Showing posts with label energy market. Show all posts
Showing posts with label energy market. Show all posts
[EUROPE] MEPs to vote to open up European Union energy market
Published | 08-May-2008
MEPs are expected today to endorse controversial plans to force huge mainland European energy groups to sell off their power transmission networks and open up the European Union market to greater competition.
The European parliament's industry, research and energy (ITRE) committee is also expected to stymie alternative proposals to hand over control of the grids to independent operators but allow the groups to retain ownership.
Today's vote will be seen as crucial by British and Spanish groups such as Centrica, owner of British Gas, and Iberdrola, owner of ScottishPower, which have seen their ambitions to break into other markets thwarted by the dominance of "national champions".
Labour MEP Eluned Morgan said that the vote would give a fillip to the proponents of full "ownership unbundling" (separating transmission from generation/supply) and added: "We should be able to deliver a knockout blow to the other, weaker options" - a so-called third way would have given more power to regulators to control grid investment.
The European commission, which favours unbundling as the best way to promote competition and lower energy prices, will use today's vote to toughen its plans in the face of opposition from France, Germany and six other countries that form a blocking minority among the European Union's 27 members.
Senior officials have suggested that power grids should at least be controlled by independent operators which would set annual investment plans and raise capital, with the plans overseen by regulators.
But Morgan said this could cement conflicts of interest if generators remained the owners of grids: "We would like to see national regulators given far more powers to fine companies which break the rules, adopt a more stringent approach to appointments and monitor, manage and police the networks. Consumers should also be given much greater influence."
Today's vote will coincide with a call from Chris Davies, a Liberal Democrat MEP, for new coal-fired power plants to be fitted with carbon-capture and storage (CCS) technology by 2030. Fifty new coal-fired plants are planned in Europe over the next five years.
Davies, in charge of negotiations with the commission on CCS, said his strict time frame would help compensate for European Union countries' failure to meet their targets for 20%renewables within Europe's energy mix by 2020.
"There's very little likelihood that the UK, above all, will meet its [15%] target," he said. "As matters stand we will probably be halfway to the target at best ... At least if we accelerate CCS we will have made up the ground."
He said CCS could remove 80% of coal emissions. But he clashed on the issue with the environmental pressure group Greenpeace, which said CCS was a "false promise" and "simply can't deliver in time" because there are no large-scale plants in the world capturing CO2. Whereas renewables that are technically accessible could provide six times more energy than the world now consumes. Davies said such comments were "divisive and dangerous".
The European parliament's industry, research and energy (ITRE) committee is also expected to stymie alternative proposals to hand over control of the grids to independent operators but allow the groups to retain ownership.
Today's vote will be seen as crucial by British and Spanish groups such as Centrica, owner of British Gas, and Iberdrola, owner of ScottishPower, which have seen their ambitions to break into other markets thwarted by the dominance of "national champions".
Labour MEP Eluned Morgan said that the vote would give a fillip to the proponents of full "ownership unbundling" (separating transmission from generation/supply) and added: "We should be able to deliver a knockout blow to the other, weaker options" - a so-called third way would have given more power to regulators to control grid investment.
The European commission, which favours unbundling as the best way to promote competition and lower energy prices, will use today's vote to toughen its plans in the face of opposition from France, Germany and six other countries that form a blocking minority among the European Union's 27 members.
Senior officials have suggested that power grids should at least be controlled by independent operators which would set annual investment plans and raise capital, with the plans overseen by regulators.
But Morgan said this could cement conflicts of interest if generators remained the owners of grids: "We would like to see national regulators given far more powers to fine companies which break the rules, adopt a more stringent approach to appointments and monitor, manage and police the networks. Consumers should also be given much greater influence."
Today's vote will coincide with a call from Chris Davies, a Liberal Democrat MEP, for new coal-fired power plants to be fitted with carbon-capture and storage (CCS) technology by 2030. Fifty new coal-fired plants are planned in Europe over the next five years.
Davies, in charge of negotiations with the commission on CCS, said his strict time frame would help compensate for European Union countries' failure to meet their targets for 20%renewables within Europe's energy mix by 2020.
"There's very little likelihood that the UK, above all, will meet its [15%] target," he said. "As matters stand we will probably be halfway to the target at best ... At least if we accelerate CCS we will have made up the ground."
He said CCS could remove 80% of coal emissions. But he clashed on the issue with the environmental pressure group Greenpeace, which said CCS was a "false promise" and "simply can't deliver in time" because there are no large-scale plants in the world capturing CO2. Whereas renewables that are technically accessible could provide six times more energy than the world now consumes. Davies said such comments were "divisive and dangerous".
Source: The Guardian| by David Gow
RUSSIA: Dreams come true. Gazprom and Putin
Published | 19-Feb-2008
As the world's attention increasingly focuses on Russia's March 2 presidential election, speculation is rising about what President Vladimir Putin will do in the aftermath.
While it's a foregone conclusion in Russia that First Vice Prime Minister Dmitry Medvedev will most likely replace Putin, various theories have been floated, several of which seem to have Putin's support -- that he would take the post of prime minister under a Medvedev presidency, or continue discreetly to exercise power behind the scenes. Now the newspaper Pravda has put forth an intriguing scenario -- that Putin would replace Medvedev as chairman of the board of directors of Russia's natural gas giant Gazprom.
The idea has a certain elegant simplicity. Gazprom, founded in 1989, is now Russia's largest company and the world's biggest natural gas provider, with 432,000 employees. Gazprom ranked sixth on the 2007 Financial Times global 500 list, with a market value of $245 billion.
Its majority shareholder is the Russian government, with 50.01 percent of its stock. According to Gazprom's Web site, in 2006 the company earned $66 billion, with a 31.72 percent operating profit from sales. Since June 2007, Gazprom shares increased 12 percent, leading Russian analysts with few exceptions to identify Gazprom as their top stock pick for 2008. Ever the capitalists, Russian analysts expect higher profits as the company recently won government approval to increase domestic tariffs for industrial users.
As for Gazprom's future, the sky's the limit. Russia has the world's largest natural gas reserves, with 1.68 trillion cubic feet, nearly twice Iran's reserves, the world's second largest. Gazprom produces nearly 90 percent of the Russian Federation's natural gas and operates the country's natural gas pipeline network. Gazprom is Russia's largest earner of hard currency and pays more than $40 million in taxes each day, accounting for around 25 percent of the Russian Federation's federal tax revenues.
Gazprom's revenue stream could be far higher if the company were not constrained by domestic regulation, which compels it to supply the domestic market at government-regulated prices, approximately $28 per 1,000 cubic meters. In contrast, Gazprom's exports to Europe now cost more than $270 per 1,000 cu. m. Gazprom's Russian ventures are not limited to natural gas, however; and in the best spirit of capitalism, Gazprom, which produces 90 percent of the country's sulfur, announced that later this year it will introduce price increases of more than 700 percent, severely affecting production costs for Russia's fertilizer producers.
While it's a foregone conclusion in Russia that First Vice Prime Minister Dmitry Medvedev will most likely replace Putin, various theories have been floated, several of which seem to have Putin's support -- that he would take the post of prime minister under a Medvedev presidency, or continue discreetly to exercise power behind the scenes. Now the newspaper Pravda has put forth an intriguing scenario -- that Putin would replace Medvedev as chairman of the board of directors of Russia's natural gas giant Gazprom.
The idea has a certain elegant simplicity. Gazprom, founded in 1989, is now Russia's largest company and the world's biggest natural gas provider, with 432,000 employees. Gazprom ranked sixth on the 2007 Financial Times global 500 list, with a market value of $245 billion.
Its majority shareholder is the Russian government, with 50.01 percent of its stock. According to Gazprom's Web site, in 2006 the company earned $66 billion, with a 31.72 percent operating profit from sales. Since June 2007, Gazprom shares increased 12 percent, leading Russian analysts with few exceptions to identify Gazprom as their top stock pick for 2008. Ever the capitalists, Russian analysts expect higher profits as the company recently won government approval to increase domestic tariffs for industrial users.
As for Gazprom's future, the sky's the limit. Russia has the world's largest natural gas reserves, with 1.68 trillion cubic feet, nearly twice Iran's reserves, the world's second largest. Gazprom produces nearly 90 percent of the Russian Federation's natural gas and operates the country's natural gas pipeline network. Gazprom is Russia's largest earner of hard currency and pays more than $40 million in taxes each day, accounting for around 25 percent of the Russian Federation's federal tax revenues.
Gazprom's revenue stream could be far higher if the company were not constrained by domestic regulation, which compels it to supply the domestic market at government-regulated prices, approximately $28 per 1,000 cubic meters. In contrast, Gazprom's exports to Europe now cost more than $270 per 1,000 cu. m. Gazprom's Russian ventures are not limited to natural gas, however; and in the best spirit of capitalism, Gazprom, which produces 90 percent of the country's sulfur, announced that later this year it will introduce price increases of more than 700 percent, severely affecting production costs for Russia's fertilizer producers.
If Putin is seriously interested in heading the natural gas giant, observers will not have long to wait, as Gazprom's administration will have to approve the new list of candidates to its board of directors on Feb. 4, prior to the June 27 annual Gazprom shareholders meeting. There are 42 candidates, according to the Gazprom spokesman.
European governments, already concerned about Putin's growing centralization of government power in Moscow, will be anxiously waiting to see if he does, in fact, throw his hat into the ring for chairmanship of Gazprom. The truth is European governments are increasingly reliant on Russian energy imports. Over the last several years, Gazprom has strengthened its presence in the European Union market and now accounts for approximately 25 percent of its natural gas imports. Gazprom is the sole gas supplier to Bosnia-Herzegovina, Estonia, Finland, Macedonia, Latvia, Lithuania, Moldova and Slovakia, as well as providing Bulgaria (97 percent), Hungary (89 percent), Poland (86 percent), the Czech Republic (75 percent), Turkey (67 percent), Austria (65 percent), Romania (40 percent), Germany (36 percent), Italy (27 percent) and France (25 percent.) Not that Gazprom has finished its infiltration of European energy markets; Gazprom recently secured a license to enter Ireland's $2.96 billion natural gas market and intends to begin initial shipments by the end of the year.
In an interesting political precedent, when German Chancellor Gerhard Schroeder left office in September 2005 he almost immediately accepted Gazprom's nomination to head the Nord Stream shareholders' committee, a pipeline project design to bring Russian Gazprom natural gas directly to Germany via an undersea Baltic pipeline.
While Putin apparently remains committed to retaining political power, even if exercising it behind the scenes, in the end, the allure of Gazprom might prove too much to resist, especially as his handpicked successor, Medvedev, recently commented that Gazprom's market capitalization could quadruple in a decade to reach $1 trillion, which would make it the world's biggest corporation.
Putin is spoiled for choice, unlike Gazprom's hapless customers, who will be nervously waiting to see if he does accept the chairmanship, and whether he will use the same hardball tactics that he used to resurrect Russian political power in Western energy markets. In the end, the opportunity to humble competitors ExxonMobil, General Electric, Microsoft, Citigroup and AT&T, No. 1 through 5 on the global 500 list, may prove too hard to resist, especially as they are all American companies. In observing from afar the carnage in Western capitalist markets, Putin is doubtless contemplating Gazprom's slogan, "Mechty sbvaiutsia!".
European governments, already concerned about Putin's growing centralization of government power in Moscow, will be anxiously waiting to see if he does, in fact, throw his hat into the ring for chairmanship of Gazprom. The truth is European governments are increasingly reliant on Russian energy imports. Over the last several years, Gazprom has strengthened its presence in the European Union market and now accounts for approximately 25 percent of its natural gas imports. Gazprom is the sole gas supplier to Bosnia-Herzegovina, Estonia, Finland, Macedonia, Latvia, Lithuania, Moldova and Slovakia, as well as providing Bulgaria (97 percent), Hungary (89 percent), Poland (86 percent), the Czech Republic (75 percent), Turkey (67 percent), Austria (65 percent), Romania (40 percent), Germany (36 percent), Italy (27 percent) and France (25 percent.) Not that Gazprom has finished its infiltration of European energy markets; Gazprom recently secured a license to enter Ireland's $2.96 billion natural gas market and intends to begin initial shipments by the end of the year.
In an interesting political precedent, when German Chancellor Gerhard Schroeder left office in September 2005 he almost immediately accepted Gazprom's nomination to head the Nord Stream shareholders' committee, a pipeline project design to bring Russian Gazprom natural gas directly to Germany via an undersea Baltic pipeline.
While Putin apparently remains committed to retaining political power, even if exercising it behind the scenes, in the end, the allure of Gazprom might prove too much to resist, especially as his handpicked successor, Medvedev, recently commented that Gazprom's market capitalization could quadruple in a decade to reach $1 trillion, which would make it the world's biggest corporation.
Putin is spoiled for choice, unlike Gazprom's hapless customers, who will be nervously waiting to see if he does accept the chairmanship, and whether he will use the same hardball tactics that he used to resurrect Russian political power in Western energy markets. In the end, the opportunity to humble competitors ExxonMobil, General Electric, Microsoft, Citigroup and AT&T, No. 1 through 5 on the global 500 list, may prove too hard to resist, especially as they are all American companies. In observing from afar the carnage in Western capitalist markets, Putin is doubtless contemplating Gazprom's slogan, "Mechty sbvaiutsia!".
Source: United Press Internaional
EUROASIA: Russia and Serbia strike major energy deal
Published | 28-Jan-2008
Russian and Serbian officials today signed a multibillion-dollar energy deal that would make Serbia a key hub for Russian energy supplies and strengthen Moscow's dominance of the European energy market.
The agreement includes building a branch of a prospective major natural gas pipeline and a huge gas storage facility in Serbia. A separate agreement also lays the groundwork for Russia's state gas monopoly, OAO Gazprom, to acquire a controlling stake in Serbia's state oil company NIS.
"The agreements signed would make Serbia a key hub in the prospective network of Russian energy supplies to southern Europe," Russian President Vladimir Putin said after the signing. "This network will be long-lasting, reliable, highly efficient, and what is very important, help boost energy supplies to Serbia and the entire European continent."
The agreements, which Serbian officials have estimated as worth at least $2.2 billion, would include building a branch of the prospective South Stream natural gas pipeline in Serbia. South Stream would run under the Black Sea from Russia to Bulgaria, from where it would branch off. The section through Serbia would carry at least 10 billion cubic meters a year, Gazprom CEO Alexei Miller told reporters after the signing.
The 550-mile, $15 billion project undercuts the prospective U.S.- and EU-backed Nabucco pipeline designed to ease Europe's reliance on Russia by carrying gas from the Middle East and Caspian countries other than Russia via Turkey.
Serbia's President, Boris Tadic, said the deal would bolster Serbia's standing by making it a key transit country for energy supplies to Europe.
"This agreement has a huge strategic importance for Serbia," Tadic said. "It will strengthen Serbia's strategic positions in southeastern Europe, since it will serve as a transit point for gas supplies to the EU's southern flank."
Belgrade has turned increasingly away from the West and toward Russia, which has supported Serbia in the debate over independence for the province of Kosovo.
The agreement includes building a branch of a prospective major natural gas pipeline and a huge gas storage facility in Serbia. A separate agreement also lays the groundwork for Russia's state gas monopoly, OAO Gazprom, to acquire a controlling stake in Serbia's state oil company NIS.
"The agreements signed would make Serbia a key hub in the prospective network of Russian energy supplies to southern Europe," Russian President Vladimir Putin said after the signing. "This network will be long-lasting, reliable, highly efficient, and what is very important, help boost energy supplies to Serbia and the entire European continent."
The agreements, which Serbian officials have estimated as worth at least $2.2 billion, would include building a branch of the prospective South Stream natural gas pipeline in Serbia. South Stream would run under the Black Sea from Russia to Bulgaria, from where it would branch off. The section through Serbia would carry at least 10 billion cubic meters a year, Gazprom CEO Alexei Miller told reporters after the signing.
The 550-mile, $15 billion project undercuts the prospective U.S.- and EU-backed Nabucco pipeline designed to ease Europe's reliance on Russia by carrying gas from the Middle East and Caspian countries other than Russia via Turkey.
Serbia's President, Boris Tadic, said the deal would bolster Serbia's standing by making it a key transit country for energy supplies to Europe.
"This agreement has a huge strategic importance for Serbia," Tadic said. "It will strengthen Serbia's strategic positions in southeastern Europe, since it will serve as a transit point for gas supplies to the EU's southern flank."
Belgrade has turned increasingly away from the West and toward Russia, which has supported Serbia in the debate over independence for the province of Kosovo.
Tadic and Serbian Prime Minister Vojislav Kostunica both thanked Moscow for its support on Kosovo at the start of his talks with Putin.
"Serbia very deeply respects the position of Russia on Kosovo," Tadic said at the start today's talks with Putin. "We will defend our interests in Kosovo, operating on the basis of international law and we will never do otherwise."
Putin reaffirmed Moscow's strong opposition to Kosovo's independence.
"Russia is categorically against a unilateral declaration of independence for Kosovo," he said, adding that it could "seriously damage the system of international law and have negative consequences for the Balkans and affect stability in other regions."
Moscow last year threatened a veto in the U.N. Security Council to block a Western-backed plan for internationally supervised statehood for Kosovo.
Russia has used the rift to strengthen business and diplomatic ties to Serbia — with which Moscow has historic cultural and linguistic ties.
Serbia endorsed the energy deal days after Putin won Bulgaria's support last week for the South Stream project.
The terms of the deal for Gazprom to acquire a 51 percent stake in Serbia's state oil company NIS weren't announced, but Serbian Energy Minister Aleksandar Popovic has confirmed reports that Russia offered $600 million — just one-fifth of the company's estimated market value — and an additional $730 million in modernizing the run-down company. He said Tuesday that Serbia would try to better the price in further negotiations.
Source: Associated Press
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INTERVIEW: Wulf Bernotat. EON is Russia's Biggest Investor
Published | 13-Nov-2007![Experts estimate that the German concern E.ON holds gas and electricity assets in Russia worth $25-26 billion. It plans to expand its presence in those sectors as well. The concern still does not have an agreement with Gazprom on an asset exchange for the Yuzhno-Russkoe deposit in the Yamal-Nenets Autonomous Area. E.On chairman of the board Wulf Bernotat, in his first interview with the Russian press in two years, talks about the companies main Russian projects. What is your company's strategy in Russia? What are your goals and the deadlines you have set for them? Out strategy is based on long-term partnership relations with Russian companies, especially Gazprom, planned for more than 30 years. About two years ago, we made a decision to enter the electricity sector, which has been successful. About 70 percent of the stock in OGK-4 (Wholesale Generating Co. 4) has been acquired. And I emphasize that it was not a spontaneous step arising from a sudden desire to enter the Russian electricity market. Rather, it was the logical conclusion of long-term relations that existed in the sphere of natural gas. We own 6.5 percent of the stock in Gazprom, our interests are represented on the board of directors of the Russian gas monopoly and we are the largest importer of Russian gas. If the value of our shareholders equity packages in Gazprom and OGK-4 were added up [the capitalization of 6.43 percent of Gazprom stock was $19 billion as of November 5], as well as the share we plan to acquire in the Yuzhno-Russkoe deposit, we are the largest foreign investor in Russia. Deadlines are meaningless, because we plan to invest logically and gradually as the business develops. The development of our relations can be seen in the fact that we own a quarter of Nord Stream AG, which is building the North European Gas Pipeline. E.On's electricity business is developing most successfully. What are your long-term plans for OGK-4. What will you do with that asset? We plan to increase our share in OGK-4 and will make the appropriate offers to the company's minority shareholders. The 23 percent of shares in OGK-4 that RAO UES of Russia owns will be distributed among the minority shareholders in connection with its dissolution in 2008. But the 70 percent that we already own allows us to manage the company successfully. Our task at the moment is to integrate that company smoothly into our concern. That is a matter of setting up a team of representatives of E.On and OGK-4 that will prepare for the annual account taking, since we want to include data from OGK-4 in the E.On annual report. Last week, we had the first meeting with the management and employees of OGK-4 and we acquainted them with our plans. Do you intend to replace OGK-4 executives? In the long term, we will have a team of managers in which Germans and Russians work together. We take that approach no only in Russia, but in all countries where we have assets, whether it is Great Britain, Scandinavia, Italy or Spain. We have always decided what positions local workers can be kept in and in what positions representatives of our concern would be especially strong in. But every time it was a mix. Will you replace the general director and the deputy director for finance? We have delegated a number of the top executives of our concern to speed up integration. A decision on replacing managers in key positions has to be made much later. E.On had set its sights on Mosenergo as part of an exchange of electricity assets with Gazprom. Have you reconsidered or are you still counting on receiving a share in that company? I will be happy to elucidate that situation, since a direct exchange of electricity assets involving Mosenergo was never in our plans. Four years ago, we discussed questions connected with our cooperation on the Russian electricity market with [Gazprom CEO] Alexey Miller. It was assumed that Gazprom would participate in it because of the positions it has here and we would bring our experience and know-how to it, which are useful to Gazprom when entering new market. Nothing came of it in the end, however, because Gazprom decided to act without us and we turned our attention to other objects, particularly OGK-4. Are there other electricity assets in Russia that interest E.On? How soon do you intend to acquire or build them? Are you interested exclusively in gas generation, or are you interested in coal generation and hydro-generation as well? At this stage, we are most interested in issues of integration of OGK-4, which has 5500 employees and facilities throughout the country. The distance between the farthest electric plants is 4000 km. Since there are electric plants in OGK-4 that run on gas, as well as coal, it fits E.On's development strategy well. Parallel to the process of integration, we plan to make investments to increase capacity, in order to meet the demand for electricity. There is no time to wait. Our total expenses for the purchase of OGK-4 were $5.7 billion, of which $1.8 billion will go to increase the authorized capital, which will be used to finance the projected new capacity. We think that OGK-4 is an excellent platform for the expansion of capacity. As for other assets, we will turn our attention to them when the time is right. No final decision has been made yet and we will consider it by analyzing the conditions of specific objects. I cannot answer your question at the moment yes or no, and all the more so since we are competing with other companies and should not reveal our plans to them. So we can expect you to buy another share in a territorial generating company at any time? We will attentively analyze the appropriate objects before making a decision on their acquisition. What does your cooperation with Gazprom in the area of electricity consist of? At one time, you refused to allow the Russian gas monopoly access to E.On electricity assets in Germany. Are you afraid that the Russians will practice dumping on your domestic market? Nothing of the sort. We never blocked Gazprom's access to the German electricity market. We always conducted negotiations about it, including on the exchange of assets. The negotiations came down to a discussion of the Hungarian assets E.On acquired from MOL during privatization, also in the electricity sphere. Some time later, however, Gazprom decided to concentrate on gas-powered electricity plants in Western Europe. Therefore, now we are talking about a share gas plants E.On has in Europe, including in Germany, and about the joint construction of new plants. Did Gazprom reject the Hungarian assets completely? I can't talk about the details of the negotiations until we reach an agreement with Gazprom, but its interests shifted in the direction of gas-powered electric plants in the EU. Is E.On prepared to provide Gazprom a share in its British electric plant? Would it be a blocking package or a controlling package? Gazprom is interested in shares in the electric plant in Britain, but not in our E.On UK subsidiary. Now is not the time to discuss the details in the press, since they are still in the active stage. The deadline for completing talks on the development of the Yuzhno-Russkoe deposit has been extended more than once and now a new deadline has been announced – the end of November. What has prevented you from reaching an agreement on Gazprom's conditions for two years? Most of all, it has to be said that Gazprom itself, for a number of reasons, asked for the deadlines to be moved. And [Gazprom deputy chairman] Alexander Medvedev said that the was working on a number of projects at the same time and negotiating with BP and Shell and there was no chance to hold final negotiations on Yuzhno-Russkoe. Today we should divide the issues into two blocks. That is the package of assets, and here an agreement had more or less been reached, and the assessment of the share in Yuzhno-Russkoe. There is not yet an agreement on that block, but I can suggest how we will reach it. The Russian press has stated that the cost of the assets in the deal between Gazprom and BASF, which has a share in Yuzhno-Russkoe that is analogical to yours, is $1.3 billion. Please comment on that sum. I don't know how accurately the package was assessed, but they used a different formula for asset estimation. As far as I understand it, it was a matter of the companies' joint activities in Libya. There the logic is completely understandable. The price of gas rises along with the price of oil, and that influences the market assessment of assets and, in this case, the package has no primary importance. We have a formula for the exchange of assets that assumes a difference between the cost of the assets in one sector, gas, for instance, where prices rise or fall along with prices on world markets, and the cost of gas-powered electricity generation. That complicates assessment. Last year, $800 million was mentioned in the press as the total value of the exchange b between Gazprom and E.On. Do I recall correctly that you provided a share in the electric plants in Great Britain or Italy for exchange with an additional cash payment? Yes. From the very beginning, we proposed a large part of the payment in assets ad the rest in money. Nothing has changed in that issue. When will the negotiations be completed and whose court is the ball in now? The ball is now in the center of the field. There is no sense in naming a new date every two weeks. The negotiations will be completed the moment when the agreement is signed. Talk, please, about how the Nord Stream project is going. What is the main source of disagreement between the participants in the project? There is a shareholders board that decides principle issues connected with the company's activities. Managers decide technical issues. We are maintaining the planned schedule. There are no disputed points among the partners. Has financing been found for Nord Stream? How much does it cost – €5 billion or $12 billion? How much is planned in the E.On budget for it? I am completely unfamiliar with the figure of $12 billion. I operate on the sum of expenses of €5 billion for the two lines of the gas pipeline. If the need arises to raise expenses, the shareholders will consider it. We definitely envisaged a certain sum in our budget in case of unforeseen expenses. Comment, please, on the EU initiative to liberalize the gas market that would divide the business into transport and sales to the final consumer. We have repeatedly stated from the podium of the European Union and to individual commissioners that we do not consider the division between production and transport companies the right move and that implementation of that initiative will not lead to increased competition or decreased energy prices. I know that BASF, Total and Gazprom will oppose those initiatives. But each of them is formulating its position separately. What advantage does your concern have over other strategic investors in Russia on the gas and electricity market? Should we expect E.On projects in other spheres of business? We will continue to concentrate our efforts on the production and sale of natural gas and electricity, and on renewable energy sources that will eventually also be usable to produce electric power. Our advantage in comparison with other strategic investors is that we are present on practically all the energy markets of Europe, from Russia to Turkey. That gives us an advantage in the growing tendency to establish a single European energy market. We support that idea and support not so much the elimination of borders in the European U nion energy market as the improvement of physical connections between individual parts of that single market. In my view, that is the strategic advantage of E.On.](http://bp2.blogger.com/_m50azKGBdwU/RzkG4V9m1cI/AAAAAAAAFa4/fzL3uMnMItM/s400/bernotat.jpg)
by Natalia Grib
Experts estimate that the German concern E.ON holds gas and electricity assets in Russia worth $25-26 billion. It plans to expand its presence in those sectors as well. The concern still does not have an agreement with Gazprom on an asset exchange for the Yuzhno-Russkoe deposit in the Yamal-Nenets Autonomous Area. E.On chairman of the board Wulf Bernotat, in his first interview with the Russian press in two years, talks about the companies main Russian projects.
What is your company's strategy in Russia? What are your goals and the deadlines you have set for them?
Out strategy is based on long-term partnership relations with Russian companies, especially Gazprom, planned for more than 30 years. About two years ago, we made a decision to enter the electricity sector, which has been successful. About 70 percent of the stock in OGK-4 (Wholesale Generating Co. 4) has been acquired. And I emphasize that it was not a spontaneous step arising from a sudden desire to enter the Russian electricity market. Rather, it was the logical conclusion of long-term relations that existed in the sphere of natural gas. We own 6.5 percent of the stock in Gazprom, our interests are represented on the board of directors of the Russian gas monopoly and we are the largest importer of Russian gas. If the value of our shareholders equity packages in Gazprom and OGK-4 were added up [the capitalization of 6.43 percent of Gazprom stock was $19 billion as of November 5], as well as the share we plan to acquire in the Yuzhno-Russkoe deposit, we are the largest foreign investor in Russia. Deadlines are meaningless, because we plan to invest logically and gradually as the business develops. The development of our relations can be seen in the fact that we own a quarter of Nord Stream AG, which is building the North European Gas Pipeline.
E.On's electricity business is developing most successfully. What are your long-term plans for OGK-4. What will you do with that asset?
We plan to increase our share in OGK-4 and will make the appropriate offers to the company's minority shareholders. The 23 percent of shares in OGK-4 that RAO UES of Russia owns will be distributed among the minority shareholders in connection with its dissolution in 2008. But the 70 percent that we already own allows us to manage the company successfully. Our task at the moment is to integrate that company smoothly into our concern. That is a matter of setting up a team of representatives of E.On and OGK-4 that will prepare for the annual account taking, since we want to include data from OGK-4 in the E.On annual report. Last week, we had the first meeting with the management and employees of OGK-4 and we acquainted them with our plans.
Do you intend to replace OGK-4 executives?
In the long term, we will have a team of managers in which Germans and Russians work together. We take that approach no only in Russia, but in all countries where we have assets, whether it is Great Britain, Scandinavia, Italy or Spain. We have always decided what positions local workers can be kept in and in what positions representatives of our concern would be especially strong in. But every time it was a mix.
Will you replace the general director and the deputy director for finance?
We have delegated a number of the top executives of our concern to speed up integration. A decision on replacing managers in key positions has to be made much later.
E.On had set its sights on Mosenergo as part of an exchange of electricity assets with Gazprom. Have you reconsidered or are you still counting on receiving a share in that company?
I will be happy to elucidate that situation, since a direct exchange of electricity assets involving Mosenergo was never in our plans. Four years ago, we discussed questions connected with our cooperation on the Russian electricity market with [Gazprom CEO] Alexey Miller. It was assumed that Gazprom would participate in it because of the positions it has here and we would bring our experience and know-how to it, which are useful to Gazprom when entering new market. Nothing came of it in the end, however, because Gazprom decided to act without us and we turned our attention to other objects, particularly OGK-4.
Are there other electricity assets in Russia that interest E.On? How soon do you intend to acquire or build them? Are you interested exclusively in gas generation, or are you interested in coal generation and hydro-generation as well?
At this stage, we are most interested in issues of integration of OGK-4, which has 5500 employees and facilities throughout the country. The distance between the farthest electric plants is 4000 km. Since there are electric plants in OGK-4 that run on gas, as well as coal, it fits E.On's development strategy well. Parallel to the process of integration, we plan to make investments to increase capacity, in order to meet the demand for electricity. There is no time to wait. Our total expenses for the purchase of OGK-4 were $5.7 billion, of which $1.8 billion will go to increase the authorized capital, which will be used to finance the projected new capacity. We think that OGK-4 is an excellent platform for the expansion of capacity.
As for other assets, we will turn our attention to them when the time is right. No final decision has been made yet and we will consider it by analyzing the conditions of specific objects. I cannot answer your question at the moment yes or no, and all the more so since we are competing with other companies and should not reveal our plans to them.
So we can expect you to buy another share in a territorial generating company at any time?
We will attentively analyze the appropriate objects before making a decision on their acquisition.
What does your cooperation with Gazprom in the area of electricity consist of? At one time, you refused to allow the Russian gas monopoly access to E.On electricity assets in Germany. Are you afraid that the Russians will practice dumping on your domestic market?
Nothing of the sort. We never blocked Gazprom's access to the German electricity market. We always conducted negotiations about it, including on the exchange of assets. The negotiations came down to a discussion of the Hungarian assets E.On acquired from MOL during privatization, also in the electricity sphere. Some time later, however, Gazprom decided to concentrate on gas-powered electricity plants in Western Europe. Therefore, now we are talking about a share gas plants E.On has in Europe, including in Germany, and about the joint construction of new plants.
Did Gazprom reject the Hungarian assets completely?
I can't talk about the details of the negotiations until we reach an agreement with Gazprom, but its interests shifted in the direction of gas-powered electric plants in the EU.
Is E.On prepared to provide Gazprom a share in its British electric plant? Would it be a blocking package or a controlling package?
Gazprom is interested in shares in the electric plant in Britain, but not in our E.On UK subsidiary. Now is not the time to discuss the details in the press, since they are still in the active stage.
The deadline for completing talks on the development of the Yuzhno-Russkoe deposit has been extended more than once and now a new deadline has been announced – the end of November. What has prevented you from reaching an agreement on Gazprom's conditions for two years?
Most of all, it has to be said that Gazprom itself, for a number of reasons, asked for the deadlines to be moved. And [Gazprom deputy chairman] Alexander Medvedev said that the was working on a number of projects at the same time and negotiating with BP and Shell and there was no chance to hold final negotiations on Yuzhno-Russkoe. Today we should divide the issues into two blocks. That is the package of assets, and here an agreement had more or less been reached, and the assessment of the share in Yuzhno-Russkoe. There is not yet an agreement on that block, but I can suggest how we will reach it.
The Russian press has stated that the cost of the assets in the deal between Gazprom and BASF, which has a share in Yuzhno-Russkoe that is analogical to yours, is $1.3 billion. Please comment on that sum.
I don't know how accurately the package was assessed, but they used a different formula for asset estimation. As far as I understand it, it was a matter of the companies' joint activities in Libya. There the logic is completely understandable. The price of gas rises along with the price of oil, and that influences the market assessment of assets and, in this case, the package has no primary importance. We have a formula for the exchange of assets that assumes a difference between the cost of the assets in one sector, gas, for instance, where prices rise or fall along with prices on world markets, and the cost of gas-powered electricity generation. That complicates assessment.
Last year, $800 million was mentioned in the press as the total value of the exchange b between Gazprom and E.On. Do I recall correctly that you provided a share in the electric plants in Great Britain or Italy for exchange with an additional cash payment?
Yes. From the very beginning, we proposed a large part of the payment in assets ad the rest in money. Nothing has changed in that issue.
When will the negotiations be completed and whose court is the ball in now?
The ball is now in the center of the field. There is no sense in naming a new date every two weeks. The negotiations will be completed the moment when the agreement is signed.
Talk, please, about how the Nord Stream project is going. What is the main source of disagreement between the participants in the project?
There is a shareholders board that decides principle issues connected with the company's activities. Managers decide technical issues. We are maintaining the planned schedule. There are no disputed points among the partners.
Has financing been found for Nord Stream? How much does it cost – €5 billion or $12 billion? How much is planned in the E.On budget for it?
I am completely unfamiliar with the figure of $12 billion. I operate on the sum of expenses of €5 billion for the two lines of the gas pipeline. If the need arises to raise expenses, the shareholders will consider it. We definitely envisaged a certain sum in our budget in case of unforeseen expenses.
Comment, please, on the EU initiative to liberalize the gas market that would divide the business into transport and sales to the final consumer.
We have repeatedly stated from the podium of the European Union and to individual commissioners that we do not consider the division between production and transport companies the right move and that implementation of that initiative will not lead to increased competition or decreased energy prices. I know that BASF, Total and Gazprom will oppose those initiatives. But each of them is formulating its position separately.
What advantage does your concern have over other strategic investors in Russia on the gas and electricity market? Should we expect E.On projects in other spheres of business?
We will continue to concentrate our efforts on the production and sale of natural gas and electricity, and on renewable energy sources that will eventually also be usable to produce electric power. Our advantage in comparison with other strategic investors is that we are present on practically all the energy markets of Europe, from Russia to Turkey. That gives us an advantage in the growing tendency to establish a single European energy market. We support that idea and support not so much the elimination of borders in the European U nion energy market as the improvement of physical connections between individual parts of that single market. In my view, that is the strategic advantage of E.On.
Via: Kommersant
Tags: fotolog|fotolog|www.BajaeNergyBLOG.com|
ENERGY POLICY: iT Considers European Energy Market Competition
Published | 25-Sep-2007The European Commission is set to publish a draft law on energy market competition that will separate the ownership of energy production from the ownership of distribution systems. If adopted, these new rules would have implications for the assets Russian state gas giant Gazprom owns in the European Union.
E.U. Competition Commissioner Neelie Kroes has been campaigning for the "unbundling" of production from distribution systems in E.U. energy markets. Her concern is with gas and electricity:
--The weaker version of the unbundling law involves separating the management of production and distribution activities into separate companies.
--The strong version, preferred by Kroes, entails separating not just management but ownership as well.
The rationale behind this approach is that competition does not function properly in the European electricity and gas markets. The Competition Commission argues these markets are dominated by a small number of vertically integrated companies, often with national monopolies. Furthermore, international competition is weak.
Liberalizing the gas and electricity markets across the E.U., along the lines already followed by the U.K., is seen as the way forward. The lobby group of industrial energy users, the International Federation of Industrial Energy Consumers (IFIEC), supports Kroes, as does the European Council. For advocates of the reform, the aim is to create a single European energy market.
A number of member states will oppose ownership unbundling. The heavyweight opponents are several large national champions, including:
--Italian companies Eni and Enel, both over 31% state-owned;
--Gaz de France, which will be GDF Suez after the merger with utilities company Suez, about 40% state-owned;
--Germany's powerful E.ON group, incluing E.ON Ruhrgas.
--Russia's Gazprom will also strongly resist the initiative.
The E.U. imports about 58% of its gas. Around half of that comes from Gazprom, whose monopoly on the export of Russian gas is entrenched in Russian law.
As a supplier of gas, Gazprom would present no problem for the Kroes strategy. In a speech to the IFIEC General Assembly in June, Kroes said long term supply contracts were not themselves a problem for competition, but they became a problem when they involved a dominant supplier accounting for a large part of the market.
Gazprom already has stakes in distribution businesses in several E.U. countries. It has also formed joint ventures in gas reservoirs and gas distribution hubs in Hungary, Belgium and Germany. The E.U. competition policy, if it followed the Kroes strategy, would require on principle that Gazprom be treated like all other vertically integrated energy businesses in Europe: It would have to divest itself of distribution assets. However, this plan would encounter three major problems:
--E.U. Links: Vertically integrated national champions in several E.U. states are already intertwined with Gazprom. Together, they can successfully resist any unbundling.
--No reciprocation: E.U. Trade Commissioner Peter Mandelson and German Chancellor Angela Merkel have voiced concerns that E.U. companies are being acquired by state-owned entities from non-E.U. countries, which do not open their own economies to acquisitions by E.U.-based firms. These concerns may prompt the commission to propose additional measures aimed at non-E.U. state companies, such as Gazprom.
--Russian sensitivities: The present Russian leadership appears to be highly sensitive to any action that could be interpreted as a threat to Russian interests. Restrictions on Gazprom's activities would be readily interpreted in Moscow as being anti-Russian. This would further spoil the already strained relations between Brussels and Moscow.
E.U. Competition Commissioner Neelie Kroes has been campaigning for the "unbundling" of production from distribution systems in E.U. energy markets. Her concern is with gas and electricity:
--The weaker version of the unbundling law involves separating the management of production and distribution activities into separate companies.
--The strong version, preferred by Kroes, entails separating not just management but ownership as well.
The rationale behind this approach is that competition does not function properly in the European electricity and gas markets. The Competition Commission argues these markets are dominated by a small number of vertically integrated companies, often with national monopolies. Furthermore, international competition is weak.
Liberalizing the gas and electricity markets across the E.U., along the lines already followed by the U.K., is seen as the way forward. The lobby group of industrial energy users, the International Federation of Industrial Energy Consumers (IFIEC), supports Kroes, as does the European Council. For advocates of the reform, the aim is to create a single European energy market.
A number of member states will oppose ownership unbundling. The heavyweight opponents are several large national champions, including:
--Italian companies Eni and Enel, both over 31% state-owned;
--Gaz de France, which will be GDF Suez after the merger with utilities company Suez, about 40% state-owned;
--Germany's powerful E.ON group, incluing E.ON Ruhrgas.
--Russia's Gazprom will also strongly resist the initiative.
The E.U. imports about 58% of its gas. Around half of that comes from Gazprom, whose monopoly on the export of Russian gas is entrenched in Russian law.
As a supplier of gas, Gazprom would present no problem for the Kroes strategy. In a speech to the IFIEC General Assembly in June, Kroes said long term supply contracts were not themselves a problem for competition, but they became a problem when they involved a dominant supplier accounting for a large part of the market.
Gazprom already has stakes in distribution businesses in several E.U. countries. It has also formed joint ventures in gas reservoirs and gas distribution hubs in Hungary, Belgium and Germany. The E.U. competition policy, if it followed the Kroes strategy, would require on principle that Gazprom be treated like all other vertically integrated energy businesses in Europe: It would have to divest itself of distribution assets. However, this plan would encounter three major problems:
--E.U. Links: Vertically integrated national champions in several E.U. states are already intertwined with Gazprom. Together, they can successfully resist any unbundling.
--No reciprocation: E.U. Trade Commissioner Peter Mandelson and German Chancellor Angela Merkel have voiced concerns that E.U. companies are being acquired by state-owned entities from non-E.U. countries, which do not open their own economies to acquisitions by E.U.-based firms. These concerns may prompt the commission to propose additional measures aimed at non-E.U. state companies, such as Gazprom.
--Russian sensitivities: The present Russian leadership appears to be highly sensitive to any action that could be interpreted as a threat to Russian interests. Restrictions on Gazprom's activities would be readily interpreted in Moscow as being anti-Russian. This would further spoil the already strained relations between Brussels and Moscow.
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