GAZPROM TAKEOVER IN HUNGARY LOOMS BEHIND POSSIBLE OMV TAKEOVER

Apart from the oil business (see EDM, July 24), Hungary’s gas transmission network is also at stake in the attempted takeover of the national energy company MOL by the Austrian counterpart OMV. And, as with the oil business, the gas transmission network may end up in Russian hands in the follow-up stage after an OMV takeover of MOL.

OMV itself recently became heavily dependent on Russia for the gas business, due to the agreements signed during President Vladimir Putin’s May 2007 visit to Austria. Those agreements would practically integrate Austria’s gas transit and storage networks (existing and planned) with Gazprom’s expanding network of dependencies (see EDM, May 29).

If carried out as intended, those agreements would also kill the European Union-backed Nabucco project for the transport of Caspian gas to Europe. OMV’s diminishing market share in Austria itself would depend more heavily on Gazprom. The Austrian company would forfeit much of its decision-making independence. Thus, any assets that OMV might acquire in another country would be vulnerable to a subsequent takeover by Russian oil and gas companies — Gazprom in this case.

OMV did not willingly fall into this situation. Indeed OMV initiated the Nabucco project (a major irritant to Gazprom), led the Nabucco consortium — which MOL joined — and undertook every effort over several years to contract for gas supplies in Iran, other Middle Eastern countries, and the Caspian region. But its efforts were thwarted by the overall failure of EU and U.S. policies in Turkmenistan as well as the U.S. policy to ban the development of Iran’s gas resources. Direct access to those resources could have (and could still) forestall Gazprom’s planned expansion into Europe via Hungary and Austria, as well as provide energy security for these two countries.

To MOL’s surprise and disappointment, OMV cut a deal with Gazprom in May of this year during Putin’s visit. It envisages jointly developing a Central European Gas Hub and Gas Transit Management Center, the largest in continental Europe, at Baumgarten near Vienna. This agreement of intent further undermines the Nabucco project, as Baumgarten was that project’s designated terminus point and its distribution center for non-Russian gas.

Prior to this move, Gazprom had held out an offer to MOL to use the Hungarian company as a hub for transmission and storage of Russian gas in Central Europe. The offer included building a 10 billion cubic meters storage site in Hungary for Russian gas. (Ironically, that “Russian” gas would almost certainly have included the growing volumes of Central Asian gas that Russia denied to the Nabucco project). Gazprom’s quasi-offer (along with political considerations) tempted Hungary’s Socialist-led government into distancing itself from Nabucco in late 2006-early 2007. The opposition Fidesz party strongly criticized the government’s attitude.

Gazprom played Austria and Hungary off against each other, ultimately awarding the “hub” status to Austria. But it continues to tempt Hungary and its neighbors, Slovakia and Serbia, with oblique offers of minor parts of the hub business.

The Hungarian government seems determined to defend MOL against a takeover by OMV. Prime Minister Ferenc Gyurcsany (Socialist), Economics Minister Janos Koka (from the Free Democrats junior partner), and Finance Minister Janos Veres take the position that OMV is attempting a hostile takeover and that Hungary will defend its strategic assets against such takeovers. The government as well as the parliamentary parties almost certainly realize that a purchase of MOL by OMV may be followed a few years down the road by a Russian takeover (hostile or otherwise) of assets that OMV would acquire in Hungary.

Hungary’s Competition Agency also opposes OMV’s move. Indeed, any OMV-MOL merger would lead to an unacceptable level of industrial and market concentration. It would result in the formation of a regional monopoly, with the amalgamated entity controlling almost all oil refining and oil product distribution in Austria, Hungary, and Slovakia.

OMV is at least 31% government-owned, with another 17% of the stock held by public funds, and 52% free-floating shares. MOL’s ownership structure is highly fragmented, with no government, 38% free floating shares, and rising percentages in OMV, OMV-friendly hands, and MOL-friendly banks.

MOL is Hungary’s largest company in terms of business turnover. The government needs instruments to defend it. Under Hungary’s liberal economic legislation, state entities are precluded from acquiring OMV shares. In April of this year, the government gave up its last share — the veto-carrying “golden share” — at the insistence of EU competition authorities. Only two months later, OMV moved for the hostile takeover. Ironically, OMV is one-third directly state-owned while MOL is fully private. Even more ironically, an OMV takeover may become an intermediate stage toward takeover by the non-market actor Gazprom under the guise of market transactions.

If the government initiates legislation to protect MOL against takeover on national security grounds, a cross-party consensus is certain. This issue will test the Socialist-led government’s attitude toward national security, energy security, and ultimately toward the Kremlin.

(MTI, Austrian Press Agency, Dow Jones, Thomson Financial, July 16-20; Economist Intelligence Unit, July 13)