MOSCOW, June 26 (RIA Novosti) E.ON may be barred from Siberia's Yuzhno-Russkoye deposit / Aeroflot to pay heavy price for courting Airbus / Gazprom may take Kovykta ahead of schedule / UC Rusal to increase production by 33% / Russian prosecutors prepare a blow against Yukos's foreign assets
E.ON may be barred from Siberia's Yuzhno-Russkoye deposit
The management of natural gas monopoly Gazprom has announced that Germany's E.ON should accept asset swap conditions for developing the Yuzhno-Russkoye deposit in Siberia's Tyumen Region by the end of the summer or be excluded from the project.
Experts have calculated that the assets E.ON offered for a swap are worth less than the Russian offer, and that if E.ON refuses to act fairly, its share in the Yuzhno-Russkoye deposit will be offered to Dutch company Gasunie.
"The key issue at the talks is the balance between the offered assets and our strategic goals and price offer," said Alexander Medvedev, deputy CEO of Gazprom.
Last year, Gazprom and E.ON signed a framework agreement on exchanging assets, under which the German partner was to receive 25% minus one share in the Yuzhno-Russkoye deposit, while Gazprom was to gain 50% minus one share in E.ON's Hungarian assets, E.ON Foldgaz Storage and E.ON Foldgaz Trade, as well as 25% plus one share in E.ON's gas and energy subsidiary, E.ON Hungaria.
Wintershall, controlled by German company BASF, was to receive 25% in Yuzhno-Russkoye. Relevant negotiations with it have been completed, but the parties have not yet signed an agreement.
Experts agree that Gazprom's assets offered for a swap are more valuable than the German company's shares in its Hungarian subsidiaries.
Valery Nesterov, an analyst with Troika Dialog, said 25% minus one share in the Yuzhno-Russkoye deposit is worth $1-$1.2 billion.
Janos Petofi, director general of Hungarian wholesale gas distributor Magyar GT, said E.ON's Hungarian assets are worth no more than $800 million, "taking into account their depreciation and limited capacity."
A source in Gazprom said the current rules of working on the Hungarian natural gas market allowed the selling of only a small part of the gas at market prices to industrial consumers, which means that the company would have to sell the rest at below-market rates.
Nesterov said Gazprom would most likely insist that the German company make up for the difference in price or pay for its share in Yuzhno-Russkoye with money.
"Otherwise Gazprom may offer E.ON's share to the fourth party in the Nord Stream project, Dutch firm Gasunie, which will more readily agree to participate in the project on Gazprom's conditions," he said.
According to Gazprom, it is not negotiating the issue and can easily develop the deposit without a third party.
Aeroflot to pay heavy price for courting Airbus
Aeroflot, Russia's largest state-controlled airline, has been trying to overhaul its air fleet since the summer of 2005. But this has resulted in a political showdown, which will cost the Russian company dearly.
European aviation giant Airbus and its U.S. rival Boeing were ready to sell their A-350 airplanes and B-787 Dreamliners to Aeroflot. Corporate managers said they preferred the Dreamliner because Boeing offered a $10-$20 million discount off every plane's $160 million catalog price, and was ready to deliver the first planes in 2010.
This spring Airbus, which promised to supply 22 A-350s worth $3.5 billion in 2015-2017, unexpectedly won the Aeroflot tender. The Russian flagship carrier will not profit from the deal because the Airbus discount will not exceed 10%.
The motives of this apparently strange deal are easily explained.
Compared to Airbus, Boeing has received 300% more orders for its Dreamliner. Last week, Louis Gallois, CEO of the European Aeronautic Defence and Space Company (EADS), said at the Paris Air Show that Russia's United Aircraft Corporation, which consolidates aviation production assets, would be allowed to help develop the new-generation A-320 airliner in exchange for purchasing the unpopular A-350s.
A recent framework agreement between Aeroflot and Airbus became a solid contract in Paris.
Aeroflot interests do not always coincide with those of the United Aircraft Corporation and its own shareholders; moreover, the airline needs new planes fast. Consequently, Aeroflot general director Valery Okulov also ordered 22 Dreamliners at the St. Petersburg International Economic Forum.
The corporate board of directors and shareholders must approve the deal. However, Aeroflot will no longer get any discount from Boeing, which has now raised prices by 10%, on average.
This is the price the company will have to pay for its political games with Europe.
Gazprom may take Kovykta ahead of schedule
Barely having gained control over Rusia Petroleum, Kovykta operator, Gazprom has suddenly changed its position on deadlines for the development of the gas condensate field.
"If all factors fit into place, Kovykta has every chance to start developing intensively now, not in the remote future," Gazprom Export head Alexander Medvedev told a news briefing on Monday.
Earlier, however, spokesmen for the holding were insisting on revising back the brief (2006-2008) timeframe for the Kovykta and Chayandinskoye fields as stipulated in a program for the development of gas resources in Eastern Siberia and the Far East. In the view of Gazprom specialists, exploiting these sections to produce only fuel gas, methane, appears unacceptable because of the high helium content in Kovykta and Chayandinskoye gas.
"The extra 35-37 billion cubic meters of gas a year will not contribute to the main goal - the need for Russia to establish a new strategic center of gas production on Yamal soon, which can supply the required amounts of gas in the long term," said Viktor Timoshilov, responsible for coordination of Gazprom's eastern projects. "But in return for modest quantities of methane from Kovykta, Russia risks losing half its helium."
According to the Oil and Gas Geology Institute of the Siberian branch of the Russian Academy of Sciences, the Kovykta deposit alone can yield up to 90 million cubic meters of helium. This is about 69% of global consumption, or about 130 million cubic meters a year. The price for helium on world markets varies between $1,400 and $10,000 per cubic meter. Annual earnings from sales of this rare gas may run to hundreds of millions of dollars.
Today's main supplier of helium to the world is the United States. It also boasts the largest reserves of this element, making it an effective monopoly on the world helium market (90% of its requirements). But over the past ten years American resources have run down, while those of Russia have shot up.
Experts forecast that in the next ten years the world's demand for helium will rise at least three-fold. A multi-pronged approach to the development of gas fields in Eastern Siberia and the Far East would allow Russia to lead in that forward-looking market. But Gazprom's plans to pre-empt an emerging crisis in its own gas production and speed up Kovykta development may ruin this potential.
UC Rusal to increase production by 33%
Newly-formed United Company Rusal will simultaneously build two large aluminum processing plants in Russia. In May, it started construction in the Angara area (Siberia) and on June 25 it reported the launch of operations on the construction site of the Taishet aluminum plant. The two projects will cost Rusal $4 billion and enable it to increase production by a third.
United Company Rusal was established in 2007 through the merger of assets of Russia's aluminum giants RusAl and SUAL and Switzerland's Glencore. UC Rusal can produce 4 million metric tons of aluminum a year. Its shareholders are Oleg Deripaska's En+ (66%), SUAL (22%) and Glencore (12%).
UC Rusal has started building an aluminum plant in Taishet (Irkutsk Region), the company reported yesterday. Digging work is under way on the site, and by the end of the year construction workers will begin laying foundations for the facility's buildings. The plant will annually produce 750,000 metric tons of aluminum.
Investment in the construction will amount to about $2 billion, with $200 million to be invested in 2007. The plant will operate on the basis of the RA-400 technology worked out by Rusal specialists. Bechtel Corporation, a major global engineering, construction and project management company, prepared the feasibility study for the project with Rusal's collaboration. The plant will be commissioned by late 2009, and its last stage will begin operating by late 2011.
Apart from the construction of the plant, UC Rusal will invest $150 million into building an infrastructure in Taishet, company representative Vera Kurochkina said.
In December 2006, UC Rusal commissioned a new aluminum plant in Russia, the Khakassian plant (with an annual capacity of 300,000 metric tons of aluminum), the first to be built in past 20 years. It will reach its full design capacity by fall.
This May the company started building a plant in the Angara area (the Boguchany Power and Metals Association, or BEMO). Its planned annual capacity is 600,000 metric tons of aluminum. Investment in the project will amount to about $2 billion, with 5 billion rubles ($193.05 million) to be invested this year. The first stage of the Boguchany plant will also be commissioned by the end of 2009, like the Taishet plant, and the second stage in 2011.
The company said two projects will strengthen UC Rusal's positions as the sector's leader and help the company to boost its capacity by about a third. But even if UC Rusal loses the status of the world's largest aluminum producer through a merger of some of its rivals, these projects will help it to keep its status of the most profitable company (in 2005 its EBITDA margin was 33.7%), according to Denis Nushtayev, an analyst with Metropol investment company. Russia is one of the best places for building aluminum plants due to low energy prices.
Russian prosecutors prepare a blow against Yukos's foreign assets
Information provided by the Prosecutor General's Office of Russia, which encouraged PricewaterhouseCoopers (PwC) to revoke its audit of Yukos's financial reports, is directly related to the operation of the bankrupt oil company's main shareholder, Group Menatep.
Lawyers believe that prosecutors are collecting information about the Group's illegal operations in order to protect the government from possible suits by foreign investors and Yukos creditors.
Experts note that Group Menatep is involved in three of the four instances described in a PwC letter to Yukos's bankruptcy receiver, Eduard Rebgun, and to Viktor Gerashchenko, chairman of the Yukos board.
Lawyer Denis Uzoikin said: "The information they [prosecutors] are collecting shows that the Prosecutor General's Office is preparing a blow against Yukos's foreign assets."
Dmitry Gololobov, former head of Yukos's legal department, shares that view. In his opinion, "The actions of the Prosecutor General's Office show that its goal is to find and arrest the property which Group Menatep still owns outside Russia on the premise that it was acquired illegally and as part of money laundering."
Leonid Nevzlin, one of Yukos's largest appositive shareholders, said PwC had revoked its audit conclusions because the oil company's shareholders plan to "file suits against Russia in foreign courts." He said: "Russia is trying to pull the auditor over to its side."
Yuly Tai, a lawyer with the Bartolius legal bureau, agrees that Russia is probably preparing for possible suits Yukos's foreign investors and creditors may initiate against it.
"Therefore, it has questioned the legality of Group Menatep's operation, and is creating additional conditions for demanding the extradition of Yukos shareholders," he said.
Tai also believes that Russia may be preparing for the forthcoming hearing of complaints from Mikhail Khodorkovsky, the founder of Yukos who is currently serving an eight-year prison term for fraud and tax evasion in Siberia, in the European Court of Human Rights.
He said: "They are collecting proof of Yukos activities in Russia and outside it which the Prosecutor General's Office deems as illegal."
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