MOSCOW, June 25 (RIA Novosti) Russia suspends its participation in CFE treaty/ Gazprom obtains control over Kovykta field/ Gazprom, Eni to build gas pipeline from Russia to Europe/ Chevron to lose control of JV with Gazprom Neft/ PwC audit no longer Yukos's trump card
Nezavisimaya Gazeta
Russia suspends its participation in CFE treaty
A presidential decree has been drafted to suspend Russia's participation in the Treaty on Conventional Armed Forces in Europe (CFE).
According to a source in the Defense Ministry's department on international military cooperation, the Kremlin is considering making the decree public before or after the summit between President Vladimir Putin and President George W. Bush in Kennebunkport in York County, Maine, U.S., on July 1- 2.
Which would be politically better, to go to the U.S. with a prepared decision, or to wait for the results of the summit? Kremlin analysts believe that the summit will not change either sides stance on the U.S. anti-ballistic missile systems in Europe or the ratification of the adapted CFE.
Although the decree has not been made public yet, Russia has suspended NATO inspections of Russian facilities under the CFE treaty, which it permitted before the extraordinary conference of the CFE signatories convened in Vienna June 11-15 on Russia's initiative. After the Vienna conference, where the West would not listen to Moscow's concerns, Russia refused to allow two military delegations, one from Hungary and the other from Bulgaria, to visit its facilities.
"They are reasonable adults and should know which is what," a source in the Russian Defense Ministry told the popular daily Nezavisimaya Gazeta.
The United States and NATO referred to the 1999 Istanbul Agreements, demanding that Russia pull out its troops and change the format of its peacekeeping mission in the breakaway Moldovan republic of Transdnestr.
Moscow reacted by insisting that the adapted CFE treaty should be ratified by July 1, 2008, or else Russia would withdraw its participation; and has subsequently suspended it until that date.
Although the CFE treaty does not stipulate such moratoriums, the Russian president's decree will cite force majeure circumstances for suspending foreign military inspections of facilities, and notifying CFE partners about the troop and equipment movements in Russia's regions covered by the treaty.
Business & Financial Markets
Gazprom obtains control over Kovykta field
Russian-British TNK-BP has managed to avoid losing its license for the development of the Kovykta oilfield. However, the field will be developed by Russian energy monopoly Gazprom, which agreed terms with TNK-BP last Friday (June 22) on the buyout of its stake in the project. TNK-BP will receive $700-$900 million and also the right for an option to purchase a blocking share parcel in the Kovykta project.
The signed agreement provides for establishing a strategic alliance between the two companies for long-term investment into joint energy projects, as well as exchanging assets in Russia and third countries.
The main point of the agreement is the decision to sell the TNK-BP-owned 62.8% stake in Rusia Petroleum (which holds a license to develop the Kovykta field), and a 50% stake in the East-Siberian Gas Company, the operator of the Irkutsk Region gas supply project.
The parties to the transaction differ in their assessment of the sum to be paid by Gazprom. TNK-BP says the sum will amount "to $700-$900 million with due account for adjustments."
Alexander Medvedev, Gazprom's deputy CEO, says the tentative amount of the transaction is from $600 to $800 million.
"TNK-BP, which has already spent $485 million on the development of the Kovykta field, will receive a profit, but we should not take potential profits from such a promising project into account," said Artyom Konchin, an analyst with the Aton investment company.
According to Robert Dudley, TNK-BP's president and CEO, the funds received from the sale of a stake in the Kovykta field will be invested in TNK-BP. Obviously, he meant oilfields in the Uvata area (Krasnoyarsk Territory, Siberia), where TNK-BP plans to boost production of raw materials from 2008.
On the other hand, TNK-BP will need funds to return to Kovykta in future in a more modest role. The sides have concluded a purchase option for TNK-BP for a 25% plus one stake in the project.
"Perhaps, by the time the Russian-British holding decides to buy the blocking stake [in the project], Gazprom will want more per share than it pays now," said Mikhail Zak, head of the analysis department with the Veles Kapital investment company.
Gazprom's ceding of a blocking share parcel in the Kovykta project to TNK-BP will not deprive it of control over the project. Gazprom will buy an 11.2% stake from the Irkutsk Region's administration and then will have more than 50% of shares, said a source close to TNK-BP.
Vedomosti
Gazprom, Eni to build gas pipeline from Russia to Europe
Russia's Gazprom and Italy's Eni will build the South Stream (Blue Stream II) gas pipeline from Russia to Europe, with an annual capacity of 30 billion cubic meters, valued at more than $5.5 billion.
The length of the Black Sea part of the pipeline between the Russian and the Bulgarian shore will be some 900 km (559 miles).
From Bulgaria, the pipeline will split, with one branch running towards southern Italy, and another towards Austria and Slovenia, Eni's CEO Paolo Scaroni said, adding that the project would be launched three years after obtaining the necessary permits.
Alexander Medvedev, deputy CEO of Gazprom, said the aggregate annual capacity of the pipe would be 30 billion cubic meters.
The Balkan pipeline will rival the Nabucco project of Turkey's Botas, Hungary's MOL, Bulgary's Bulgargaz, and Romania's Transgaz, which is to deliver Turkish gas to Austria via Bulgaria, Romania, and Hungary.
Gazprom and Eni plan to split the financing of the South Stream project 50:50. The division of shares and the project costs will be determined after the feasibility study has been presented by Italy's Saipem, Medvedev said.
Artyom Konchin, an analyst with the Aton brokerage, said the 900 km seabed part of the project would cost the partners more than the provisional estimate of $5.5 billion.
Valery Nesterov, an analyst with Troika Dialog, shares this view. He said the deadline could be postponed and the cost of the project could grow.
Gazprom and Eni built Blue Stream, a 760-km pipeline worth $3.3 billion running from Russia to Turkey along the Black Sea bed. Its 390-km underwater part cost them $1.7 billion.
So far, Blue Stream has not brought any profit to the partners, because it is only running at half capacity. The operator's revenues for the first nine months of 2006 totaled only 5.3 billion rubles ($203 million), whereas the net losses were 272 million rubles ($10.5million).
President Vladimir Putin has supported the idea of South Stream, saying that it will "help improve the energy situation in Europe."
Nesterov said South Stream was designed to convince Europe that Gazprom will not focus on Asia, which promises the Russian gas holding a chance to get a foothold in northern and southern Europe bypassing unpredictable Ukraine.
Vremya Novostei
Chevron to lose control of JV with Gazprom Neft
Gazprom Neft said it would boost its share in the joint venture it had formed with Chevron, the second-largest U.S. oil company, in the next two or three months, dramatically reducing Chevron's stake from the current 70% to a mere blocking package.
Gazprom Neft head Alexander Dyukov, said it would be possible after the companies completed the JV deal, first of all agreeing on the authorized capital, with Gazprom Neft contributing licenses for west Siberian oil and gas fields with Chevron providing most of the financing.
The venture, Severnaya Taiga Neftegaz, was set up in November 2006, but the companies waited until January to disclose the deal. Officially, it was set up to pool the two companies' efforts to boost lagging oil production at several fields in Russia's Yamalo-Nenets Autonomous Area, where modern technologies are required.
According to the plan, Chevron was to provide most of the capital for Severnaya Taiga Neftegaz at the early stage of the project, and consequently would hold as much as 70% in the venture. Gazprom Neft was to gain a controlling stake in it later. The project financing scheme envisaged two successive adjustments in shares with Chevron ending up with at least 49%.
Gazprom Neft's decision to push Chevron's stake down dramatically and in one move came quite unexpectedly for the U.S. company, which expected to gain a foothold in the lucrative Russian market. Chevron does not have a single operating project in Russia now, except for a share in the Caspian Pipeline Consortium. Having signed the memorandum of cooperation, Chevron began intensive development of the project, set up a working group, and hired personnel.
It is possible that Gazprom Neft was motivated by some extremely encouraging geological prospecting data on one of the areas to be included in the JV assets. Or perhaps the Russian company did not expect good reserve estimates in the gas rich region and changed the initial decision in favor of a minimum foreign stake in the lucrative fields.
All the more since state-owned Gazprom, the parent company, has been for some time pursuing a policy of ousting foreign companies from Russia's large and medium-sized oil and gas fields.
Kommersant
PwC audit no longer Yukos's trump card
PricewaterhouseCoopers has withdrawn all its audit reports on Yukos for 1996-2004. The move comes ahead of a hearing into its appeal against the decision by the Arbitration Court of Moscow, which ruled that contracts for Yukos audits in 2002-2004 were invalid. Auditors believe the recall was a condition in reaching a compromise between PwC's and government authorities.
Agvan Mikaelyan, deputy general director of ACG FinExpertiza, thinks "PwC has reached a compromise with the tax authorities, and now the pressure on it will ease off. The public statement on the report withdrawal is most likely one of the terms of this agreement."
The head of one of the Russian audit companies is not ruling out that PwC struck the deal with government authorities to keep its license (on April 19 the Finance Ministry extended it for another five years). "In any case it is a blow to the company's image, which will reflect on its relations with clients," the expert said.
Major Russian companies audited by PwC made reserved comments. Sergei Kupriyanov, deputy head of information policy at Gazprom, said that "the decision to choose PwC as an auditor for 2007 was taken after a tender."
A staff member of TNK-BP Holding, whose shareholders' meeting approved PwC as auditor a week ago, believes that "the withdrawal of the Yukos audit did not affect the shareholders' opinion of PwC, because they knew all about the Moscow Arbitration Court ruling over the Yukos audit."
The recall of the audit report could, in the opinion of experts, cause market participants to file claims against PwC. "It is possible that Yukos shareholders or creditors, who were guided by PwC audit findings among others, could file claims against the company," Vadim Vinogradov, head of a sub department at the Russian Law Academy, said.
Viktor Pleskachevsky, chairman of the State Duma's property committee, agrees that many shareholders, investors and creditors decided to do business with Yukos orienting themselves on the positive PwC audit report. "Perhaps, after the withdrawal, PwC will acknowledge its readiness to accept claims from all those who think their rights have been violated," the deputy said. In his view, PwC itself could file claims against Yukos and prove in a court of law that it had been misguided in order to redirect all claims to Yukos.
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