Russia Signs $660M Gas Deal
Germany's Ruhrgas paid $660 million to clinch a 2.5 percent stake in Russian natural gas giant Gazprom. The sale solidifies the strategic partnership of the two companies and provides a badly needed infusion of cash for the Russian government.
Speaking at a news conference called Monday to finalize the sale, Gazprom President Rem Vyakhirev welcomed the Ruhrgas bid. "I am glad that a serious buyer purchased the Gazprom shares," he said.
Friedrich Spath, the head of Ruhrgas, said the purchase would strengthen the partnership between his company and Gazprom, the world's largest natural gas company. Under Russian legislation, Ruhrgas must retain the stake for five years and not use it for any derivative issues.
Created from the former Soviet gas ministry, Gazprom produces 94 percent of Russia's gas, and had turnover in 1997 of 138.2 billion rubles ($23 billion), yielding a net profit of $1.7 billion. It is expected to post a loss in 1998.
The sale breaks a lengthy sequence of delays and cancellations in the government's privatization program this year. The August financial crisis forced the Kremlin to scale back plans to divest 5 percent of Gazprom, and to shelve attempts to sell Rosneft, the last major Russian oil company still in state hands, after two auctions failed.
However, the Gazprom auction does not necessarily signal a resurgence of demand in Russia, analysts said.
Ruhrgas beat off only one other challenger, an unknown consortium Interoil Finance Ltd, whose $651 million offer matched the government's starting price for bids.
The identity of the rival company was unknown. Oil analyst Stephan O'Sullivan from Moscow's United Financial Group brokerage said Interoil could be a Gazprom front company created to submit a second bid in the auction, which the law requires for the sale to be valid.
"It was predicted that Ruhrgas would win," said O'Sullivan. "Doesn't it say something, though, that no other investor was interested in Russia's leading blue-chip?"
The sale proves a boon for Russia's cash-starved government, which is trying to plug holes in its draft 1999 budget as a way to cajole the International Monetary Fund into releasing more of the billions of dollars the lending agency has promised Russia.
Shuvalov said the bulk of the proceeds -- around 13 billion rubles ($626.5 million) -- would be injected into the federal budget. Finance Minister Mikhail Zadornov said this money will enable the government to temporarily stop printing money, the tactic the central bank has employed since August.
The sale trimmed the government's stake in Gazprom to 37.5 percent. The Kremlin announced Monday it would sell another 2.5 percent share package in 1999. O'Sullivan said this sell-off could reduce the number of government-appointed members on the board of directors from five to four. "It would mean a true weakening of control by the government over the company," he said
By Margaret Coker