Agela Merkel's (left) coming to power endangered one of Gazprom head Alexey Miller's most ambitious projects.
Photo: Dmitry Azarov
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Disagreement on N. European Gas Line Financing
Gazprom, E.ON and BASF signed a final agreement yesterday on the North European Gas Pipeline project that defined the financial and legal framework for it. However, the specific financial obligations of the parties are not set in the agreement. After Angela Merkel became chancellor of Germany and the Bundestag shot down the assumed financing scheme for the pipeline's construction, the partners were unable to agree on the financial parameters of the project. The threat of the failure of the project moved the European concerns to prolong long-term contracts with Gazprom.
Deputy head of the Gazprom management board Alexander Medvedev, head of E.ON/RuhrGas Burkhard Bergman and BASF board member John Feldman signed a final agreement on the NEGP project. The press service of the Swiss North European Gas Pipeline Co., founded by Gazprom, E.ON and BASF on December 5, 2005, for the development of the technical specifications and the construction of the pipeline, issued an official statement in which it says that “a final legal document” has been signed to make concrete the agreements reached in the base agreement to define the legal and financial framework of the project.
Representatives of all three companies told Kommersant that that the final agreement does not contain a financing scheme for the project or the parties' specific obligations in numbers. Sergey Kipriyanov, press secretary to the head of Gazprom called the agreement “the latest technical document” without new figures that only confirmed the principle of equal rights in issues of attracting financing proportionally to each party's share. Gazprom owns 51 percent of NEGP Co. stock, and BASF and E.ON 24.5 percent each.
A representative of one of the German companies specified when he spoke to Kommersant that yesterday's agreement divides all legal authority for conducting business. He said that a team of managers had been formed for the company in the last ten months that will be headed by Mattias Varnig, head of the Moscow division of Dresdner Kleinwort Wasserstein, and a taxation scheme has been worked out for the project taking the company's Swiss registration into account.
The 1200-km. long NEGP will run along the Baltic Sea bed to connect Vyborg, Russia, with Greiswald, Germany. The pumping capacity of the pipeline will be 27.5 billion cu. m. per year. The target markets for gas from the pipeline are Germany, Great Britain, The Netherlands, France and Denmark. Plans call for the pipeline to go into operation in 2010.
Representatives of the German companies told Kommersant yesterday that the shareholders of E.ON and BASF will have to approve the agreement before it can go into effect. Specialists working on ecological studies of the NEGP note that it will be complicated to agree on the cost of the ecological expertise, without which the project cannot go on. Participants in the project have been carefully avoiding commenting on the cost of the project lately. The portion of the project on the shelf of the Baltic Sea was preliminarily estimated to cost ˆ4 billion.
Deadlines for a financial scheme were pushed forward more than once. The German cartel agency began studying the deal for adherence to the country's antimonopoly law last autumn, but has not released its findings yet. The appointment of former German chancellor Gerhard Schroeder to be the project manager did not save it from political holdups.
The delay in approval of the deal with Gazprom from government institutions is more confirmation that German authorities have cooled toward the project since Merkel has become chancellor. Members of the Bundestag caused such a scandal over German government guarantees for loans to Gazprom that Gazprom was forced to publicly refuse those guarantees. But neither the Russian gas monopoly nor its German partners have proposed another financing scheme yet.
The fact that the final agreement was signed without any financial parameters or commentary relating to them indicates that the parties are far from an agreement on the issue. The NEGP Co. told Kommersant yesterday that not even the technical specifications for the project are ready yet. Gazprom itself may be drawing out the negotiations as it is demanding that the EU make changes in the European directive on gas to prohibit equal access for all consumers for the NEGP, including companies that are not participating in its construction.
Construction of the underwater part of the pipeline, which ill involve all three of the companies, is to begin in 2008 and gas should begin to be delivered in 2011 at 13 billion cu. m. per year (9 billion cu. m. for BASF and 4 billion cu. m. for E.ON). Gazprom is obligated to provide that much gas in any case, through existing pipelines, if the NEGP is not operational. Thus a shortage in the total volume of gas deliveries may occur in Europe. The gas buyers who prolonged their gas contracts with Gazprom will be the winners in that situation.
Curiously, the first buyers to concern themselves with extending their contracts with Gazprom were its partners in the NEGP. E.ON/RuhrGas signed an agreement yesterday on the purchase of 400 billion cu. m. of gas by 2036. It is noteworthy that, in 35 years of working together, Gazprom has sold Ruhrgas a total of 800 billion cu. m. Sales will reach 400 billion cu. m. only in 13 years. Wintershall, a subsidiary of BASF, signed an agreement with Gazprom in July on the purchase of 90 billion cu. m. of gas between 2014 and 2030 for Ferbundents Gas. Wintershall has had a contract guaranteeing it gas supplies since 2004.
Rumors of possible gas shortages after 2010 have reached other countries as well. President of Gaz de France Jean-Francois Sirelli expressed concern about gas imports yesterday. France imported 12.5 billion cu. m. of Russian gas last year. In an interview with the newspaper Les Echos, Sirelli said that Gaz de France's contract with Gazprom ends in 2012 (although Gazprom claims that it runs through 2015) and expressed his intention of reaching another long-term agreement with Gazprom in the near future. The Italian ENI is another major company that has yet to prolong its contract with Gazprom. That company regularly states its intention of becoming a strategic partner of Gazprom, but no agreements on that have been reached yet. It is likely that all large oil consumers in Europe will soon approach Gazprom with proposals to extend their contracts.
Natalia Grib
All the Article in Russian as of Aug. 30, 2006
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