RUSSIAN ENERGY MONOPOLIES MARCH TOWARD HYDROCARBONS EMPIRE

The latest moves by Russia’s major state-controlled energy companies have clearly demonstrated that “expansion” and “control” are still the words that best describe the Kremlin’s preferred “mode of operation.”

On the Western front Gazprom, Russia’s natural energy behemoth, appears ready to strike a deal with the Dutch company Gasunie. The nature of the Dutch deal is a so-called asset swap — a scheme much favored by top Gazprom execs. In June, Gasunie, a natural gas trading company, agreed in principle to take a stake in the North European Gas Pipeline (NEGP) — an ambitious $12.5 billion project that will carry Russian fuel directly to West European markets under the Baltic Sea. In return for a “meaningful minority stake” in the NEGP, the Dutch will give Gazprom access to a gas pipeline that Gasunie is currently building between the Netherlands and Great Britain.

The deal will reportedly be completed within the coming weeks. Last week, Gazprom spokesman Sergei Kupriyanov told journalists in Moscow that the recent talks with Gasunie representatives in Amsterdam “took place in a very positive atmosphere.”

When the agreement is signed, Gasunie will acquire a stake of about 9% in the NEGP. So far, the consortium that operates the Baltic pipeline consists of Gazprom and two German companies — E.ON Ruhrgas and Wintershall, the energy division of the BASF chemicals group. The Dutch company’s stake will be formed at the expense of the German partners, which will see their stakes reduced from 24.5% to 20% each. Such reduction will allow Gazprom to retain its controlling stake of 51%.

Most Russian and international analysts agree that the Dutch deal will represent a “major coup” for Gazprom and its Kremlin handlers. Gazprom officials have been tenaciously cultivating ties with Gasunie for months, hungrily eyeing the coveted British market — particularly after Gazprom’s initial attempts to buy into Centrica, one of the major British gas-trading companies, were rebuffed. Now, Gazprom “has made yet another step toward full-blown participation in the gas business on British soil,” one energy analyst comments. Having secured a piece of the action in the pipeline connecting the Dutch and British territories, Gazprom will likely be able to expand deliveries to what is believed to be “Europe’s most expensive gas market.” In addition, when the deal with Gasunie is finalized, a spur will likely be built from the NEGP to the Netherlands.

In a separate development, Transneft, the other Russian energy giant, has recently sought to strengthen its monopoly position. On July 25, Russia’s Federal Tax Service presented the Caspian Pipeline Consortium (CPC) — the company that transports oil from western Kazakhstan to the Black Sea port of Novorossiysk — with a massive bill for back taxes. What is remarkable is that the CPC is the first line to be built inside Russia with foreign investment and the only pipeline to run through Russia that is not controlled by the national monopoly Transneft.

The consortium’s chief shareholders are the Russian government, with 24%, the Kazakh government (19%), Chevron (15%), and Lukoil (12.5%). Other shareholders include the Sultanate of Oman, ExxonMobil, and Royal Dutch Shell.

Various sources give different amounts of tax claims slapped on the CPC. Kommersant reported that the claims totaled 4.7 billion rubles ($175 million) in unpaid taxes from 2002 to 2003. But Interfax, citing an unidentified CPC official, said that the bill came to R6.8 billion ($253 million).

Some Russian energy analysts argue that the tax authorities have targeted the CPC because Transneft — the consortium’s main competitor — wants control over it. In June, a draft resolution to transfer the Russian government’s 24% stake in the CPC formally to Transneft was reportedly sent by the Ministry of Industry and Energy to both the prime minister’s office and the presidential administration. However, it has not been signed yet.

Transneft Vice-President Sergei Grigoriyev denied that the monopoly has any “special interest.” However, he conceded that if the government takes an appropriate decision, Transneft would be ready to “manage the Russian stake in the CPC.” Some commentators believe that Transneft might then try to expand this stake.

In May 2006, CPC shareholders decided to launch the second phase of the project, which would double the pipeline’s throughput capacity. The recent tax claims are bound to affect the CPC’s expansion, and there is a chance that some of the oil will be diverted to Transneft’s networks, analysts say.

Some experts argue that the CPC is not a direct rival to Transneft, since the Caspian pipeline was always meant for Kazakh oil. But even they agree that Transneft wants to protect its monopoly in Russia, and limiting the CPC’s expansion onto Russian territory would be in its interest.

Furthermore, the latest CPC development suggests a repeat of an alarming trend — when competing “business entities” employ federal tax authorities to further their group interests. Not too long ago the privately owned Yukos company was charged with tax evasion; subsequently the Kremlin incorporated chunks of Yukos into state-owned energy companies. Symptomatically, Kommersant is predicting that in the near future the CPC will likely be presented with new tax claims for 2004-2005.

(Moscow Times, July 27; Interfax, Kommersant, International Herald Tribune, July 26; Gazeta, July 24)