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Gazprom negotiates for a share in Hungarian Emfesz

The Hungarian natural gas trader Emfesz Kft, which belongs to Gazprom's partner in RosUkrEnergo Dmitry Firtash, has received permission to build the most powerful gas and steam electricity generator in Hungary – reports daily Kommersant.

It will have a capacity of 2400 MW. Its first block is planned for launch in 2011 with a capacity of 800 MW, that is, 9.2% of the country's electricity market. It will allow Hungary to stop importing electricity from Ukraine and Slovakia. Firtash needs €1.5 billion ($2 billion) to realize the project, part of which Gazprom may provide by buying a share in Emfesz. The new plant will be located in the Szabolcs-Szatmár-Bereg area along a natural gas trunk line and close to the Ukrainian border.

Emfesz has a long-term contract with RosUkrEnergo to buy gas at 15-20% below the Hungarian market rate, which will enable it to sell electricity at a price competitive with Ukrainian and Slovakian sources. Today, 1 KW/h of electricity from Ukraine costs 6.5-7 eurocents, while 1 KW/h of electricity from the new plant will cost less than 5 eurocents. The future plant is expected to reach full capacity in 2020, at which time it will account for 21% of the Hungarian market and be Hungary' largest electricity producer.

Emfesz is also licensed to trade natural gas in Hungary. It rents distribution lines and underground reservoirs with a capacity of 7.5 billion cu. m. from E.On. Its proceeds in 2006 amounted to $778 million, with $73 million in net profit. At least €500 million will be needed for the first stage of the electric plant project. Emfesz press secretary Boris Shestakov told Kommersant that the money would be obtained on credit, but a source in Group DF, which owns the Cypriote Mabofi Holding, which owns Emfesz, and which is owned by Firtash, Gazprom has proposed the purchase of 50% of Emfesz. A Gazprom source has also confirmed that information. Another source said that Firtash is only willing to sell half of Emtesz to RosUkrEnergo, which he and Gazprom own equally.

This is not Gazprom's first attempt to enter the Hungarian market. Its agreement with E.On to exchange shares in the German company's Hungarian assets for a share in the Yuzhno-Russkoe gas deposit has seemed to be in danger since last week, however. Half of Emfesz has been estimated to be worth $350-400 million. (