (over 10.7 billion rubles) and RTS ($72.3 million, or over 2 billion rubles) as its rivals. Despite the third score, MICEX managed to cover 17.4 percent of the overall trading in Gazprom in Russia. This wide coverage roots in the minimal lot chosen by MICEX. Just a stock would be enough to join trading, MICEX decided in a move to attract as much individuals as possible, including those trading via Internet. “Russians and foreigners at large have received the most efficient access to stocks of one of the largest companies in the world,” said Alexey Rybnikov, CEO of MICEX Stock Exchange.

Gazprom exceeds gas output plan

RBC, 23.01.2006, Moscow 19:58:43.Gazprom is working to meet the increasing demand for gas from both Russian and European consumers, Gazprom's official spokesman Sergei Kupriyanov said. The holding is using all its gas extraction capacities, and its daily output exceeds the assignment by almost 85m cubic meters despite the extremely low temperatures at gas fields. Furthermore, Gazprom is daily taking almost 230m cubic meters of gas more than planned from its subsurface storages, and supplying record volumes of gas to Russian consumers and abroad. The gas supply system is operating at its full capacity, yet without failures.

Rosneft assets to be posted soon

RBC, 24.01.2006, Moscow 16:40:21.Rosneft's assets evaluation will be completed in 10 to 15 days, head of the Russian Federal Property Agency Valery Nazarov told journalists today. The present evaluation takes into consideration the acquired VerkhnechonskNefteGaz. Rosneft's program to consolidate its subsidiaries includes 12 companies, among which is YUKOS' former asset Yuganskneftegaz (76.79 percent of which Rosneft acquired in December 2004). The company plans to finish consolidation in the first half of 2006, and to conduct an IPO on the London Stock Exchange and in Russia in the second half of the year. It is possible that a minority stake in Rosneft will be sold prior to the IPO so as the state can repay its $7.6bn debt. The debt was incurred when the state increased its stake in Gazprom to a controlling one.

Friday, January 20, 2006

Miller Makes Pitch for 3 Fields in Uzbekistan

January 20, 2006 The Moscow Times - TASHKENT, Uzbekistan -- Gazprom chief executive officer Alexei Miller arrived in Uzbekistan on Thursday to try to secure control over the country's biggest gas fields in return for Moscow's political support, the media and officials said. Kommersant said that Miller planned to secure control of the Ugra, Kuanysh and Akchalaksky fields, which would triple Gazprom's imports from Uzbekistan to 17 billion to 18 billion cubic meters from 5 bcm to 6 bcm per year. That would give the world's No. 1 gas company a de facto monopoly on gas exports from the Central Asian state, Kommersant said. Kommersant said that in return for the natural gas reserves, Russia would help Uzbekistan to deal with anti-government protests and protect it from interference from the West. "The agenda of this meeting is to finalize the agreements with regard to sales and purchase prospects agreements and transit of Turkmen gas through Uzbekistan," he said. Separately, Gazprom export chief Alexander Medvedev said Miller would meet Uzbek President Islam Karimov at the end of this week or early next week.

Gazprom Seeks Direct German Sales

January 20, 2006 The Moscow Times - BERLIN - Gazprom is looking to sell directly to German end-users of gas, its deputy chief executive officer said on Thursday, as the gas monopoly plans to expand its market presence. "We are looking at different options with respect of making cargo movements to the final customers quicker," Alexander Medvedev said. "That's why we are considering what's available in the market and what kind of alliances we could create." Medvedev said the company's first priority was to look for a German partner to form a 50-50 joint venture. Gazprom currently has Wingas, a joint venture with BASF's Wintershall to sell natural gas in Germany and Europe. Wingas has a 15 percent share of Germany's wholesale gas market. On Wednesday, Medvedev said Gazprom aimed to boost its share of Britain's wholesale gas market to a fifth within 10 years, and would consider acquisitions as big as Scottish Power.

Wednesday, January 18, 2006

Russian energy giant targets UK market

January 18, 2006 The Guardian Terry Macalister - Gazprom, the Russian energy giant, is planning an assault on the UK market with plans to provide 20% of Britain's gas by 2015, possibly through the £10bn takeover of a company such as Scottish Power. The world's biggest gas producer admits the recent spat with Ukraine has damaged its image but insists this is because western politicians have reverted to "cold war" rhetoric. In an interview with the Guardian, Gazprom's deputy chairman, Alexander Medvedev, insisted Britain had nothing to fear from sourcing energy from his company, and from Russia. "We now have a good wholesale business in the UK with big industrial customers and power stations. We are aiming to secure 20% of the market by 2015," he said.

Tuesday, January 17, 2006

OAO Gazprom Rating Raised To 'BB+'

17/01/2006 (10:42) RZD NEWS – Standard & Poor's Ratings Services said yesterday that it raised its long-term corporate credit rating on Russia-based gas company OAO Gazprom to 'BB+' from 'BB', in view of an increase in state support, and following the $7 billion purchase of the company's treasury stock by the Russian state-owned special-purpose vehicle Rosneftegas. The outlook is positive. The rating upgrade reflects the cash payment from Rosneftegas, which, together with higher export prices, has allowed Gazprom to limit increases in year-end parent debt to about $23 billion (closer to $28-$30 billion including subsidiary debt). In particular, this helped the company to prepay $8 billion of the $13 billion loan raised to finance the acquisition of Sibneft by the end of 2005. "We also expect Gazprom to benefit from a greater degree of state support as its links with the government become stronger, and in view of recent improvement in the sovereign credit quality," said Standard & Poor's credit analyst Elena Anankina. The foreign currency ratings on the Russian Federation were raised to 'BBB/Stable/A-2' on Dec. 15, 2005. As the key government-related entity in Russia's strategic oil and gas sector, Gazprom enjoys a strong hold on new hydrocarbon projects in the country; and substantial bargaining power in structuring consortiums for oil and gas projects with international partners, as well as negotiating gas supply and transit contracts. The Russian government has demonstrated a policy of increasing its presence in the country's key oil and gas sector through state-owned entities--a position illustrated by the increase of its holding in Gazprom to 50% from 39%, in 2005. The situation with regard to the recent dispute on gas transit and supply terms with Ukraine (foreign currency BB-/Stable/B; local currency BB/Stable/B) also evidences the close links with, and support from, the Russian government. Accordingly, our corporate credit rating on Gazprom currently includes one notch of state support. Gazprom remains subject to general political and emerging market risks related to Russia, however. The unpredictable nature of Russian government policy, potential investment mandates and still very low regulated domestic gas prices (averaging $36/mcm in 2005), together with substantial financial debt levels, remain key constraints on the rating on Gazprom. At June 30, 2005, Gazprom had $22.7 billion of consolidated on-balance-sheet debt, $2.7 billion in guarantees, and about $1 billion of postretirement liabilities. "A one-notch upgrade of the long-term corporate credit rating on Gazprom is possible, based on continued evidence of state support, or on likely further improvement of its stand-alone credit quality," said Ms. Anankina. Gazprom's debt maturity profile should benefit from the expected financing of the short-term Sibneft acquisition debt, and higher free cash flow generation in light of an increase in gas prices for 2006. Increases in debt, ambitious further acquisitions, or a higher share of short-term debt or annual debt maturities, could limit upside potential for the ratings.

Miller and Medvedev Talk of Transparency

HOT January 17, 2006 The Moscow Times By Catherine Belton Staff Writer
Gazprom appeared to be going into damage control over its handover of all Ukraine gas sales to middleman Rosukrenergo, with CEO Alexei Miller saying late Sunday that Naftogaz Ukrainy should take a 50 percent stake in the trader to improve transparency. "The ownership structure of the joint Russian-Ukrainian venture Rosukrenergo should become absolutely transparent," Miller said on Rossia state television. "Russia has said several times over that it would be right if the founders of this joint enterprise were to be Gazprom and Naftogaz Ukrainy." Gazprom deputy head Alexander Medvedev, meanwhile, insisted during a conference call for investors Monday that Gazprom's 50 percent stake in the trader was "absolutely transparent." The other half is held by Raiffeisen Zentralbank on behalf of unidentified beneficiaries. Medvedev said the use of the company as a middleman had been the only way out of "deadlock" with Ukraine. The statements by the Gazprom executives came amid a growing furor about the gas trader, which in Russia's Jan. 4 deal with Ukraine suddenly gained the right to handle all sales to Ukraine. The deal also gave it the potential to nearly triple its exports to lucrative markets in Europe, potentially diverting hundreds of millions of dollars away from Gazprom. Parliaments in both Moscow and Kiev have demanded to know who is behind Rosukrenergo, which was set up in summer 2004 to handle sales between Turkmenistan and Ukraine and just last summer was under investigation by the Ukrainian security service, or SBU, for alleged links to Ukrainian-born reputed crime boss Semyon Mogilevich. Both Mogilevich and Rosukrenergo have denied any links. Naftogaz Ukrainy retorted Monday by saying it had made a proposal to buy the 50 percent stake held by Raiffeisen last summer. Rosukrenergo, however, did not answer its proposal, said Naftogaz spokesman Dmitry Marunich, who also said he was at a loss to say who stood behind the Raiffeisen stake. Ukrainian Fuel and Energy Minister Ivan Plachkov made several calls earlier last year for Naftogaz Ukrainy to take a direct 50 percent stake in the venture. But since SBU chief Oleksandr Turchinov stepped down amid a purge of Yulia Tymoshenko's government, effectively ending the investigation, the Ukrainian side has gone silent. Turchinov has said Yushchenko personally asked him to stop the investigation, telling him to "stop persecuting my men" and saying that it was upsetting the Kremlin. Yushchenko has praised the January deal as a "wonderful result." Some observers have suggested that Russian officials could be behind the company. Others have pointed the finger at Ukrainian officials. During Monday's conference call, Medvedev shed little light on Rosukrenergo's ownership structure. He said Gazprom's half would now be held directly by Gazprom and not by its banking unit, Gazprombank, as before. And, as far as the Raiffeisen side of the venture is concerned, he said: "I have no reason to doubt that the investor that represented Ukraine's side in the signing of the documents -- Raiffeisen Investment -- is the investor in this company." While Gazprom under Miller rejected independent gas trader Itera as a middleman for Turkmen gas trade, it also tried to make Rosukrenergo's predecessor, Eural Trans Gas, more transparent, he said. "Unfortunately, we failed," he said. "But with Rosukrenergo, for the Russian side we have an absolutely transparent situation," he said. He confirmed details of the agreement that were disclosed by Tymoshenko, saying Rosukrenergo would buy 56 billion cubic meters of gas from Central Asia and 17 bcm from Russia. Medvedev dismissed speculation that Central Asia would not be able to provide the volumes agreed under the deal. "At present we have no doubt about being able to meet the energy needs of Ukraine," he said. He defended Rosukrenergo's role in taking over all sales to Ukraine as being the only way out of stalemate with Ukraine. Some investors believe that Gazprom should have done so directly itself. "When all our proposals were being rejected, the use of this company allowed us to get out of this deadlock." Ukrainian Prime Minister Yuriy Yekhanurov, however, said last week that Russia forced Ukraine into accepting Rosukrenergo as the only way out. He also told Ukraine's Channel Five television that "Ukrainian interests are not represented" in Rosukrenergo.

Monday, January 16, 2006

Russia's Gazprom Looks to Outgrow BP, Shell in Market Capitalization

Gazprom Logo / Image by Mosnews.com16.01.2006 MosNews - Russian natural gas monopoly Gazprom expects to be the second most highly valued energy company in the world soon and sees its current position behind BP and Royal Dutch Shell as only temporary, the company's chief executive Alexei Miller said on Sunday, Jan. 15. Gazprom was listed on Moscow's RTS exchange on Thursday, Jan. 12, the culmination of a years-long push to scrap a ban on foreigners owning stock in the world's largest gas company and make it easier for investors to buy its shares. In an interview shown on state television on Sunday, Gazprom's CEO Alexei Miller said the scheme had gone according to plan, and had valued his company at more than $200 billion. MosNews also reported on Friday, Jan. 13, that based on the results of the first week of trading Gazprom's capitalization exceeded $210 billion, judging from ADR prices. "This is a historical frontier for our country and, of course, for Gazprom. Now the company has taken fourth place in the list of the world's biggest oil and gas companies. And I can say only centimeters separate us from the second and third places," he said, quoted by the Reuters agency. "We are lagging BP and Shell a little. But I think this is a temporary phenomena." The largest energy company in the world is U.S. giant ExxonMobil with a market capitalization of $375 billion. British Petroleum has capitalization of $237 billion, while Royal Dutch/Shell is worth $223 billion. Gazprom previously traded on small Russian bourses and via Western proxy shares listed in London. Anticipation of last week's move drove its stock to triple in 2005. Gazprom has become an assertive branch of the Russian state —- as shown over the New Year when it turned off supplies to Ukraine for two days to press for a big hike in prices. The crisis was finally resolved via a scheme in which Gazprom will sell Ukraine gas through an intermediary called RosUkrEnergo —- half owned by Gazprom and half held in trust for Ukrainian investors by Austria's Raiffeisen Zentralbank. Miller on Sunday pushed for the secretive group that owns Ukraine's half of Rosukrenergo to make the deal more open by selling its stake to Ukrainian state energy firm Naftogaz —- something they have so far declined to do. "Taking into account the size of the deal, taking into account its social significance, it would be logical for Ukraine to give a positive reply and decide not to have Ukraine represented by a foreign bank, but by a state company," he said. Gazprom is also haggling with other former Soviet states to raise the prices they pay for their gas closer to market levels.

RAO Gazprom - Nationalization

01-10-2006 Kommersant by Renata Yambaeva - Last year, Russian business got from the state just what it had been asking for for years: a clear industrial policy. Turning its back on complicated theories, it simply did to the economy what it has done to the administration, starting up large state holding companies in each sector. The inevitable large-scale industrial nationalization, especially in oil, natural gas and heavy industry, will most likely continue in 2006, with results that have been foreshadowed in Yuganskneftegaz. Its merger with Rosneft was the beginning of the first state mega-concern. Taking Oil and Gas Personally Nothing a year ago even hinted at the coming state expansion into industry, the largest wave of industrial nationalization since the October Revolution. The auction of YUKOS production subsidiary Yuganskneftegaz in December 2004 seemed to be the chance result of the war against disgraced oligarch Mikhail Khodorkovsky. But the idea of founding "Gosneftegaz," a concerned consisting of Rosneft and Gazprom, was not new, and the need to auction of Yuganskneftegaz was a good excuse to revive it. In Russia, the state is usually personified. Personal factors are at work here too. Former chief of the presidential executive staff and chairman of the board of Gazprom Dmitry Medvedev and deputy chief of staff and chairman of the board of Rosneft Igor Sechin could not agree the unification and further division of their fiefdoms. Therefore, two state concerns were formed. Rosneft got Yuganskneftegaz. As compensation, Gazprom was given the right to "produce," and it acquired Nortgaz, one of the last independent gas producers, and purchases Sibneft, essentially the last independent oil producer. The Gazprom management is hinting at more acquisitions in 2006, including Rosneft assets. Medvedev was made first deputy prime minister in November.
Choosing Their Partners Carefully
The second state holding formed, in heavy industry, also came about after a fortunate coincidence – the need to fend of undesirable investors, and not from the desire to improve economic conditions. Heavy industry has received little official attention in recent years, despite attempts by industrialists to attract it. The idea for the National Power-Generating Machinery Corp. sprang up out of nowhere a last few months ago as Interros was trying to sell Power Machines to the German Siemens. Since the officials could not produce a cogent new development strategy for the sector in time, they simply ordered RAO UES of Russia to buy it. The second participant in the state holding has also been determined. It is the United Machine Building Plant (known by its Russian acronym OMZ), which was bought by Gazprom-affiliates last spring from Kakha Bendukidze, the once respected investor in Russia who is now a minister in the Georgian government. OMZ now has Gazprom representatives on its board of directors. Analysts and officials in unofficial conversations say that RAO and Gazprom are only temporary holders of the heavy industry assets, waiting for right manager to come along. Candidates for that position may be chosen in 2006.
VAZoboronprom
The nationalization of this asset is deceptively similar to heavy industry. Here the undesirable investor was the SOK Group of Samara, which had practically controlled the company's finances for several years. As a result, AvtoVAZ came into the oversight of Rosoboroneksport, the state arms exporter. This was the most transparent of the year's nationalizations. It was carried out quietly but intently. It is thought that Rosoboroneksport acquired 61.8 percent of the stock, which had been kaznachaisky. The details of the deal have not been officially released and it is not really known what stock or money traded hands. Chairman of the board Vladimir Kadannikov, who had been chairman for almost 20 years, resigned at the end of October. Two months later, the majority of places on the board were taken by state representatives from Rosoboroneksport and Vneshekonombank. Interior Ministry and prosecutor's agents are conducting audits there.
Extra-Budgetary Accounting
Of the transactions mentioned above, the exact value of three of them is known – the purchases of Yuganskneftegaz ($9.35 billion; formally, it took place in 2004), Sibneft ($13.091 million) and 22.43 percent of stock in Power Machines ($101.4 million, another 30.41 percent of the company's stock is under RAO management). Unofficial sources say that the acquisition of OMZ cost a trifling $50 million. Sources close to Rosoboroneksport say that it laid out $700 million for AvtoVAZ. Unlike Yuganskneftegaz, almost exactly market price was paid for Sibneft. It is not known how much of that money really made it to the former owner, however. After Power Machines was appraised by KPMG, it was sold for a 30-percent discount. If the unofficial account is assumed to be true, the state overpaid for AvtoVAZ by more than $110 million. A total of about $23.3 billion was spent on nationalization. The money spent on Yuganskneftegaz was returned to the federal budget immediately after the purchase. AvtoVaz owed the state about $300 million. The main question is how effective the state will be as an owner. If Yuganskneftegaz is taken as an example, the situation is discouraging. Neither RAO nor Gazprom has any idea of what to do in heavy industry. New partners were being sought in the industry because of the need for large-scale investment and truly modern technology in it. AvtoVAZ stock fell by 15 percent between November 17 and 22. A month later, new general director of AvtoVAZ Rosoboroneksport employee Igor Esipovsky told the press that everything was the same as before at the new old AvtoVAZ, that is, it was still going onto a hole. Thus, Russian industrial policy amounts to dividing spheres of influence in business between official and unofficial structures of authority and protecting sate interests by forcing dubious investors, from the government point of view, off the market.

Gazprom head promises Germany reliable gas supplies

BERLIN/MOSCOW, January 13 (RIA Novosti) - Gazprom CEO Alexei Miller said Friday that the Russian energy giant would ensure reliable natural gas supplies to Germany. "Germany is the largest consumer of Russian [natural] gas in Europe," Miller told German Minister for Economics and Technology Michael Glos. "Gazprom has always complied with its contract commitments. We highly value cooperation with our German partners, which allows us to discuss new projects and new cooperation aims." Speaking about Gazprom's guarantees in case of possible difficulties with transporting gas across third-party countries to Germany, Miller said Russia would try to reduce transit risks. The construction of the North European Gas Pipeline was key to that aim, he said. "Its construction is proceeding as planned and in 2010 Russian gas will go directly to Germany," he said. The pipeline is to run under the Baltic Sea directly to landfall in Germany, bypassing the land-based pipelines that run across Ukraine. Transportation across Ukraine has become a hot topic for European energy officials since the country's gas price dispute with Russia led to Russia shutting down supplies to its neighbor for a few days at the start of this month. The move led to a drop in supplies to some European countries. The German Ministry for Economics and Technology told RIA Novosti that Glos "was satisfied with Miller's information about the settlement of the Russian-Ukrainian [natural] gas dispute." According to the German ministry, the country receives 36% (40 billion cu m per year) of natural gas from Russia. Some 30% of its gas comes via Ukraine.

Gazprom to get Gazprombank's share in RosUkrEnergo

MOSCOW, January 16 (RIA Novosti) - Gazprombank's share in RosUkrEnergo is to be transferred to Gazprom, the Russian energy giant's Deputy CEO Alexander Medvedev said Monday. "In the light of the forthcoming privatization of Gazprombank, we have in principle decided to transfer the RosUkrEnergo shares to Gazprom," Medvedev said. Gazprombank - a subsidiary of Gazprom - is the direct owner of a 50% stake in RosUkrEnergo, the company that is being used to supply gas from the Russia system to Ukraine. The rest of the company is in the hands of Austrian bank Raiffeisen. RosUkrEnergo is a focus of concern among critics of the Ukrainian government that was dismissed last week by a parliamentary vote, with increasing calls for the ultimate owners of the company to be revealed. Gazprombank's board of directors approved the transfer of the stake Monday, Medvedev said.

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