Gazprom overestimated E.On

In Hungary

Negotiations on the exchange of assets between Gazprom and E.On AG as part of the project to develop the Yuzhno-Russkoe deposit may fail.

The monopoly's management has stated that, if its German partners do not accept their conditions by the end of the summer, they may be excluded from the project. Industry analysts say that the assets offered by E.On are cheaper than the Russian assets, and Gazprom is justified in asking for supplemental payment. If E.On renounces its share in the Yuzhno-Russkoe deposit, it may be offered to the Dutch Gasunie.

Deputy chairman of the Gazprom supervisory board Alexander Medvedev stated yesterday that the company intends to reconsider the conditions for the exchange of assets between E.On as part of the project to develop the Yuzhno-Russkoe deposit. “The key question in the negotiations is to what extent the assets that have been proposed correspond to our strategic goals and match our proposal in price,” Medvedev said. He specified that, if the negotiations are not concluded by autumn, the deposit will be launched into industrial exploitation without E.On. “It would be desirable that, if someone joined in the development, that they did so before the launch, not after it,” he noted. Press secretary of the E.On office in Moscow Sergey Babkin declined to comment on Gazprom's statements. A Kommersant source in E.On confirmed, however, that Gazprom proposed assessing the assets offered for exchange again. “We are still hoping to reach an agreement and overcome the disagreement by the end of August, since this is a very serious project with large income,” the source said.

Last year, Gazprom and the German E.On AG signed a framework agreement on exchanging assets so that the German partner received 25% minus one share in the Yuzhno-Russkoe deposit, and Gazprom received 50% minus one share in the Hungarian E.On Földgáz Storage and E.On Földgáz Trade, as well as 25% plus one share in the E.On Hungaria gas and electricity company. Another 25% of Yuzhno-Russkoe is to go to Wintershall (which is controlled by BASF). Negotiations with Wintershall have been completed, although no agreement has been signed yet. Industry experts also assess the assets offered by Gazprom as more expensive than the E.On shares in the Hungarian companies. Troika Dialog analyst Valery Nesterov thinks that 25% minus one share in Yuzhno-Russkoe costs $1-1.2 billion.

The E.On Hungarian assets, in the opinion of János Petőfi, general director of wholesale gas distributor Magyar GT, cannot cost more than $800 million “considering their degree of wear and low capacity.” Nesterov suggests that the difference in the value of the assets is the source of disagreement between Gazprom and E.On. Another reason Gazprom considered the transaction with the Hungarian assets insufficient is market conditions for natural gas in Hungary. According to Medvedev, there are “questions concerning the system of subsidizing in Hungary that creates uncertainty in the plan for income receipts and thus the cost of the companies that E.On is proposing.”

A Gazprom source told Kommersant that the rules on the market today allow only a small part of all gas to be sold at market prices to industrial users. The rest of the volume has to be sold by the company to the public at lower than market prices. Nesterov thinks that Gazprom is demanding that the German company make an additional payment for the difference in the value of the assets or else pay for its share in Yuzhno-Russkoe completely with money. “Otherwise Gazprom may give the quarter share in Nord Stream to the Dutch Gasunie, which would agree quickly to Gazprom's conditions,” Nesterov thought. Gazprom spokesman yesterday said that there are no negotiations of that type underway and that the company can develop the deposit without a third partner if need be. (


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