Jan 6, 2009

How Much for that "Naftna Industrija Srbije" in the Window?

Today, Jamestown reported on Russia’s purchase of Naftna Industrija Srbije Gazprom (NIS), for less than half of it’s assessed value. While this is the best example yet of Russia’s mass privatization of foreign policy, its also a case study in how not to sell a prized state asset.

Put simply, the Serbs are getting taken. In 2008, Deloitte & Touche valued NIS at $2.95 billion. But Gazprom is only going to pay $1.2 billion ($537 million + $721 million in new “investment”) between now and 2012. Better yet, the Serbs refused to entertain offers from anyone but Gazprom. Since the collapse in energy prices, Gazprom doesn’t have the money to pay for the entire deal in cash. Instead, it will have to find someone to lend it an extra $721 million.

Second, the Serb government agreed to sell the single largest portion of its economy (by annual turnover) because Russia had promise to run the South Stream pipeline through their country (yeah transit fees!). Only, South Stream is now on hold and the Russian team highlights that any bits about South Stream are non-binging.

A lot of things seem to be non-binding these days, as all-cash deals are becoming a thing of the past. Russia’s energy companies are already swimming in foreign debt and require state-intervention to prevent default on existing loans, let alone finance a politically-motivated buy-out of the Serb economy. As a result, Gazprom will either have to raid the state coffers or find someone outside Russia to front the remainder of the “investment.”

Oil briefly traded above $50 today. The Ukraine gas shut-off has everyone spooked.

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