The Swiss-based North European Gas Pipeline Co, founded by Gazprom, E.ON, and BASF on 5 December, 2005, for the development of the technical specifications and the construction of the pipeline, issued an official statement in which it says that “a final legal document” has been signed to confirm the agreements reached in the base agreement to define the legal and financial framework of the project. However, representatives of all three companies say that that this final agreement does not contain a financing scheme for the project or the parties’ specific obligations in detailed numbers.
Sergey Kipriyanov, press secretary to the head of Gazprom called the agreement “the latest technical document” without new figures that only confirmed the principle of equal rights in issues of attracting financing proportionally to each party’s share. Gazprom owns 51% of NEGP Co, and BASF and E.ON 24.5% each. A representative of one of the German companies is reported to have said that the agreement divides all legal authority for conducting business. He said that a team of managers had been formed for the company in the last ten months, headed by Mattias Varnig, head of the Moscow division of Dresdner Kleinwort Wasserstein, and a taxation scheme has been worked out for the project taking the company’s Swiss registration into account.
The route of the 1,200-km long NEGP will run under Baltic Sea to connect Vyborg, Russia, with Greifswald, Germany. The capacity of the pipeline will be 27.5bn cum/yr, and the target markets for gas from the pipeline are Germany, UK, The Netherlands, France, and Denmark. The plans call for the pipeline to go into operation in 2010.
Participants in the project have been carefully avoiding commenting on the cost of the project in recent months. The portion of the project on the shelf of the Baltic Sea was preliminarily estimated to cost $4bn, and deadlines for a financial scheme have been postponed more than once. The German government’s competitions agency has also began studying the deal to ensure it adheres to the country’s anti-monopoly law last autumn, but has not released its findings yet, and the appointment of former German chancellor Gerhard Schroeder to be the project manager has not saved it from political delays.
The delay in approval of the deal with Gazprom by German government institutions can be seen as further confirmation that the country’s authorities have cooled toward the project since Mrs Merkel has become chancellor. Members of the Bundestag caused such a scandal over German government guarantees for loans to Gazprom that Gazprom was forced to publicly refuse those guarantees. But neither the Russian gas monopoly nor its German partners have proposed another financing scheme yet. The fact that the final agreement was signed without any financial parameters or commentary relating to them indicates that the parties are far from an agreement on the issue. The NEGP Co has said that not even the technical specifications for the project are ready yet.
Gazprom itself may be drawing-out the negotiations as it is demanding that the EU make changes in the European Directive on gas to prohibit equal access for all consumers to the NEGP, including companies that are not participating in its construction. Currently, construction of the subsea section of the pipeline, which ill involve all three companies, is to begin in 2008, and gas should begin to be delivered in 2011 at 13bn cum/yr (9bn cum/yr for BASF and 4bn cum/yr for E.ON). Gazprom is obligated to provide that much gas in any case, through existing pipelines, if the NEGP is not operational, and a shortage in the total volume of gas deliveries may therefore occur in Europe. The gas buyers who have extended their gas contracts with Gazprom will be the winners in that situation.