Germany's E.On may help Gazprom to enter the UK electric power market. For one-fourth of the Yuzhno-Russkoye deposit, E.On may give away to Gazprom not only shares in Hungarian assets, but also a power plant in the United Kingdom, Vedomosti came to learn. Gazprom has declared that electric power is part of its core business. It owns 10.5% of RAO UES of Russia shares and controls Mosenergo. The monopoly has also got a chance to enter the European power market, two Gazprom managers told Vedomosti. Assistance may come from E.On The monopoly's negotiations with E.On on the exchange of assets started more than one year ago. In July 2006, Gazprom with its partner signed a framework agreement on the transfer of 25% minus one share in Severneftegazprom, the holder of the licence for the Yuzhno-Russkoye deposit. E.On was expected in return to give away shares in three Hungarian assets: 50% minus one share in each of E.On Foldgaz Trade and E.On Foldgaz Storage, as well as 25% minus one share in the regional power company E.On Hungaria (see the sidebar). The difference was to be paid with money. The deal was expected to be closed by this summer, but negotiations lingered. Other major deals cost Gazprom too much strength and time: buying control in the Sakhalin-2 offshore project and negotiations on the Kovykta project, Alexander Medvedev, deputy chairman of the monopoly's management board, was explaining not that long ago. E.On chief executive officer Wulf H. Bernotat was saying the same to The Wall Street Journal. Mr Medvedev later pointed out though that Gazprom had some doubts about the value and importance of E.On's assets in Hungary because of difficulties associated with the "regulation of the Hungarian market." Mr Bernotat told WSJ that the companies had recently "invigorated" their talks and hoped to complete them by the start of the Yuzhno-Russkoye scheduled for early autumn. E.On offered Gazprom a list of new assets in Europe that may represent both additional payment for the share in the Yuzhno-Russkoye and an alternative to the Hungarian assets, two Gazprom group officers explained to Vedomosti. The list contained, inter alia, E.On's power plants in the United Kingdom. The Vedomosti interlocutors do not disclose which exactly. A manager with a German company which co-operates with Gazprom also knows about E.On's offer. However, Gazprom has not passed a decision as yet, the monopoly's officers maintain. Representatives of Gazprom and E.On's headquarters neither confirmed nor denied this information to Vedomosti. E.On UK sells 10% of electric power in the United Kingdom. It has five gas-fired power plants with an aggregate capacity of 3,252 MW: Connah's Quay in Wales (1,420 MW), Killingholme (900 MW), Cottam Development Centre, Enfield (400 MW each) and Taylor's Lane (132 MW). All these power plants cost $2.7-3 billion and the largest of them costs $1.3-1.4 billion, estimates Aton analyst Sergei Arinin. He is confident that Gazprom will agree even to minority shares in these assets. Twenty-five per cent of the Yuzhno-Russkoye deposit also costs approximately $1.3 billion, thinks Konstantin Cherepanov of CIT Finance. In 2006, DeGolyer & MacNaughton estimated Severneftegazprom's reserves at approximately $5 billion. Analysts also estimate that the stocks in E.On's Hungarian assets promised to Gazprom cost approximately $600-720 million. WHAT GAZPROM WILL GET IN HUNGARY E.On Foldgaz Trade sells distributors around 14 billion cu m of gas (almost 90% of the amount consumed, a contract until 2015); its net earnings in 2006 were $4.3 billion and net loss $243.8 million. E.On Hungaria's core business is power lines and power sales; its revenues in 2006 totalled $2.6 billion and net profit $26 million. E.On Foldgaz Storage owns five underground gasholders in Hungary with a capacity of 3.5 billion cu m; its revenues in 2006 were $202 million and net profit $59 million. The Yuzhno-Russkoye deposit with reserves of 800 billion cu m of gas (ABC1) is to become the primary resource base for the Nord Stream gas pipeline (a joint project of Gazprom with Germany's E.On and BASF). The holder of the licence until 2018 is OJSC Severneftegazprom, a wholly-owned Gazprom subsidiary. The deposit is scheduled to start operating in late 2007. By 2010, its annual gas production is to amount to 25 billion cu m of gas. Gazprom's total investment in the project by that time is expected to make €1.3 billion. Twenty-five per cent in the project has already been promised to Germany's BASF in exchange for increase in Gazprom's share in the Wingas joint venture (from 35% to 49.9%) and 49% in two oil projects in Libya. |
