Tag Archives: Russia

Second Wave FDI Strategy in Energy hits SCEE

The energy and consumer resources of the SCEE region are now in play for global players. Traditionally dominated by European utilities which pushed into the region when countries began to privatize their electricity and gas distribution companies, the likes of E.ON, RWE, EDF etc… now a second wave of investment may be occurring.  It may be too soon to be calling it a full wave, but there is no doubt that constrained home markets and past expansion plans by a range of energy companies have hit a wall with the global economic meltdown resulting in new strategies being deployed.

Just as the first wave of privatizations altered the energy landscape in the SEE and CEE regions, the second wave represents strategic actions that will cement companies into the region for decades. First let’s run through the slew of stories that serve as the foundation of this proposed second wave, it looks like a grab from Cold War foes.

Today there is the setting up of the joint venture between Gazprom and the Hungarian Development Bank (MFB) called ‘éli Áramlat Magyarország’. It is the company that is meant to operate the South Stream Pipeline through Hungary.  However a decision will be made in 2011.  Although you would think that MOL would actually be involved in operating a pipeline through Hungary, it is already committed to South Stream.

The Russians are still in the headlines in the noisy affair in Croatia of whether they are or are not interested in taking over INA. They continue to deny it, and MOL continues to come under political pressure for ‘corruption’ allegations over how MOL gained control of the company from the Croatian state. Nonetheless, less file this under ‘interested FDI’. As it could be seen with the previous story that if South Stream doesn’t pass through Hungary then it would pass through Croatia, thus having to deal with the technical competence of INA-MOL. Either way, MOL and Hungary stay in the South Stream story – thus the current sour grapes between MOL and Russian Surgutneftegas may go by the wayside before 2011, when actual construction decisions on South Stream (and Nabucco – with US support) are made.

But waiting to put both these pipe dream pipeline plans into disarray is Exxon Mobil, with the aid of MOL, which continue to explore the Mako gas field in Hungary. With Mako possibly holding huge potential reserves – if it can be extracted. Two earlier tests wells have failed which may have helped to prompt Exxon Mobil to buy Texas-based XTO which has expertise in shale and tight-sands deposits.  Very useful expertise for the Hungarian tight-sands, and other countries’ deposits in the CEE region. This should mean if  gas is extractable, XTO will be able to bring the technical expertise to make it happen.

Lest we forget that we are at the beginning of a green revolution, US based Fagen Inc will be setting up a bioethanol plant in Hungary. With Hungary a top 10 global exporter of corn and wheat. Hungary may be well positioned to use its natural resources to its advantage. And this is the true story of the second wave of foreign investment into the region.

This partial list of FDI, coming out within the same week, does indicate change in how foreign companies are participating in the local energy markets.  There is much more activity on the production and resource provision side then on the consumer-services side of the business chain. This represents a maturing of the business market in the region. The privatization of distribution companies was ripe for the injection of private capital which governments lacked at the time and for managerial expertise. The newest round is focused more on investments of energy resources that feed into the consumer side of the business. The result will be a new supply sources that will compliment existing sources. From a security of supply view, diversification of sources is a good thing. But part of any evaluation of security of supply are political and geopolitical elements.

The competing/complimantary projects  (depending who you talk to) of Nabucco and South Stream no doubt must be assessed from a geopolitical point of view. But I think that is for another posting. What is important is that the investments by these companies represent a long-term regional investment. The necessary skill sets will be fostered with local talent and infrastructure improved. This is a good start to what will become a larger wave of investments set to transform the infrastructure for energy production to low and zero carbon energy sources. Gas and ethanol are key in the near and mid-term transition process. Expertise and the development of infrastructure in these businesses will lead the transformation necessary to reduce the regional carbon footprint.

Update: to underscore this second wave of investments, and into renewables there is now this story:

The European Bank for Reconstruction and Development (EBRD) has decided to invest up to EUR 125 million to take a 25% stake in the Hungarian and Polish subsidiaries of Iberdrola Renovables. link

News: Reuters analysis of Russia-Belarus dispute

SNAP ANALYSIS-Russia’s oil spat with Belarus via Thomson Reuters

By Chris Baldwin

LONDON, Jan 4 (Reuters) – Russia said on Monday it had resumed oil supplies to refineries in neighbouring Belarus after a brief rupture, but tensions were still simmering.

The following outlines some of the issues at stake. [more…]

Follow link for comments from Michael LaBelle of the Energyscee.com

Watching the Russian & Ukrainian energy dispute with eggnog

The cold Christmas and New Years holiday meant the oil dispute between Russia and the Ukraine was subdued with spicy eggnog.  This year the dispute was not over gas but oil.  Probably the best preparation for this non-crisis was in the form of sitting by the fire and letting it play out.  For both Russia and the Ukraine to repeat their dispute from a year ago would have been akin to shooting their other foot (the first foot being shot last year).

The assurance of security of energy supplies from Russia to Europe, since last years gas dispute, has become an important consideration in EU energy policy.  While there has not been a significant change in energy policy, the awareness exists that further disruption could lead to concrete action from the EU. This would be good news for those in Central Eastern European states who have been trying to make their case that Russia is an unreliable energy partner. The cautiously neutral position of Brussels would have shifted to see Russia (and the Ukraine) as unreliable suppliers. The result would be a greater emphasis on shifting to alternative energy routes and supplies.

For this post-non-crisis discussion the reasons for the initial dispute then must be understood. Is it, as suggested, a political ploy for boosting Ukrainian President Viktor Yushchenko’s reelection bid or was it an actual ‘commercial’ disagreement? The aftermath of the 2009 gas crisis, shows the purely ‘commercial’ dispute between the two countries involved a significant amount of political posturing. Prime Minister Putin came out with his usual verbal assault, “We are ready to deliver, we have a contract, but if any of the transit countries abuse, what can you do?” While the main political contenders in the January 17th presidential elections Prime Minister Yulia Tymoshenko and President Viktor Yushchenko sought to play it up, but as it turns out, resolve the ‘crisis’ right at the deadline with a 30% boost for the Ukraine’s transit fees. Thereby lending a concession for Yushchenko, who can demonstrate his ability to negotiate with Russia.

While the curtain drops on the act, I have to applaud the gamesmanship in creating a non-crisis, or rather elevating a regular serious discussion over commercial activity into the political arena for domestic consumption. In the last few days, we can also see again the replay of the 2009 gas crisis, with the cutting of oil shipments to Belarus. With significant stocks held by Belarus, the question must be raised whether it is a commercial dispute or political dispute. Either way the best approach for Europe may be to sit tight with the eggnog in hand, plans at the ready and action to be taken once an actual security of supply threat materializes. Let’s just hope there is enough eggnog to last.

Is Orban riding with Putin?

I actually had a mouthful of apple juice when I read the following. “You will be surprised; the Russians will help Hungary,” Hungrian PM ‘heir designate’ Viktor Orban told MTV on November 25th. This is after his return from Russia where he met Prime Minister Putin.

I managed to not spit out the juice all over my computer, but where’s Orban’s new found love of Russia coming from? Or is he just jealous that Gyurcsány was invited to a private dinner with Putin on Tuesday night? Seriously, I assume that isn’t the case, but Orban also positively mentioned Russian assistance in building and refurbishing Paks nuclear power plant. While it is true Hungary is heavily reliant on Russia for its energy supply (gas supply and nuclear technology) the question becomes why this discovery of Russia as a long lost love? (Why he’s on Putin’s scooter?) Or should we just assume it is diplomatic niceties? Does Orban figure he has more to gain by just being nice to the neighborhood boss? Either way we won’t have that long to wait, the elections are expected in the spring.