GERMANS QUESTION $1BLN FOR GAZPROM
By Stephen Boykewich
Staff Writer

The Moscow Times, Russia
April 3 2006

The government of German Chancellor Gerhard Schroder approved a $1
billion loan guarantee to Gazprom, German officials said over the
weekend, adding fuel to critics’ claims that Schroder improperly
benefited from a joint Russian-German pipeline project.

The German Finance Ministry on Saturday confirmed media reports that
Schroder’s government had approved a 900 million euro ($1.09 billion)
loan guarantee to Gazprom for the North European Gas Pipeline project
on Oct. 24, 2005, four weeks before Schroder left office and six
weeks before he accepted a key post in the pipeline consortium.

Schroder said Saturday that he had only learned about the loan
guarantee from media reports, and rejected renewed criticism by
opposition German politicians as politically motivated, the newspaper
Deutsche Welle reported on its web site Saturday.

The web site also published excerpts from an interview due to appear
in the newspaper Handelsblatt on Monday in which Schroder said
he initially declined an offer to head the pipeline consortium’s
shareholders committee in November, but reconsidered in December
after a personal request by President Vladimir Putin.

“On Dec. 9, I then accepted the offer. I do not see that I did anything
wrong,” Schroder said.

While visiting Moscow on Thursday to officially assume the post,
Schroder insisted that any German government would have supported the
$5 billion pipeline project and denied that he had had any insider
information while in public office. The post comes with a 250,000 euro
($301,000) annual salary.

“This affair stinks terribly,” German Free Democratic Party chairman
Guido Westerwelle said Saturday, Deutsche Welle reported.

investigate the circumstances of the loan guarantee.

“If Schroder has any respect for himself, he must immediately resign
his post on the supervisory board of the gas consortium,” Green Party
leader Reinhard Butikofer said, the newspaper reported.

Other German officials said the parliament’s budgetary committee would
review the loan guarantee this week, Reuters reported. One official
said, however, that immediate action was unlikely and that it was
unclear whether the committee had the power to block the deal.

Several hours after German media first reported the loan guarantee
on Friday, Gazprom released a brief statement saying it had rejected
the proposed German loan and would finance construction of the first,
above-ground section of the pipeline on its own.

“Gazprom wants to send a signal to avoid any negative political
fallout,” Steven Dashevsky, head of research at Aton brokerage, said
by telephone Sunday. “They tried to pre-empt any potential negative
decision by saying they didn’t need the German money, which really
they don’t.”

With estimated cash flow generation of $20 billion to $25 billion
this year and the ability to easily raise foreign capital, “Gazprom is
more than able to pay for its share of construction of the pipeline,”
Dashevsky said.

The pipeline — which is to carry up to 55 billion cubic meters of
natural gas per year under the Baltic Sea from Vyborg to Greifswald,
Germany — is a cornerstone of Gazprom’s plan to expand its stake in
Western European energy markets and diversify its export routes.

Russia currently supplies 25 percent of Europe’s natural gas needs
though pipelines in Ukraine and Belarus, both of which have sought
to leverage their role as transit states in recent price disputes
with Gazprom.

Natural gas is expected to be the European Union’s fastest-growing fuel
source in coming decades. Brussels projects that the EU’s dependence
on imported gas will rise from more than 40 percent currently to
about 70 percent by 2020.

“It’s a fact of life for Europe that the only place they’re going
to get a substantial amount of energy in the future is Russia,” said
Chris Weafer, chief strategist at Alfa Bank. “Europe already accepts
that it is going to have to become more dependent on Russia’s energy
imports. It has no choice.”

Schroder enthusiastically advocated the pipeline project during his
chancellorship and signed off on the deal with Putin several weeks
before leaving office. He is considered a close friend of Putin,
as is Matthias Warnig, an official at Dresdner Bank who was named
managing director of the pipeline’s shareholders committee.

Dresdner Bank bought one-third of Gazprombank in December for $800
million, and also advised Gazprom on its $13 billion acquisition of
Sibneft last year.

Gazprom controls 51 percent of the pipeline consortium, while German
partners E.On and BASF each have a 24.5 percent stake. The pipeline
is expected to begin shipping gas in 2010.

Armenia began paying about twice its previous price for Russian natural
gas on Saturday, while talks continued between Gazprom and Armenian
officials on ways to ease the blow for the country, The Associated
Press reported.

Gazprom initially demanded that Armenia pay $110 per 1,000 cubic
meters as of Jan. 1, but the company later agreed to hold off on the
increase until April 1.

“You don’t need to be an economist to figure out how much the chain
reaction will affect the [pocketbooks] of citizens,” said Ashot
Aramyan, editor of Basis, an Armenian economic magazine.

Gazprom has extended a temporary deal to supply gas to Moldova until
the end of June, the AP reported Friday.

Under the terms of the deal, Moldova will pay $110 per 1,000 cubic
meters of natural gas, the same as in the first three months of the
year, Moldovan Economy Minister Valeriu Lazar said. Moldova paid $80
per 1,000 cubic meters in 2005.

In January, Gazprom cut off gas to Moldova after it rejected an initial
demand of $160 per 1,000 cubic meters of gas. Moldova accused Russia
of using its gas monopoly to punish former Soviet countries such as
itself, Georgia and Ukraine, which have moved to establish closer
ties to the West.

From: Emil Lazarian | Ararat NewsPress