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Monday, March 30, 2009

Gazprom in Nord Stream windfall

29 March 2009 - The Independent by Mark Leftly - Gazprom and E.ON, the Russian and German energy groups, are in line for a windfall once their €7.4bn Nord Stream gas pipeline is built in 2012. About 70 per cent of the finance will be raised through loans in July this year and another tranche 12 months later. The remainder will be invested by the project's four shareholders, which also include Germany's BASF and the Netherlands' Gasunie. Once construction of the two-phase pipeline, which will transport Russian supplies to the European Union, is completed in 2012, Nord Stream's shareholders are expected to refinance the debt. The loans would be made at a cheaper rate, as banks are more cautious with their terms when a project is under construction than when it is operational. Gazprom would have the most to gain, as it has a 51 per cent stake. Paul Corcoran, the finance director at Nord Stream, said: "The timing is a matter for the shareholders. Logically, once the project is completed, that would be a sensible time to refinance." Many observers consider Nord Stream to be vital to plugging the EU's growing gas requirement gap. It is estimated that it could cover about a quarter of that deficit. Construction of the first phase is expected to get under way next April, with the first gas arriving from Russia in October 2011. The second phase should be ready by November the following year. Before construction can start, Nord Stream requires permits from the five countries through whose territorial waters the pipeline will pass – Russia, Finland, Sweden, Denmark and Germany. Russia has called a conference in St Petersburg this week to discuss the Nord Stream project with the other states involved. It is expected that they will all grant the necessary permits for the pipeline by the end of this year. The pipeline will bypass Ukraine, which has been involved in an energy dispute with Russia, leading the producer to turn off the taps to much of the rest of the continent. The credit crunch could reduce the project's costs. It is estimated that as much as £60m could be saved by the lower price of steel, which had been forecast to surge by 20 per cent before demand slumped. Mr Corcoran said that any savings would go into its contingency fund, to be used in case other parts of the project went overbudget.

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