MOSCOW, June 1 (RIA Novosti) Lithuania will not get Russian oil/ Russia to build third generator for Croatian power plant/ Will Gazprom buy stake in Vallourec?/ Gazprom subsidiary may lose license for Sakhalin shelf deposit/ Russia's gold and foreign currency reserves to total just over $400 billion
Vedomosti
Lithuania will not get Russian oil
Russia's Industry and Energy Minister Viktor Khristenko said yesterday at a conference in Paris that the damaged section of the Druzhba oil pipeline, which had been supplying oil to the Baltic republics, would not be repaired.
Oil supplies to Lithuania via the Druzhba oil pipeline stopped about a year ago, after an oil leak in a damaged section of the pipeline located in the Bryansk Region. As a result, oil capacity via the pipeline dropped by 12 million metric tons a year, which was the exact amount Lithuania had been receiving prior to the leak. The remaining 19 million metric tons of oil are fully taken by Belarus, which is closer to Russia on the route.
Since the pipeline leak, oil has been delivered to Lithuania's Mazeikiu nafta refinery by tankers from Primorsk, via the Lithuanian Butinge terminal.
Khristenko said they would either have to rebuild the entire pipeline route, or to continue delivering oil to Lithuania by sea. "This [oil supplies via the port] can only result in a loss of $1-$2 for some companies' business and I know nothing about that, this has nothing to do with energy security," the minister said on May 31.
Andrei Fyodorov, an analyst with Alfa Bank, one of Russia's largest banks in terms of asset size and own capital, said: "Khristenko is right: oil transportation to Lithuania by sea costs about $2 more per barrel than through the pipeline."
He thinks that the loss of the Druzhba Lithuanian route will not affect Russian oil companies as they long ago lost any opportunity to earn money by processing their oil at Mazeikiu nafta.
Sergei Grigoryev, vice president of Russian pipeline monopoly Transneft, was not aware that oil supplies to Lithuania would not be resumed. He told Vedomosti that his company was working to repair the discovered defects. "However, if the government orders us [not to repair the pipe], we'll do it," Grigoryev said.
Kommersant
Russia to build third generator for Croatian power plant
Russia's state owned power engineering giant Technopromexport has been contracted to build the third 240MW generator for a thermal power plant in the Croatian city of Sisak.
Silovye Mashiny (Power Machines) and ZiO Podolsk will finally supply the equipment for the unit following four price hikes made by the two companies during negotiations. Industry watchers believe that Silovye Mashiny raised the initial price to compensate for losses, as huge global demand for generation equipment puts it in a privileged bargaining position.
The project will be implemented as part of the Russian-Croatian intergovernmental agreement on debt settlement, a source in Technopromexport said, adding that Russia's $186 million debt to Croatia resulted from trade between the former Soviet Union and the Republic of Yugoslavia. The $177 million power plant project will settle $105 million of the debt (the cost of the equipment). The unit will start power generation in late 2010.
Technopromexport said the equipment suppliers hiked the prices for the gas turbine and other equipment four times during the negotiations. It ended up paying ZiO Podolsk for a waste-heat recovery boiler 70% more than the initial price, while the price of Silovye Mashiny gas turbine rose 17%.
"The prices reached the limit at the negotiations," Technopromexport CEO Sergei Molozhavy said.
But the Croatian side remained nonplussed by the exorbitant price, since the "debt factor was an obvious advantage in the project" according to Ivan Mravak, president of Hrvatska Elektro Privreda.
Experts maintain that Silovye Mashiny is going though a difficult time, which is forcing it to hike prices. In 2005, the company incurred a summary loss of $30 million in IFRS, while its board chairman Sergei Batekhin said many of its contracts were loss making. Its 2006 financial results were no better.
Experts say the situation on the generation equipment market gives producers an opportunity to set higher prices. "There is a global shortage of power generation equipment," says Dmitry Tsaregorodtsev, a senior analyst with KIT Finance. "It means generating companies have two options: either pay up, or wait at least five years till prices drop."
Business & Financial Markets
Will Gazprom buy stake in Vallourec?
There is speculation that Gazprom may try to take over French steel pipe producer Vallourec SA, although analysts say a controlling block in a company with market capitalization of $16 billion would be an extravagant buy for the Russian state gas giant.
Gazprom may bid 300 euros ($403) a share for Vallourec, the Daily Mail newspaper reported. Gazprom declined to comment.
The natural gas monopoly is one of the three companies named as potential bidders for stakes in Vallourec. News circulated earlier this month of a projected Vallourec-TMK JV with the French company holding 51% of its shares. Russian tycoon Roman Abramovich was mentioned as another potential bidder who could consolidate Vallourec stocks with Evraz, a large steel and mining business he controls.
"Vallourec is naturally seeking to enter the Russian pipe market, because it is growing more quickly than European markets, up 6%-7% in 2006 against 3%-4%, respectively," says Dmitry Skvortsov, an analyst with the Bank of Moscow. "This rapid growth is the result of major investment projects, primarily Gazprom's Nord Stream and Transneft's Eastern Siberia-Pacific Ocean Pipeline."
Industry watchers say Gazprom is unlikely to buy a controlling stake in the French company. Vallourec ranks third in the world after Italian pipe producer Tenaris and TMK. Its market capitalization is assessed at $15.8 billion. "It is hardly wise for Gazprom to pay $8 billion for control of Vallourec," Skvortsov said.
"The state gas monopoly is actively buying energy, oil and coal assets. It would hardly be reasonable to buy a foreign pipe producer now," echoes another expert, Konstantin Cherepanov, from Rye, Man & Gor Securities.
Kommersant
Gazprom subsidiary may lose license for Sakhalin shelf deposit
On Thursday, Alexander Medvedev, deputy CEO of energy giant Gazprom, said his company wants to become the largest operator on the Sakhalin shelf in the Russian Far East, and is still interested in the Sakhalin III and Sakhalin IV projects.
On June 1, the Gazprom Neft subsidiary's license to conduct geological prospecting work in the Lopukhovsky offshore block between the Sakhalin IV and Sakhalin V sectors expires, and the Federal Agency for the Management of Mineral Resources does not plan to extend it.
A source close to the agency said the decision not to extend the license of TNK-Sakhalin company, the operator of the Sakhalin IV project, in which Gazprom Neft and the Sakhalin Oil Company, controlled by the Sakhalin regional administration, have 75% and 25% stakes, respectively, was made last week.
Gazprom Neft spokesperson Natalia Vyalkina said talks with the agency would continue today.
Gazprom Neft bought TNK-Sakhalin in 2005 from Russian-British petroleum giant TNK-BP, after British Petroleum assessed 3D seismic prospecting data and decided it was pointless to develop the deep-water and ice-bound Lopukhovsky block.
Independent experts agreed with BP. Oleg Suprunenko, deputy director for academic issues at the Russia Research Institute for Geology and Mineral Resources of the World Ocean, said the block has no commercial value.
A year ago, the then Gazprom Neft CEO Alexander Ryazanov said the company wanted to sell the block, which was too big for it. He later said the prospecting license could be sold to Gazprom.
In 2006, Gazprom Neft reassessed the seismic prospecting data and said it would be appropriate to drill the first exploratory well. A source in the company said it is now focusing on just one promising sector.
He declined to name that sector, but said Gazprom Neft must have its license extended in order to complete all geological prospecting and to finalize the project's cost estimate.
A source in the Sakhalin regional administration said an exploratory well has not been drilled to date.
Vremya Novostei
Russia's gold and foreign currency reserves to total just over $400 billion
On Thursday, the Central Bank of Russia said the country's gold and foreign currency reserves had now reached $402.2 billion.
The reserves have soared 26 times over since 1997, and increased by 32% this year.
Monetary authorities and market players said this is the last record-breaking increase in 2007, as there will be no other initial public offerings, like the ones made by state-controlled Sberbank and Vneshtorgbank. Moreover, no other major company, such as bankrupt oil company Yukos, will sell their assets.
Russia's gold and foreign currency reserves hit an all-time low of just $26 million after the U.S.S.R.'s disintegration in 1991 and the establishment of sovereign states on post-Soviet territory.
But Russia now ranks third in terms of international reserves after China and Japan, with $1.2 trillion and $915 billion, respectively.
Vladimir Tikhomirov, senior economist at financial company UralSib, said Russia has more than enough gold and foreign currency reserves. He said there are no generally-accepted principles for calculating their volume, but that such reserves should exceed three to four months of national imports.
Russia, which imports $12-$17 billion worth of goods and services each month, requires up to $80 billion in gold and foreign currency reserves, Tikhomirov told the paper.
Even if we subtract $100 billion for the government's contingency reserve fund, then Russia would have ample reserves left.
Polina Lazich, an analyst with Ak Bars Finance brokerage, said gold and foreign currency reserves had grown due to foreign loans borrowed by Russian banks and companies in order to purchase Yukos assets, VTB and Sberbank IPOs, and a 2.4% increase in the ruble's real effective exchange rate in the past four months.
She said the reserves would grow more slowly in June, as capital influx similar to that in March-May 2007 is not expected.
The Central Bank said Russia would accumulate somewhere between $351 billion and $446 billion in gold and foreign currency reserves by late 2007.
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