Kommersant: “E.ON Gets Top Level Guarantees”
Vladimir Putin: Energy reform will go on
Renata Yambayeva, Vladimir Dzaguto
German energy giant E.ON has asked for Prime Minister Vladimir Putin's personal guarantees to back their investments in Russia's energy sector and gas supply contracts to Europe. The Prime Minister agreed to oblige.
On Friday, November 28, Putin met with E.ON chief executive Wulf Bernotat, whom he referred to as "our strategic partner in the true sense of the word."
E.ON is Gazprom's largest foreign shareholder, with a 6.43% stake in the Russian gas monopoly after it agreed to swap another 2.95% on a stake in the West Siberian Yozhno-Russkoye gas field in October. The agreement followed several years of difficult talks, Mr Putin emphasised.
Mr Bernotat agreed that his negotiations with Gazprom CEO Alexei Miller and his team had been "long indeed."
However, it appears from the initial transcript of the meeting that the E.ON head was more concerned over other the company's projects in Russia's energy sector.
"We have been Russia's partner in power generation for over a year," he said. "We have spent a lot of money during privatisation and then cooperation with the former RAO UES. We have acquired a large stake in OGK-4, a major wholesale generating company, and made commitments to invest in the development of power generation."
E.ON also bought a 76% stake in a major Russian energy company for 4.6 billion euros, Mr Bernotat added when asked by Mr Putin to cite the value of the deal. He assured the Russian Prime Minister that his company was determined to honour its commitments to OGK-4's investment programme, but under several conditions.
"Liberalisation of Russia's energy markets was one of the important conditions for our major investment in Russian energy," he said. "It is certainly important for us to know that all the liberalisation plans will still be realised despite the complicated conditions."
The German investor's other two concerns included reliable fuel supply for power plants (gas and coal) and the connection of new plants to distribution grids. Mr Bernotat said that E.ON was in "very productive" talks about these issues with Deputy Prime Minister Igor Sechin, Energy Minister Sergei Shmatko, and "colleagues" from Gazprom.
However, the Germans don't seem to be satisfied.
"Mr Prime Minister, we would also like to have political support and your personal support on the issue, if you don't mind," the E.ON head said. Mr Putin promised that Russia would not cut energy plans, but would fully implement them. However, he didn't specify what plans and timeframes he had in mind.
The E.ON CEO also raised questions that concern all energy companies these days. Liberalised markets, with floating tariffs accounting for as much as 50% there in mid-2009, would send generators' earnings up despite the declining demand.
Oil producers, however, asked the Government to suspend energy reform for a year.
"E.ON'S concerns are understandable. OGK-4 is one of the most expensive companies with the most efficient generation capacities," said Alexander Seleznyov of the Uralsib investment company. "More efficient power plants have to charge lower fees in a regulated market, which is not good for the investor."
The analyst also said that the ongoing liberal reform was unlikely to be suspended. "That would harm the power generation sector as a whole, let alone Russia's international image, as over $30 billion in investment has flown into the sector at the prospect of said reform," he explained.
Sergei Pikin, head of the independent Power Development Fund, said that Minister Sergei Shmatko had assured the players on November 21 that liberalisation would not be halted.
However, there is still the old problem with connection to power grids, Mr Pikin added. "Owners of generating companies have long been complaining that the bulk of their investments do not go into building more plants, but into new infrastructure such as grids and gas links. Policy-makers, however, have yet to do anything to remedy the situation," he explained. Mr Pikin believes that E.ON'S interference and the Prime Minister's declaration could "manually" accelerate the process.
A Kommersant source in the presidential team said that energy was not even the key highlight of the meeting. He said E.ON was most preoccupied with getting guarantees of regular gas supplies to Europe across Ukraine in January despite the threat of tensions between Moscow and Kiev over the latter's $2.4 billion gas debt. The first payment, $550 million, was due Monday, December 1, but the two countries have not reached a final agreement. The source said that the Prime Minister had reassured E.ON that supplies to Europe would not be interrupted under any circumstances.
