A year and a half ago, I wrote a post about the sale of Serbia’s oil and gas company, NIS, to Russia’s Gazprom. Here were the high points:
— Gazprom was able to buy NIS for much, much less than its real value — 400 million euros for a company whose value was estimated to be more than 2 billion euros.
— The reasons for this have never been made clear. It may have involved corruption and/or a political quid pro quo for Russia’s support on Kosovo. Or perhaps the last Serbian government was just really bad at negotiating.
— The purchase was made without competitive bids, even several other large oil companies expressed interest, and two publicly stated that they would bid at least 2 billion euros.
— The deal gave Gazprom 51% ownership, but included provisions that ensured its total control. For instance, the Serbian government — which owns the other 49% — cannot sell its shares to anyone without Gazprom’s consent.
— Gazprom promised to assume NIS’s debts, which are about 600 million euros, mostly owed to the Serbian government, and also to invest about 500 million euros in NIS.
— Gazprom committed to building the South Stream gas pipeline through Serbia — giving Serbia transit fees — and also building a large gas storage facility at Banatski Dvor.
Okay, so. All that was a year ago. Since then, the deal has been signed and finalized. Gazprom formally took over NIS early this year; six of the ten members of the company’s board of directors are now Gazprom appointees, as are the Chairman of the Board and the company’s new general director. Although it was the last (Kostunica) government that negotiated the deal, the current (Cvetkovic) government has accepted it; three of the four Serbian board members are politicians involved with the current government.
So how’s it working out?
On the plus side, it looks like Gazprom will carry through with its commitment to invest in NIS. They’ve tendered bids for about $60 million of equipment so far, and are saying they’ll continue with this. So that’s good.
On the other hand, there hasn’t been a word about Gazprom repaying NIS’ debts to Serbia’s government. And Gazprom has been moving aggressively to collect debts owed to NIS. For instance, Serbia’s petrochemical company, Petrohemija, owes NIS about 80 million euros. NIS’s new management has been squeezing Petrohemija hard; refusing to deliver more crude oil until Petrohemija starts paying. The ironic result of this is that Petrohemija has had to borrow 10 million euros from the government of Serbia in order to stay afloat.
(I can’t really fault Gazprom on this. “Squeeze your debtors, make your creditors wait” is standard business practice everywhere. But it makes me wonder if the Serbian government thought this through.)
About 2,000 of NIS’s 12,500-strong workforce are being downsized. Gazprom is providing buyouts, with lump sum severance payments based on time with the company. So far the process has been fairly quiet. (Again, can’t fault Gazprom. State-owned energy companies everywhere tend to be overstaffed, so any investor would have done the same.)
Some work has begun at Banatski Dvor, though so far it’s upgrading the existing facility rather than building a new one.
NIS hasn’t paid any taxes yet, because it’s unclear whether it was operating at a profit or loss. An audit is in process.
Gasoline prices in Serbia? No big change there. They’ve tended to be high by regional standards, and they still are.
The South Stream gas pipeline? Well, that’s still under discussion. Russia recently announced that it had struck a deal with Turkey to run the pipeline through Turkish waters. Russia also says South Stream will be complete in 2012. That’s… probably impossible. A pipeline of this size and length, with long stretches underwater, would take at least three years to complete, and they’re still a long way from breaking ground. 2013 seems possible, with 2014 more likely.
Of course, even if South Stream does run through Serbia, it’s not likely to do Serbia much good. After all, it wonâ€™t be Serbiaâ€™s hand on the tap. Itâ€™ll be Gazprom gas going through a Gazprom-owned pipeline to customers who have made contracts with Gazprom. Unless the Serbs decide to nationalize the pipeline â€” very unlikely â€” theyâ€™ll have nothing to say about what goes through it and to where. All Serbia will do is help maintain the pipeline and collect a modest transit fee.
(Some supporters of the deal have claimed that it will give Serbia more “influence”. That’s just stupid. Major existing pipelines go through Moldova and Belarus; are those countries exerting much influence on the chancelleries of Europe?)
But anyway. A year and a half after the deal was made, six months after it was finalized, it looks like the Russians are keeping to the letter of their agreement. Of course, that should be easy, because it was a really good agreement for them. Still, there it is.