Gazprom Sets its Sights on Serbia
Serbia's beleagured pethem player is in dire need of investment and a secure future. With Gazprom securing NIS, another purchase seems logical
OBSERVERS SAY the largest Serbian petrochemical company, HIP Petrohemija, might fairly be described as hapless.
Still recovering from financial setbacks caused by the 1991-1995 UN sanctions against Belgrade and $449m (€350m) worth of damage inflicted by NATO bombing in 1999, the state company apparently only learned of the next likely chapter in its history - its acquisition by Sibur, the petrochemical subsidiary of Russian giant Gazprom - from the media.
As a company owned by Serbia's Ministry of the Economy and Regional Development (MERR), HIP Petrohemija finds itself caught up in Serbian and Russian geopolitics (see box) that give it little choice but to wait on ministers' next move, Petrohemija sources readily admit.
"According to the August 2008 press statement of ex-CEO Jano Kurai, there have been no official talks between Sibur and Petrohemija ... the company only contacted Sibur through the Russian embassy in Belgrade once it became aware of the potential takeover from the press," recounts Peter Tordai, deputy head of Central and Eastern Europe research at equities house KBC Securities.
MERR, say the Petrohemija sources, has been in no hurry to sort out the loss-making company's plight, ever since declaring in 2003 that its privatization would be completed within two years. The ministry told ICIS Chemical Business that Petrohemija is the responsibility of the Ministry of Energy and Mining. But an exasperated press officer at that ministry insisted MERR is the responsible entity. MERR failed to respond further.
Movement on the matter is nevertheless expected soon. Under an energy pact, Serbia and Russia in December agreed to the controversial sale of Serbian national oil monopoly NIS to Gazprom refining subsidiary Gazprom Neft. The disposal of NIS - a refiner of Russian oil connected by pipeline to adjacent Petrohemija in Pancevo, northeast of Belgrade, and the supplier of 50% of Petrohemija's naphtha feedstock - was so hotly contested that it led to the resignation of pro-Western economy minister Mladjan Dinkic. But now that it is going ahead, a Petrohemija-Sibur deal seems a logical next step to analysts.
"Officials of Petrohemija do not hide their preference for being bought by Gazprom through NIS. Petrohemija has remained keen on being taken over by NIS because it owes the refiner great debts that could easily be converted into equity," said Tordai. "Preliminary estimates show a debt-to-equity conversion could result in a 53% ownership of NIS in Petrohemija, with NIS already owning 20.5% in the company. This deal could be very easily structured."
Neither Gazprom Neft nor Sibur would comment on what price for Petrohemija might be under discussion, but Tordai said his sources claimed the Serbian government had offered to sell it for €200m and a reasonable investment commitment.
Sibur, said Tordai, would be looking at accessing the polymer markets of the ex-Yugoslavia that are expanding on the back of infrastructure, real estate, food packaging, pharmaceutical and car industry development. Petrohemija, located in the middle of the former country, is one of only two polyethylene producers on the territory and the only synthetic rubber maker in Serbia. It claims 29% of total PEVG capacity and 51% of total styrene-butadiene rubber capacity in southeastern Europe.
BOMBING'S ENVIRONMENTAL LEGACY LINGERS
Slobodan Adzic, the recently installed CEO of Petrohemija, said the NATO strikes took out 40% of the company's total capacity. The bombardment wrecked both a chlor-alkali electrolysis plant and a vinyl choride monomer (VCM) facility, thus crippling the polyvinyl chloride (PVC) production, which accounted for one-third of output. Environmental contamination from the bombing included a cloud of phosgene, vinyl chloride, chlorine, propylene and hydrochloric acid. "The destroyed capacities have not been reconstructed due to ecological reasons, since the most destroyed part was the chlorine line," added Adzic.
Petrohemija needs €150m for its investment program, said Adzic. This would encompass raising low density polyethylene (LDPE) capacity by 20% to around 70,000 tonnes/year, increasing high density polyethylene (HDPE) capacity by 30% to 90,000 tonnes/year and constructing a 85,000 tonne/year polypropylene (PP) plant.
The company, according to Adzic, suffers from "low capacity operation causing high fixed costs [partly caused by] a lack of basic raw materials, namely straight-run naphtha". Net losses grew from €18m in 2006 to €20m in 2007, with an even worse figure anticipated for 2008.
Approximately 80% of Petrohemija's polymer products are exported, with 30% of production output exported overall. The main export markets are Germany (31%), Italy (15%), Croatia (11%), Greece (7%), Bosnia-Herzegovina (7%) and Hungary (5%).
Given the company's Western sales orientation, one middle-level manager at Petrohemija maintained it would do better to "find a less politicized buyer from the European Union." Austria's OMV is known to have shown initial interest, she said. But Tordai said the chance of such an outcome was fast receding. "Now, with Gazprom already practically owning 20.5% of Petrohemija through its NIS investment and the probability of easily acquiring the additional stake, it is an even less probable scenario," he concluded.
WHAT ARE GAZPROM'S REAL INTENTIONS?
Could Gazprom's NIS takeover be part of a wider Russian strategy to dominate the Balkans' gas, oil and petrochemical industries?
Subsidiary Gazprom Neft has bought 51% of NIS for €400m and has pledged to raise and invest €500m by 2012 regardless of the effects of the international economic crisis. These sums infuriate the EU-orientated Serbian opponents of the deal. Last September, international consultants Deloitte & Touche valued NIS at €2.2bn.
The government has pointed to two other commitments Russia should pursue in tandem with the NIS investment. These are the routing through Serbia of the €10bn South Stream pipeline - infrastructure that will take Russian gas under the Black Sea to Europe - and the Banatski Dvor underground gas storage reservoir modernization. But the critics insist Moscow has given no firm contractual guarantees that it will construct the pipeline branch.
"The 'anti' camp views Gazprom as having obtained NIS on the cheap thanks to Russia's support of Serbia over [breakaway province] Kosovo," said Peter Tordai, deputy head of Central and Eastern Europe (CEE) research at equities house KBC Securities. "Moscow wasn't willing to sign any agreement, guarantee or deal with a specified pipeline time schedule."
Looking at other possible Gazprom targets in the Balkans, analysts quickly settle on Croatian refiner INA. But late January saw INA's new majority shareholder, Hungary's MOL, awarded INA management control partly in return for nodding to the Croatian state splitting off INA's gas business. MOL, which sees petrochemical feedstock potential in INA, has also given the Croatian government first right of refusal on any INA shares it chooses to sell.
"Gazprom and Russia are generally interested in setting their footprint in Europe, but until now they've had limited opportunities due to the major European countries' protective politics. Gazprom's expansion usually intersects with Russian political relations, so looking at the political map we do not believe they can expand further in the region," said Tordai.
Another CEE analyst, who preferred to remain anonymous, suggested observers should not forget that MOL itself may be "on the table" so Gazprom could conceivably attempt to acquire MOL and INA in one go, but such a theory has generally been given short shrift since Hungary joined the EU in 2004.
As for Gazprom, spokeswoman Anastasia Ivanova issued a rather brief statement from the "Information directorate" stating: "There are no doubts that the Russian side will fulfil its [NIS and gas deal] obligations" to Serbia and that "we don't know anything about Gazprom's plans of share acquisition in the company INA."
Russian state oil company Zarubezhneft did, however, enthusiastically confirm a €200m investment that last November enabled operations to restart at Bosnia's sole oil refinery in Brod, out of action since 2005 because of war damage.
OBSERVERS SAY the largest Serbian petrochemical company, HIP Petrohemija, might fairly be described as hapless.
Still recovering from financial setbacks caused by the 1991-1995 UN sanctions against Belgrade and $449m (€350m) worth of damage inflicted by NATO bombing in 1999, the state company apparently only learned of the next likely chapter in its history - its acquisition by Sibur, the petrochemical subsidiary of Russian giant Gazprom - from the media.
As a company owned by Serbia's Ministry of the Economy and Regional Development (MERR), HIP Petrohemija finds itself caught up in Serbian and Russian geopolitics (see box) that give it little choice but to wait on ministers' next move, Petrohemija sources readily admit.
"According to the August 2008 press statement of ex-CEO Jano Kurai, there have been no official talks between Sibur and Petrohemija ... the company only contacted Sibur through the Russian embassy in Belgrade once it became aware of the potential takeover from the press," recounts Peter Tordai, deputy head of Central and Eastern Europe research at equities house KBC Securities.
MERR, say the Petrohemija sources, has been in no hurry to sort out the loss-making company's plight, ever since declaring in 2003 that its privatization would be completed within two years. The ministry told ICIS Chemical Business that Petrohemija is the responsibility of the Ministry of Energy and Mining. But an exasperated press officer at that ministry insisted MERR is the responsible entity. MERR failed to respond further.
Movement on the matter is nevertheless expected soon. Under an energy pact, Serbia and Russia in December agreed to the controversial sale of Serbian national oil monopoly NIS to Gazprom refining subsidiary Gazprom Neft. The disposal of NIS - a refiner of Russian oil connected by pipeline to adjacent Petrohemija in Pancevo, northeast of Belgrade, and the supplier of 50% of Petrohemija's naphtha feedstock - was so hotly contested that it led to the resignation of pro-Western economy minister Mladjan Dinkic. But now that it is going ahead, a Petrohemija-Sibur deal seems a logical next step to analysts.
"Officials of Petrohemija do not hide their preference for being bought by Gazprom through NIS. Petrohemija has remained keen on being taken over by NIS because it owes the refiner great debts that could easily be converted into equity," said Tordai. "Preliminary estimates show a debt-to-equity conversion could result in a 53% ownership of NIS in Petrohemija, with NIS already owning 20.5% in the company. This deal could be very easily structured."
Neither Gazprom Neft nor Sibur would comment on what price for Petrohemija might be under discussion, but Tordai said his sources claimed the Serbian government had offered to sell it for €200m and a reasonable investment commitment.
Sibur, said Tordai, would be looking at accessing the polymer markets of the ex-Yugoslavia that are expanding on the back of infrastructure, real estate, food packaging, pharmaceutical and car industry development. Petrohemija, located in the middle of the former country, is one of only two polyethylene producers on the territory and the only synthetic rubber maker in Serbia. It claims 29% of total PEVG capacity and 51% of total styrene-butadiene rubber capacity in southeastern Europe.
BOMBING'S ENVIRONMENTAL LEGACY LINGERS
Slobodan Adzic, the recently installed CEO of Petrohemija, said the NATO strikes took out 40% of the company's total capacity. The bombardment wrecked both a chlor-alkali electrolysis plant and a vinyl choride monomer (VCM) facility, thus crippling the polyvinyl chloride (PVC) production, which accounted for one-third of output. Environmental contamination from the bombing included a cloud of phosgene, vinyl chloride, chlorine, propylene and hydrochloric acid. "The destroyed capacities have not been reconstructed due to ecological reasons, since the most destroyed part was the chlorine line," added Adzic.
Petrohemija needs €150m for its investment program, said Adzic. This would encompass raising low density polyethylene (LDPE) capacity by 20% to around 70,000 tonnes/year, increasing high density polyethylene (HDPE) capacity by 30% to 90,000 tonnes/year and constructing a 85,000 tonne/year polypropylene (PP) plant.
The company, according to Adzic, suffers from "low capacity operation causing high fixed costs [partly caused by] a lack of basic raw materials, namely straight-run naphtha". Net losses grew from €18m in 2006 to €20m in 2007, with an even worse figure anticipated for 2008.
Approximately 80% of Petrohemija's polymer products are exported, with 30% of production output exported overall. The main export markets are Germany (31%), Italy (15%), Croatia (11%), Greece (7%), Bosnia-Herzegovina (7%) and Hungary (5%).
Given the company's Western sales orientation, one middle-level manager at Petrohemija maintained it would do better to "find a less politicized buyer from the European Union." Austria's OMV is known to have shown initial interest, she said. But Tordai said the chance of such an outcome was fast receding. "Now, with Gazprom already practically owning 20.5% of Petrohemija through its NIS investment and the probability of easily acquiring the additional stake, it is an even less probable scenario," he concluded.
WHAT ARE GAZPROM'S REAL INTENTIONS?
Could Gazprom's NIS takeover be part of a wider Russian strategy to dominate the Balkans' gas, oil and petrochemical industries?
Subsidiary Gazprom Neft has bought 51% of NIS for €400m and has pledged to raise and invest €500m by 2012 regardless of the effects of the international economic crisis. These sums infuriate the EU-orientated Serbian opponents of the deal. Last September, international consultants Deloitte & Touche valued NIS at €2.2bn.
The government has pointed to two other commitments Russia should pursue in tandem with the NIS investment. These are the routing through Serbia of the €10bn South Stream pipeline - infrastructure that will take Russian gas under the Black Sea to Europe - and the Banatski Dvor underground gas storage reservoir modernization. But the critics insist Moscow has given no firm contractual guarantees that it will construct the pipeline branch.
"The 'anti' camp views Gazprom as having obtained NIS on the cheap thanks to Russia's support of Serbia over [breakaway province] Kosovo," said Peter Tordai, deputy head of Central and Eastern Europe (CEE) research at equities house KBC Securities. "Moscow wasn't willing to sign any agreement, guarantee or deal with a specified pipeline time schedule."
Looking at other possible Gazprom targets in the Balkans, analysts quickly settle on Croatian refiner INA. But late January saw INA's new majority shareholder, Hungary's MOL, awarded INA management control partly in return for nodding to the Croatian state splitting off INA's gas business. MOL, which sees petrochemical feedstock potential in INA, has also given the Croatian government first right of refusal on any INA shares it chooses to sell.
"Gazprom and Russia are generally interested in setting their footprint in Europe, but until now they've had limited opportunities due to the major European countries' protective politics. Gazprom's expansion usually intersects with Russian political relations, so looking at the political map we do not believe they can expand further in the region," said Tordai.
Another CEE analyst, who preferred to remain anonymous, suggested observers should not forget that MOL itself may be "on the table" so Gazprom could conceivably attempt to acquire MOL and INA in one go, but such a theory has generally been given short shrift since Hungary joined the EU in 2004.
As for Gazprom, spokeswoman Anastasia Ivanova issued a rather brief statement from the "Information directorate" stating: "There are no doubts that the Russian side will fulfil its [NIS and gas deal] obligations" to Serbia and that "we don't know anything about Gazprom's plans of share acquisition in the company INA."
Russian state oil company Zarubezhneft did, however, enthusiastically confirm a €200m investment that last November enabled operations to restart at Bosnia's sole oil refinery in Brod, out of action since 2005 because of war damage.
source: www.icis.com
