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4-Traders Homepage  >  Equities  >  MOSCOW INTERBANK CURRENCY EXCHANGE  >  Gazprom PAO    GAZP   RU0007661625

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Gazprom Says Has Deal to Build Gas Pipeline to EU

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04/05/2013 | 01:55pm CEST

MOSCOW--Russian gas giant OAO Gazprom said Friday it had signed an agreement to build a gas pipeline to the Europe Union that would reduce flows through Ukraine. But Polish officials cast doubt on the deal, saying no construction had been agreed and accused Gazprom of using gas as a political tool.

The unusual back-and-forth comes as Gazprom has been struggling to turn around a decline in its exports to Europe and follows Russian President Vladimir Putin's unexpected public call to revive a project that had been largely forgotten. European officials and analysts said it wasn't clear whether the planned pipeline would be completed and suggested the actual target of the announcement was Ukraine, which ships the bulk of Russian deliveries to Europe and is locked in talks with Gazprom on a discount for its supplies.

Gazprom said its chief executive officer, Alexei Miller, had signed a memorandum of understanding with the CEO of Polish pipeline operator Europol Gaz, Miroslaw Dobrut.

"The document envisages the implementation of the Yamal-Europe 2 project through Poland," the company said in a press release. A feasibility study will be completed within six months, it added.

Within hours, Poland's Prime Minister Donald Tusk said he didn't know anything about the apparent deal. Europol Gaz, part owned by Gazprom and Poland's state-controlled gas firm PGNiG SA, said in a statement that the document signed Friday "doesn't include a decision to build the pipeline and isn't a legally binding agreement or pledge to conclude any agreements or contracts."

Mr. Putin on Wednesday ordered Gazprom to examine expanding the Yamal-Europe pipeline via Poland, one of a series of pipelines intended to circumvent Ukraine. Gazprom embarked on the projects after squabbles with Ukraine over contracts twice in recent years led to cuts in flows to Europe, Gazprom's most lucrative market.

Polish officials have said Poland will decide whether the pipeline will be built, and that only a Polish state-owned company would be accepted as a builder. "It's not a Polish company," Mr. Tusk said Friday, referring to Europol Gaz.

Gazprom said the planned pipeline could be completed by 2019 and carry at least 15 billion cubic meters of gas to Slovakia and Hungary, which currently receive gas via Ukraine. The original Yamal-Europe pipeline can deliver up to 33 billion cubic meters per year.

Mr. Tusk linked Gazprom's statement to Russian attempts to send gas around Ukraine.

"Poland won't participate in these political contexts," Mr. Tusk said. "For us, gas isn't a tool to conduct politics and we very much want, in agreement with European Union laws, to keep gas issues free of politics."

Russia and Ukraine have been in talks for months over gas supplies. Ukraine has requested a discount, but balked at Russian demands to give up control of its gas pipelines or join a Moscow-led trade bloc in return for cheaper gas.

European officials and analysts said Gazprom's statement on the potential pipeline appeared to be a negotiating tactic as talks have stalled.

"This looks tactical," said one European official. "It all comes down to the Ukraine-Russia talks. It looks like a bluff."

Gazprom has reacted angrily to attempts by Ukraine to import gas from European countries that pay less. Gazprom's Mr. Miller has said these schemes looked "fraudulent."

Gazprom has pressed ahead with new pipelines, even as its exports to the EU slumped by nearly one-tenth last year amid dwindling demand and competition from cheap coal. In December, it launched construction of South Stream, planned to take 63 billion cubic meters of gas to Southeastern Europe by 2017. Gazprom also wants to increase the capacity of Nord Stream, which takes gas to Germany via the Baltic Sea. Officials have proposed an additional two pipelines, including one to take gas to the U.K.

(Olga Razumovskaya in Moscow contributed to this article.)

Write to James Marson at [email protected] and Marynia Kruk at [email protected]

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