by MrBill » Mon 12 Feb 2007, 08:47:47
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')Gazprom forms power firm with russian coal miner - extended
OAO Gazprom, the world's biggest natural-gas producer, will become Russia's largest coal miner once it completes a deal to pool assets with OAO Siberian Coal Energy Co., also known as SUEK.
The agreement, announced yesterday, makes Gazprom the main supplier of fuels to Russian power plants, as the gas monopoly diversifies into the oil, nuclear and coal industries. „The creation of a new joint venture confirms the fact that SUEK is actually being transferred under the control of state-controlled Gazprom,” Moscow's Trust Investment Bank said in a note to clients today. President Vladimir Putin said earlier this week that coal should replace gas as the main fuel for Russia's power plants. Such a shift will let Gazprom sell gas - still sold domestically at regulated prices - to European customers at a premium. Gazprom's entry into the coal business comes as national utility OAO Unified Energy System is broken up and sold to investors. Over the past few years, Gazprom has accumulated an 11% stake in Unified Energy and is set to take a controlling stake in OAO Mosenergo, Russia's largest generator, in April. Gazprom and SUEK said the deal will be completed in the first half of the year, once a list of joint assets is agreed on. Gazprom will own 50% plus one share in the company. „We think that this announcement is the first sign of a wave of future M&A activities in the sector,” Deutsche UFG said in a note today.
SUEK, a closely-held company owned by billionaires Andrei Melnichenko and Sergei Popov, is valued by Trust and Bank of Moscow at about $5 billion, or close to the worth of Gazprom's stake in Unified Energy. Almost half of SUEK's output last year was bought by Russian power companies. Gazprom, which loses money supplying the regulated domestic market, is keen to free up more gas for exports to Europe. Even though the company commands over the world's largest gas reserves, it is facing shortfalls because of inefficiency and a lack of new fields coming into production. Originally Putin planned to fold OAO Rosneft, the state-owned oil company, into Gazprom. After the merger fell apart in 2005, Gazprom pursued its interest in the oil industry, buying OAO Sibneft from billionaire Roman Abramovich for $13 billion. Gazprom has also shown interest in Putin's nuclear program, which envisions adding at least 42 atomic plants by 2030. ZAO Gazprombank, the gas producer's banking arm, has acquired a 49.8% in ZAO Atomstroyexport, the state builder of nuclear plants, and more than 90% in OAO OMZ Gruppa Uralmash-Izhora, Russia's biggest engineering company, which also makes parts for nuclear reactors. (Bloomberg)
Source:
http://www.bbj.hu/news/news_22438.htmlUPDATE: Oil continues to slide going into the NY session. Crude is down about $1.00 at the moment. I think it is OPEC sentiment weighing on the market now that the weekend is over and Tehran is still standing. We had several moves of +/- 3% in the past several weeks within one day, so the market is vulnerable to additional volatility. I was short on the way down, but have now closed my short until I see where NY takes it when they come in now.
More on Russia, geo-politics and the energy business.
$this->bbcode_second_pass_quote('', 'F')ebruary 9, 2007 (RFE/RL) -- Russia's economy, the cliche goes, rests on two pillars: oil and gas. Now President Vladimir Putin says it's time for that to change.
Putin, meeting with the country's top business leaders on February 6, said Russia needs a more diversified economy with a stronger manufacturing sector.
But making Russia's market more flexible and dynamic means the Kremlin will need to give up something it has always craved -- control. Is Putin prepared to loosen the reins?
This week's meeting wasn't the first time the Russian president has gathered the country's leading moguls for a chat signaling change is on the way. (Coverage of the February 6 meeting in Russian from RFE/RL's Russian Service.)
At a meeting in February 2003, Putin warned Russia's tycoons to stay out of politics. Eight months later, Yukos boss Mikhail Khodorkovsky was in prison.
"I would say [Putin] is a person who needs control, who believes that that is the Russian way -- and, in particular, that this huge country has to be under central control."
This time around, Putin was focused on the economy. Russia, he said, was far too dependent on its energy resources.
That same dependence contributed to the demise of the Soviet Union, when a precipitous drop in energy prices in the 1980s robbed the bloc of its hard-currency earnings and revealed the vulnerability of its rusty economic infrastructure.
"Qualitative Steps"
Putin might have been remembering those days when he said it was now time to diversify and transfer Russia's energy wealth into a more robust manufacturing sector.
Today, opportunities have been created for taking coordinated action in order to use the country's natural resources more efficiently and to reorient the economy toward an innovative way of development," Putin said following the meeting. "Frankly speaking, we need to take qualitative steps to move from the simple extraction of natural resources to their complete processing."
But analysts say turning Russia's energy economy into a manufacturing power will be a gargantuan task.
"This has never been a strong suit for the Russian economy or the Soviet economy, said Marshall Goldman, professor emeritus in Russian economics at Wellesley College in the U.S. state of Massachusetts. "So [Putin] keeps talking about doing this, but it is really pushing the stone up the hill. The reason for that is that Russia was never strong as a manufacturer, and it lacks the sense of working with the market."
Moreover, Goldman says, oil exports are driving up the value of the Russian ruble, making imports cheap and the country's own manufactured goods prohibitively expensive.
"This is a very serious problem," he said. "And to the extent that Russia is trying to break into manufacturing, it means that it has to compete with the Chinese and the Indians like everybody else in the world."
Power To The People
Economists point out that Russia's current manufacturing sector -- building pipelines, for example -- is highly dependent on the energy industry and would suffer if energy prices fell.
Putin meeting with business leaders in the Kremlin on February 6 (TASS)"But the problem of making Russia's economy more flexible is even deeper and more fundamental.
Clifford Gaddy, a Russia specialist at the U.S. Brookings Institution in Washington, D.C., says the problem is not one that can be solved by Putin and the country's top tycoons.
"What is really needed is to let people figure things out themselves. Let entrepreneurial people figure out what makes most sense," Gaddy said. "As an economist, you tend to say the most important thing is to have a level playing field. Make it possible. Deregulation. Remove the obstacles to allowing people to reallocate the resources that do exist -- the human capital, the physical capital. Increase mobility of people as well as capital. And don't stand in the way. Let them try to figure this out. And that is fundamental."
Losing Control?
Gaddy says the tendency in Russia today, however, is in the opposite direction -- toward greater control and greater centralization.
"Ultimately, the dilemma that Mr. Putin and his team face is the epic one that has always been in Russian and Soviet history. And that is the trade-off and the conflict between the imperative for control and an imperative for greater efficiency," he said.
The Russian president, Gaddy says, himself embodies this contradiction.
"Putin personally and intellectually is well aware of the fact that a market economy is more efficient. He knows that the Soviet centrally planned economy failed in the competition between the two systems. So he is pro-market in that sense. He knows that the market economy works," he said.
"At the same time, perhaps even more fundamentally, I would say he is a person who needs control, who believes that that is the Russian way -- and, in particular, that this huge country has to be under central control."
And when it comes to choosing between control and efficiency, Gaddy and other analysts say Putin's instincts will lead him to the exact same place as his predecessors in the Kremlin. Even if it means sacrificing a more dynamic economy.
