Elering proposal fails to flare Gazprom passion

Photo: Foto: sorainen.com

Plan posed to Gazprom in November by Elering chief Taavi Veskimägi – to sell AS Võrguteenus Valdus shares owned by the Russian gas giant – has vanished into thin air.

«Our vision is to create a joint electricity and gas system administrator by January 1^st 2016 resulting in Elering directly owning and administrating both electricity and gas transmission,» said Mr Veskimägi. «In November already, we sent Gazprom and Itera Latvija a non-binding price offer to acquire their holdings at the same price we paid for Fortum holding. We are still to receive feedback.»

Till the small shareholders in holding corporation of gas networks have not sold their shares, Mr Veskimägi is unable to assume the assets o said company and bring gas pipes into direct Elering ownership.

According to experts talking to Postimees, Gazprom has no motive to work against the initiative. In their opinion, a clear answer to Elering is delayed due to the transaction being highly insignificant for the vast firm and the paper may easily be stuck in some pile at an office. Also, who knows if proposal by Elering chief reached a person competent to take any decisions.

«Gazprom is so vast, the value of Estonian pipelines is unnoticeable next to other assets of Gazprom, as is the amount of gas sold in Estonia, so they are in no hurry with the deal. In all likelihood, they are not even aware of the offer at headquarters,» said Eesti Gaas board member Sergei Zagrebailov – responsible for buying up gas at the company. Earlier, the man – a fish in the water of Moscow corridors – used to directly represent Gazprom interests in Eesti Gaas.

«Gazprom signified they’d not be working against [this] when they agreed to alter Võrguteenus Valdus’ statutes so that they no longer have leverage over the company. Also, they did not declare before January 19^th that they would use pre-emptive right towards Fortum shares,» explained Mr Zagrebailov. «Estonian gas market is shrinking and there is no interest whatsoever in Gazprom to maintain a holding in a company which they do not control and which is decreasing in profits.»

Eesti Gaas sceptical

Should the deal with Gazprom and Itera Latvija tarry, Elering may, in order to control the operations EG Võrguteenus, start outsourcing bookkeeping and other management activities from Elering. According to Zagrebailov, EG Võrguteenus will then be turned into just a legal body with outsourced management service contracts.

Meanwhile, the synergy of merged gas pipes and power lines in one company will not happen, thinks Eesti Gaas.

«While initially one may have expected a profitable regional gas network company, now a small pipeline with shrinking volumes of gas will be administrated together with power lines,» said Mr Zagrebailov, sceptically.

«Herein a detect a contradiction: on the one hand, the state pursues a policy reducing gas consumption, while on the other hand it will be placing money in a project hanging on increase of gas market,» he added.

Elering, operating under the domain of economy ministry, desires to acquire all shares of holding corporation EG Võrguteenus Valdus. The latter owns EG Võrguteenus, owner of Estonian gas networks.

«For minority shareholders, the opportunity to transfer their holding to Elering is surely more expedient than to remain a shareholder for years with no perspective of dividends as, in view of development of the network, it is definitely not planned to pay dividends for a decade to come; rather, all income will be invested back into development of the gas network,» explained Mr Veskimägi.

Elering’s plans

Meanwhile, pursuant to statutes of AS Võrguteenus Valdus, from the beginning of this year any shareholder simultaneously engaged in production or sales of gas or electricity has no voting rights in the company. Thus, Elering is already in total control over the gas transmission network.

The deal would allow merging Estonian gas and electricity system administrator functions into a single enterprise. Elering is in readiness to purchase Võrguteenus Valdus shares owned by Gazprom, Itera Latvija and other minority shareholders based on the same price they recently paid to acquire majority holding in Fortum.

For every B-share of Võrguteenus Valdus, Elering offers about €0.54. The shareholders can sign up at Elering website in June 1^st to 25^th. According to Mr Veskimägi, the company desires to use Estonian gas transmission network to develop a regional gas market, on basis of Baltics and Finland, with numerous players.

Comments from Gazprom and Itera Latvija regarding expected deal remained elusive while the article was in writing.

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Comment

Kaupo Lepasepp

partner at Sorainen, a law firm

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A hundred percent of the hoped-for synergy from single power and gas transmission administrator is only available as Elering and EG Võrguteenus merge. For a bystander, this does not seem realistic before Elering becomes sole shareholder of the holding corporation in control of EG Võrguteenus.

I do not believe in active counter-action by Gazprom and Itera Latvija to management EG Võrguteenus. Rather, beholding the broader picture, one may speculate that their focus is not on Estonian markets. Estonia and the region will, in near future, rather be impacted by what is going on around Latvian gas networks and storage facility. Like it or not, even on the regional market Estonia’s pipelines are a quite limited strategic factor.

Even so, U-turns are not excluded during times of change and there is sufficient obscurity in Natural Gas Act for exciting court actions. Beholding the overall dynamics of the large-scale processes, can’t be excluded that, at the moment, they calmly let Elering take its steps and an action plan is shaped according to that.