Банкеръ Weekly



The investment programme of Bulgargas for 2004 will swallow about BGN47MN, the company's CEO Kiril Gegov told the BANKER weekly. BGN33MN of that amount will be the pure investments and another BGN14MN will be set aside for capital repair of the gas transiting infrastructure. These figures could go up if Bulgargas succeeds to gather a larger financial resource by attracting a foreign investor or by issuing eurobonds. An expert panel has been set up in the Energy Ministry for the purpose. It discusses all possible sources for financing. Moreover, the company will sign a contract with the Fitch agency for assigning its credit rating, Deputy Energy Minister Ilko Yotsev announced. The crediting agencies Standard Poors and Moodie's also bid in the contest.Many experts ask why does Bulgargas need such huge amounts of money and what will they be invested in?The problem here is with more than two unknown quantities. But if the money is ensured, something to be spent on will certainly be found. Especially if the company continues the practivce to deliver entirely pay-free natural gas to some chosen debtors (the examples with the Sofia Central Heating Company and Kremikovtsi are quite indicative). Thus, one of the possibilities is that the sought external financing goes for paying the fuel supplied to the chosen companies. Another possibility is that with the future credits Bulgargas builds part of the network of gas distribution companies. The expenses will be paid by the private companies afterwards in the form of a surplus charge on the price of purchased gas. Such a precedent has already been set in the case of Rahovetsgas 96 AD which has a monopoly licence for gas supply to Veliko Tirnovo, Gorna Oryahovitsa and Lyaskovets. Overgas Inc is a majority holder with a 68% stake in the company. But since the summer of 2003 the Sofia-based gas company (until recently known as Sasho Dochev's firm) is owned by the Russian giant Gazprom. Moreover, Overgas Inc holds most of the licences for gas distribution on this country's territory. Thus, it could be expected that a situation will be arrived at when the little brother Bulgargas draws banks credits in order to build the Bulgarian network of the giant Gazprom. But any paradoxis are possible here. Like that of the national gas company planning the construction of a pipeline to Serbia or an expansion of the conduit to Greece, for instance. Consideraing the scale of the big gas business, not so big investments are necessary here. The relatively short 90-km long section to our western neighbour country will cost EUR50MN at the most and could be constructed within a year. And the transiting capacity of the pipeline to Greece could increase to 5.2BN cu m/year, at that with some reconstructions of the presently existing network. But any serious company in the world would project such an investment only if the owner of the fuel (again Gazprom in our case) has already signed a long-term contract for supply with the respective countries. (Serbia's oil and gas company and the Greek state monopolist DEPA). Besides, the same owner should close a contract for transportation of the fuel via our country's territory with Bulgargas (or an annex to the currently effective contract for gas transiting). In both documents (for the Serbian and Greek direction) the quantity to be transited during the agreed period should be fixed and Gazprom is to undertake the payment of the transiting fee for the entire capacity of the new conduit (or the extenstion to the existing one). That is the practice worldwide. That was also how Bulgargas acted until a few years ago. It seems absurd that the Bulgarian company first builds the pipeline and waits for Gazprom afterwards to negotiate gas transiting with the Serbian or Greek gas company.The new investments could also be spent by Bulgargas for implementation of the large-scale transnational Nabuko project for the transportation of Caspian gas from Turkey to Central Europe via the territory of Bulgaria, Romania and Hungary. In Austria the gas conduit should be connected with the European network. According to recent research of the EU, in the year 2020 natural gas consumption in the community is expected to reach 900BN cu m/year, or double the amount consumed in 2000. The import of gas will exceed 60% of the aggregate demand in the EU. Presently, most of the gas in the EU is imported from Russia. That is why the EU is already looking for alternative sources, such as proposed by the Nabuko project. It was included in the European TRANSECA programme and 50% of the expenses for the feasibility studies will be paid by the EU. The Turkish company Botas, the Bulgarian Bulgargas, Hungary's MOL, Austria's OMV and the Romanian Transgas, engaged with Nabuko and signed a joint memorundum in 2003. According to preliminary approximate estimates, the construction of the new gas pipeline (some 4,000-4,500 km long) will cost about EUR4.5-5BN. It is projected that at least 20BN cu m of natural gas would be transported along the conduit per year and the maximum annual quantities would reach 28BN cu m. Of all the preliminary work, results were only shown by the marketing research of the US Boston Consulting Group, which was financed by the EU. Seven respected companies from the branch took part in the competition for a chief technical consultant. In the end of the week representatives of Bulgargas, the Turkish Botas, Romania's Transgas, Hungary's MOL, and the Austrian OMV reviewed the submitted offers.The technical research must be completed by September 2004. Each country commits itself to select an assistant on its territory, keeping in mind its internal legislation, the manager of Bulgargas explained. According to Kiril Gegov, the technical consultant of the Bulgarian participant will be chosen in accordance with the Public Procurement Act. The gas company has already announced a competition and is preparing the documentation. The chief consultant, along with the assistants in each country, will prepare the technical part. Then the technical research will again be undertaken by the Boston Consulting Group, which will precise the marketing analysis. By the end of 2004 or the beginning of 2005, the whole preliminary research should have been prepared.While trying to reduce its dependence on the Russian natural gas, the European Union is developing other four projects at least. One of them is competitive to Nabuko. It is a gas pipeline that will link the networks of Turkey and Greece and will deliver blue fuel to the other EU countries and the region. The agreement between the gas companies of the two countries, Botas and DEPA, was signed on December 23, 2003. It stipulates the construction of a gas pipeline, through which the blue fuel will go through Turkey, Greece, and Italy, to the other members of the EU. The building of the pipeline on the territory of Turkey is estimated at USD80MN. It will be 209 km long and will pass through the Asian part of the country, then will continue on the bottom of the Sea of Marmora, and will reach the Greek border. In Greece, the pipeline will be 85 km long and will pass through the Northern city of Komotini. The line will cost EUR115MN. The EU finances half of the research works again.One major question arouses from the two alternative projects - at what price will the Caspian blue fuel reach Central and Western Europe and will there be any buyers for it? The answer may transfer all the projects in mere good intentions.

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