RUSSIAN POWER PLAY

Corporate merger, mob peace settlement or Kremlin stratagem?

Russian energy giants sign vast partnership deal
Dario Thuburn, November 28, 2006 (AFP via Yahoo News)

- Russian state-controlled energy giants Gazprom and Rosneft signed a massive partnership deal that aligns two bitter rivals and could squeeze foreign firms out of the Russian energy market.
- The heads of the two companies "signed an agreement on strategic cooperation" for joint work in oil, gas and electricity production, as well as combined bids on energy contracts…
- Gazprom, one of the largest energy companies in the world, has a monopoly over Russia's vast natural gas extraction and transport network. Rosneft is Russia's second largest oil producer…controlled by powerful Kremlin officials, [both] have risen in influence in recent years because of high global energy prices.
- Gazprom and Rosneft have engaged in fierce competition for energy projects, seen as reflecting a battle for power between Kremlin factions, and a proposal to merge the two was scrapped last year…
- The main aim of the partnership agreement announced on Tuesday was to avoid "confrontation" between Gazprom and Rosneft…The state wanted "that the two giant not compete any more both on the external and internal market", and the agreement could encourage "joint foreign purchases" by lowering operational risks…until 2015, after which it could be renewed in five-year periods…

- The deal also foresees cooperation between the two firms in gas production in far eastern Russia -- a region seen as vital to Russia's ambitions to become a major energy exporter to booming Asian economies…
Under the agreement, Rosneft has also agreed to sell gas to Gazprom from its fields in western Siberia and the two companies added that they will make joint bids for contracts on a 50-50 basis.
- The purchase of gas in western Siberia could enable Gazprom to ensure steady export supplies to Europe, amid fears that ageing infrastructure and slow development of new supplies could hamper production levels…
- The deal follows an announcement earlier this month that Gazprom and Lukoil, Russia's biggest oil producer and a privately-owned firm, would form a joint venture to acquire new assets in Russia and abroad.
- Ultimately "we are likely to see some sort of super energy holding structure," but not a merger, bringing together the Russian state's stakes in oil, gas and electricity firms…

Anybody who got in the way of such plans might be enough of a nuisance to poison.