Russia In ‘No Rush’ For Gazprom Tie-Up With Ukraine’s Naftogaz

MOSCOW, Russia -- Russia is in no hurry to merge state- controlled OAO Gazprom with Ukraine’s NAK Naftogaz Ukrainy, as Prime Minister Vladimir Putin seeks tighter political and economic integration with the neighboring country.

Vladimir Putin

“There’s no room for rushing,” Putin’s spokesman, Dmitry Peskov, said today in a telephone interview. “All details will be discussed jointly during negotiations if Ukraine is prepared for such talks.”

Putin proposed “unifying” the state energy companies after meeting with his Ukrainian counterpart Mykola Azarov in Sochi on April 30, only three days after Russia agreed to give Ukraine as much as $45 billion in gas supply subsidies. Russia is waiting for Ukraine’s response, Peskov said.

Russia has sought some control over Ukraine’s Soviet-era gas pipelines, which carry 80 percent of its Europe-bound gas exports. Gazprom, the world’s biggest gas producer, cut supplies to Ukraine, twice reducing flows to Europe in the past four years because of pricing disputes.

It’s too early to say how the two state companies may be unified, Peskov said. Russia may consider a share swap, which could value all of Naftogaz at “3, 4, 5, 10 percent of Gazprom,” or some other stake, given that talks haven’t started, he said.

Ukraine Gas Infrastructure

“We don’t believe that anything like a full merger is on the horizon,” Oleg Maximov, Valery Nesterov and Alex Fak, analysts at Moscow-based Troika Dialog, said in a note today. “Gazprom is clearly very interested in getting hold of Ukrainian gas infrastructure instead of sinking billions into uneconomic bypasses, such as South Stream.”

A takeover of Naftogaz by Gazprom, Russia’s gas export monopoly, is unlikely given the potential political backlash against Ukrainian President Viktor Yanukovych and the difficulty valuing Ukraine’s state-held, debt-laden energy company, said Chris Weafer, chief strategist at UralSib Financial Corp.

An acquisition would be negative for Gazprom, said Lev Snykov and Svetlana Grizan of VTB Capital. “The market could perceive it as a well-off company saving a sinking one, which would obviously be detrimental for Gazprom sentiment.”

A venture involving asset swaps could reduce supply risks to Europe by creating a greater economic, rather than political, basis for the relationship, Weafer said.

The proposal won’t affect plans to build the South Stream gas pipeline to Europe, bypassing the neighboring country, Peskov said. Gazprom and Eni SpA’s gas pipeline project, slated to reach central and southern Europe via the Black Sea and Balkans, seeks to diversify supply routes beyond Ukraine.

“Right now we only have a proposal,” Gazprom spokesman Sergei Kupriyanov said by telephone today. “Work on South Stream is going ahead in full.”

Gazprom supplies about a quarter of Europe’s gas, and seeks to boost that to 32 percent in 2020.

Source: BusinessWeek