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Russia: Gazprom Finds Export Route Through Slovakia

Russia's Gazprom seems to have succeeded in securing an export route around Ukraine with a financial boost from its partners in Germany and France. The two European utilities have agreed to cover Gazprom's cost for a key stake in Slovakia's gas network, at least for the near term.

Boston, 21 March 2002 (RFE/RL) -- Russia's Gazprom appears to have won an interest-free loan to save its place in one of Europe's biggest privatizations, as its German and French partners agreed to cover the entire cost of buying Slovakia's gas company.

On 18 March, the Reuters news agency reported that Germany's Ruhrgas and Gaz de France will split the $2.7 billion cost to acquire 49 percent of state-owned Slovensky Plynarensky Priemysel, known as SPP. The stake in the gas network includes control of the pipelines that carry some 70 percent of Russia's gas exports to Europe though Slovakia.

Speaking in Bratislava, Ruhrgas Chairman Burckhard Bergmann said Gazprom will be treated as an equal partner in the consortium, even though it will not be asked to come up with any funding for as long as two years.

Reuters quoted Bergmann as saying, "This is a possibility for Gazprom to arrange its financing for the shares under less time pressure.... There is no doubt that we are three partners in the deal." Bergmann added, "It will last for about two years.... But, as for Ruhrgas, we will not put any pressure on them, because I think they are very important for the deal."

The SPP sale was controversial because the consortium's offer turned out to be the only bid, raising concerns about the benefits for Slovakia. Instead of increasing competition, in line with European Union objectives, the sale may have reduced it, as other expected offers failed to materialize.

But the inclusion of Gazprom on a temporarily free basis could raise even more questions about the terms, which were first reported by the London-based "Financial Times" in mid-March.

Slovakia's privatization minister, Maria Machova, said the consortium will pay 10 percent of the price in the next two weeks and the balance in two or three months, according to Reuters. Ruhrgas will reportedly turn to "external sources" to help finance its share. In other words, the purchase will incur a considerable cash cost in present terms.

It is not clear how that cost will be treated by Gazprom, Ruhrgas, or Gaz de France. By reserving a place in the deal for the Russian monopoly, its partners are giving it an option to buy, which in a normal deal would have a cash value. But this deal may be anything but normal, because of several political factors involved.

One factor is the EU initiative to double energy imports from Russia over the next 20 years. The SPP acquisition could help to reach that goal by giving Gazprom and its partners control over an important export route that could eventually be used to pipe gas from Russia's arctic Yamal Peninsula.

Ruhrgas officials recently paid a two-day visit to Gazprom facilities in the Yamal-Nenets autonomous region, Russia's RIA-Novosti news agency said. The German company, which owns 5 percent of Gazprom and holds a seat on its board, may be a funding source for completing Gazprom's costly pipeline to Yamal.

Gazprom has been unable to finance either the Yamal or the Slovakia investments on its own. In March, the government, which owns 38 percent of Gazprom, approved the monopoly's reduced investment budget of 125.8 billion rubles ($4 billion) for 2002. But the figure includes heavy borrowing, with only a fraction identified so far.

Both Gaz de France and Ruhrgas have long-term contracts with Gazprom, which supplies one-fourth of Europe's gas. The interlocking relations may do little to diversify Slovakia's supplies, despite the EU goal of opening gas markets to competition. The question is whether the EU will see the deal as a threat to Slovakia's potential membership or overlook it as a way to assure supplies.

On 19 March, Slovak President Rudolf Schuster made a one-day working visit to Moscow, but his meetings on bilateral relations were described only in general terms.

Slovakia is already highly dependent on Russia for gas. According to the U.S. Department of Energy, the country relied on Russia for over 97 percent of its gas imports in 2000. By contrast, the neighboring Czech Republic has diversified, receiving 78 percent of its gas from Russia, 15 percent from Norway, and 6 percent from Germany in 1999.

Slovakia's gas network may give Russia and its partners the penultimate piece in their plan to build a bypass route around Ukraine, which handles 90 percent of Gazprom's exports. Kyiv has frustrated Moscow for years with gas debts, diversions, and transit demands. Russian officials have been working on Poland for over a year to approve the last piece of the new route.

On the surface, Russia's disagreements with Ukraine over $1.4 billion in gas debts have all been resolved. The two sides agreed to restructure the debt in October, with bonds issued by the Ukrainian gas company. But five months after the agreement, Russia has yet to accept the bonds, citing vague paperwork problems. The hitch has raised suspicions that it may prefer to keep the issue open.

Some Russian sources see the matter as far from settled. The Russian newspaper "Rossiyskaya gazeta" said recently, "The importance for Russia of the success of this 'gas attack' on Slovakia is hard to exaggerate."

The uncertainty over Ukraine's debt continued over the weekend at a "mini-summit" in Odesa that included Moldovan President Vladimir Voronin. Russian President Vladimir Putin voiced support for energy cooperation with Ukraine at an appearance with President Leonid Kuchma.

But a statement by Russian Deputy Prime Minister Russian Khristenko was more qualified. Khristenko said Ukraine's gas debts "to a considerable degree belong to history now," choosing not to put the matter completely in the past.

Despite assuring tones toward Ukraine, Russia seems to have moved relentlessly toward its goal of an alternate route. With the financial support of its partners, it has had invaluable help.