Izvestia: “Who’s sitting on the pipeline?”
Izvestia: "Who's sitting on the pipeline? "
Prime Minister Vladimir Putin proposes merging the Gazprom and Naftogaz Ukrainy gas giants.
Putin dropped the bombshell after the meeting of a Russian-Ukrainian intergovernmental commission in Sochi. If the idea is put into practice, Moscow would effectively own the pipeline transporting Russian gas to Europe. The details of the possible deal will be discussed after the May holidays. In the meantime, Izvestia asked experts to assess the possible consequences of the prime minister's impromptu move.
No one expected the meeting between the two prime ministers to cause such a sensation. It was planned to be a routine meeting in Sochi where Putin and his Ukrainian counterpart Nikolai Azarov would discuss creating a new holding and Russia's entrance strategy for developing markets, as well as sign routine memorandums and an agreement on the duty-free import of Ukrainian pipes into Russia.
The meeting followed this scenario until the very end of the final press conference. That's why Putin's final statement came as such a surprise.
"We discussed integration in the nuclear sphere and we're ready to do the same in the gas sector to combine Gazprom and Naftogaz Ukrainy," he said. The statement drew a storm of applause. It wasn't only the Russian delegation that was clapping. The Ukrainians also began to applaud. Azarov was at a loss for words. Only later did he say through his press secretary that the issue hadn't been discussed during the talks and "we'll consider impromptu statements and study concrete proposals."
However, judging from the glib, confident manner in which Gazprom head Alexei Miller later spoke with journalists, it became clear that the supposed improvisation had been planned in advance.
"We should work on the whole gas chain from geological prospecting to the end user," he said. "The basic issue is exchanging assets in various links of the chain," he said. "Naftogaz Ukrainy has assets in extraction, transport, underground storage and distribution. Gazprom has its own significant assets. So we're ready to consider an asset swap. In principle, we're talking about unifying the two companies."
Miller said that Russia "has huge reserves and there will be enough gas for everyone in the 21st century."
For the "blue fuel" to reach the end user, he added, Russia is ready to invest both in extraction and in the Ukrainian gas transportation system (GTS). This is Russia's contribution, Miller stressed.
No other information was available from official sources. Miller merely noted that the parties would sit down at the negotiating table to discuss a possible deal immediately after the May Day holiday.
So far, the announced merger -- if the companies merge and don't create a joint venture -- sounds more like a takeover. Gazprom's assets are much larger than its Ukrainian counterpart's. Ukraine's share in the united company would not exceed 6%, the Gas Information Agency claims on the basis of Gazprom's and Naftogaz's financial reports.
The most Ukraine can count on is a seat on the board of directors. That would leave Kiev with no say in the new gas monopoly's policy.
"Whichever way you look at it, Gazprom would have the majority share," Maxim Shein, the BrokerKreditServis investment company's chief analyst, said. "The big question is if this would suit Ukraine."
By gobbling up Naftogaz, Gazprom would own the export channel to Europe that has been the root of myriad conflicts in recent years. Russia shut off gas supplies to Ukraine several years in a row due to differences over gas prices. Ukraine, in turn, shut off gas supplies to Europe, using the fuel for its own needs. Both countries' finances and images suffered. If the merger goes ahead, gas scandals would be avoided.
On the other hand, the owner must invest in the enterprise. This would mean that Gazprom would have to make hefty investments in upgrading the Ukrainian gas transportation system. Most probably, additional cash investments would also have to be made in the company, Shein added, as the state of Naftogaz leaves much to be desired.
"I hope this is an issue for the long term and not the immediate future," Sergey Pravosudov, the director of the National Energy Institute, said. "Naftogaz is a loss-making company because Ukraine keeps gas prices low. This is the Ukrainian government's social policy. Until this changes, Naftogaz will operate at a loss. There are no signs it will change soon and Gazprom is anything but enthusiastic about the idea."
South Stream at stake
What could Ukraine's motivation be other than to get a massive source of cash? One shouldn't forget that Kiev recently received a large gas discount from Moscow. Ukrainian President Viktor Yanukovich has already suggested that Moscow scrap the South Stream gas pipeline project, which would lead from Russia to southern Europe, while bypassing Ukraine, and join forces to modernise the Ukrainian GTS to increase its capacity.
Repairing the old pipeline would be several times cheaper than the hi-tech construction of a new pipeline, experts agree.
However, things aren't that simple, Univer Capital Chief Analyst Dmitry Alexandrov said.
"As for South Stream, it isn't just about bypassing Ukraine," he told Izvestia. "The project, Gazprom hopes, will bring southern European countries and companies into its orbit. That's why Russia cherishes the project. An attractive price has been determined for the pipeline and no one is saying any more that the project is too costly. Let the arguments about economic feasibility continue... Ukraine's policy is liable to change frequently and dramatically."
In other words, Putin's proposal should be seen not solely or for the most part as an economic move, but rather as a strategic manoeuvre.
"The goal appears to be different -- to consolidate our gas relations with Ukraine," Shein concluded. "It's easier to run a single company to solve problems."
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Ukraine's share in the unified company wouldn't exceed 6%.
Anastasia Savinykh, Yevgeny Arsyukhin
