FROM THE REDACTION
Armenia’s Minister of Energy and Natural Resources Armen Movsisyan said that by the end of 2009, the Russian gas giant Gazprom will invest more than 200m US dollars in the construction of the Iran-Armenia gas pipeline.
After the completion of construction work, Armenia will have access to another alternative gas pipeline along with the current one from Russia and based on the prices that are offered, will decide which of them it should use. Currently, Armenia pays Russian Gazprom 110 US dollars per 1,000 cu.m. of gas, however, the price will change from 1 January 2009, Arminfo quoted Movsisyan as saying. During his press conference, Armen Movsisyan also touched on the construction of an oil refinery outside Yerevan which will cost two or three billion US dollars. The plant, which will be able to process 7.5m tons of Iranian crude oil per year, will produce petrol and diesel. Speaking about energy projects with Iran, the minister mentioned that a joint hydroelectric power station will be constructed on the border river Araz. The construction of the station with a capacity of about 140 MW will be financed by Iran and will cost 240-250 mln US dollars. The construction work may commence in 2008, the minister said. The minister went on to say that the USA and the EU have allocated 10-12 mln US dollars to update the security of the Armenian nuclear power plant, Arminfo said. Up to now, technical assistance worth 90 mln US dollars has been allocated to update the security of the plant, the agency quoted the minister as saying. Armen Movsisyan added that it is planned to build a new nuclear block in Armenia in 2016 when the existing energy block of the nuclear plant expires. Even though Armenian legislation allows foreign investors to own 100 per cent of stocks, the government intends to control half of the project stocks, the minister said. “If the government does not take part in the project, then this project has no real significance for us,” Movsisyan said. However, the operation of the current nuclear block will not be suspended until the new one is built, the minister said. He noted that the technical feasibility of the new plant will be completed by September.
New Gazprom boss
to meet the neighbours
Gazprom’s new chairman, First Deputy Prime Minister Viktor Zubkov, will have his hands full in the coming months, especially when it comes to negotiating gas prices with neighbouring states.
Minutes after his appointment, Viktor Zubkov held his first press conference as the Chairman of the Board.
He called Gazprom a pillar of the Russian economy and promised to act in accordance with its current development strategy.
“Gazprom has a significant influence on the development of the Russian economy and that is why it is state-owned. It’s also a major player on the market and has to be competitive. As a representative of the government I will try to balance the states interest and market requirements for the company’s development,” Zubkov said.
The new chairman faces several challenges, from settling gas relations with Ukraine to fulfilling the goal of making Gazprom the largest energy company in the world.
Zubkov and the re-elected Gazprom CEO, Aleksey Miller, have said contracts with Ukraine will expire this year and Gazprom will supply gas to Kiev in 2009 on market principles. According to Miller, if Asian producers start selling gas at European prices starting from next year, it will cost around $US 400 per 100 cubic metres. Ukraine is currently paying just $US 180.
Possible price hikes and long-term contracts will top the agenda at talks between Russian and Ukrainian Prime Ministers Vladimir Putin and Yulia Timoshenko in Moscow on Saturday.
Gazprom has cash waiting
for TNK-BP gas field
Gazprom says it has the money to buy the Kovykta gas field from owners TNK-BP. The state-controlled energy giant says it will not need to borrow to make the purchase. Despite being in debt to the tune of US$ 37 billion, experts say Gazprom has enough cash for the deal.
Gazprom has accumulated massive debt after aggressive acquisitions over the past two years, including a share in the Sakhalin-2 gas project and power generating assets.
The billion-dollar Kovykta gas field is near the top of the list of Gazprom’s possible purchases.
Gazprom’s deputy CEO, Andrey Kruglov, says it’s not a matter of money, but getting an agreement.
“We don’t need to attract any loans. We’re ready to pay for it whenever our negotiating parties and colleagues are ready,” said Kruglov.
It seems that Gazprom isn’t planning any large acquisitions till the end of the year and won’t attract significant loans.
“The volume of Gazprom’s net debt of 37 billion dollars may decrease slightly by the end of 2008. We plan to refinance or redeem with our own funds the bulk of loans raised in 2007,” said Kruglov.
Market watchers say even if the company doubles its net burden it won’t undermine its credibility as a borrower.
“Amid growing energy prices, Gazprom’s net profit this year may reach 30 billion dollars and EBITDA of 45 billion. A borrower is regarded as reliable if its debt to EBITDA ratio is two to one. So Gazprom could borrow twice as much,” says analyst Denis Borisov.
However, experts warn Gazprom may face problems with refinancing if the global liquidity crisis worsens. They see a debt of around 25 billion dollars as an optimal level for the company in the current market environment.
Pipeline access could
block new Russia-EU deal
The first round of talks over a new Partnership and Co-operation Agreement between Russia and the EU will start in July. But there are a number of unresolved issues, including the Energy Charter Treaty.
The energy treaty dates back to the 1990s and was originally intended to integrate the energy sectors of the former Soviet Union and Eastern Europe into the broader European and world markets at the end of the Cold War. The international agreement came into effect in 1998.
Russia signed the treaty in 1994, but refused to ratify it. The main objection was giving third-party access to Russia’s pipeline infrastructure and transit fees.
Aleksandr Razuvaev, an analyst from Sobinbank, suggests Russia is unlikely ever to sign the document.
“The state is controlling oil transportation via Transneft and gas transportation through Gazprom. Foreign companies will never get free access to Russia’s strategic fields. I think the European Union’s demands are absurd and Russia will always use its natural resources and its transport system, i.e. transit possibilities, only in its own interests,” Razuvaev said.
However, Ralf Dickel from Energy Charter Secretariat, says the agreement is not restrictive and open for any kind of transit model.
“It could be a model where energy is bought and resold. It’s not a specific model for how you build pipelines and use them, it’s just a basic philosophy that a transit country should not stand in the way of mobilising energy resources from one country to a market where they’re needed,” he said.
The dispute has dragged on for many years and boils down to energy security. With the need to negotiate a new partnership agreement between Russia and the EU, the pressure is on to resolve the issue. A new EU-Russia agreement is expected to be ready in a year.