Sleeping with the enemy

Energy firms in central Europe are doing business with Gazprom, whether or not they - or their governments - like it, writes Lorraine Mallinder.

Around two years ago, when Russian energy giant Gazprom cut off the gas supply to Ukraine in an energy price dispute, there was much talk in the EU of the need to secure clean and reliable sources of energy. The EU, it was implicitly decided, would have to wean itself off its addiction to Russian energy. Gazprom, and by extension the Kremlin, could simply no longer be trusted.

Since then, Gazprom has been engaged in divisive deals in a number of member states. Agreements signed with Austria, Italy and Hungary over the past couple of years complement the 2005 Nord Stream pipeline deal between Moscow and Berlin.

At times, Gazprom’s influence swirls into Europe from unexpected angles. The mounting tension between Austrian energy firm OMV and its Hungarian counterpart MOL is, at first glance, a familiar tale of EU internal market roadblocks. OMV, which launched a €14 billion bid for MOL earlier this year, has made much of the obstacles placed in its way by the Hungarian government. A closer look, however, reveals that the barriers are only part of the story. Gazprom’s involvement behind the scenes has also played a part in the dispute.

The barriers raise important questions about free movement of capital within the EU. They are two-fold. First, MOL’s shareholders are effectively barred from assuming control of the company by a statute capping voting rights at 10%. Second and even more controversially, the Hungarian government approved a law shortly after OMV’s bid this year allowing company management to block takeovers and forcing companies to seek the approval of their shareholders before launching a formal bid. Charlie McCreevy, the internal market commissioner, rebuked Hungary over its protectionist laws last week (13 November).

The new law, which would enter into effect at the beginning of next year, was designed to hinder takeovers of companies in strategic sectors by foreign sovereign wealth funds. OMV, which is controlled by the Austrian government and IPIC, an Abu Dhabi sovereign fund, would be a prime target of the law, but for less-than-obvious reasons. The Hungarian government’s issues with OMV’s bid would appear to have less to do with the latter’s links to the Austrian state and Abu Dhabi than its links to Gazprom.

‘Lex MOL’, as the Hungarian law is dubbed, was allegedly devised as a means of protecting MOL from Gazprom. MOL reportedly claims that OMV’s 20% stake in MOL was built with the help of investors with strong links to Gazprom, such as former company executive Megdet Rahimkulov. Backroom deals were apparently forged after a visit by Russian President Putin to Vienna in May.

"The Kremlin controls just over half of Gazprom’s shares and thus directs the attempted takeover of Hungary’s MOL energy company through Austrian proxies," says Alexandros Petersen, a senior researcher at London-based think-tank the International Institute for Strategic Studies.

Gazprom’s probable involvement in OMV’s bid raises concerns over who exactly is pulling the strings on the EU energy market. The two firms had already set up a joint-venture project to build distribution facilities in Austria, where the OMV-led Nabucco pipeline carrying Caspian gas to Europe via Turkey will terminate. The plans would seem to undermine the whole purpose of Nabucco, a rival to the Gazprom-led Blue Stream pipeline, as a supply route outside the Kremlin’s control. They make a mockery of OMV chief executive Wolfgang Ruttenstorfer’s assertion last week that security of energy supplies in central Europe is a central tenet of his company’s policy.

"Member states still debate whether Russian companies should be allowed to control energy infrastructure at the consumer stage within Europe, even as Gazprom consolidates its control of Austria’s gas market and plans to use Vienna as a base to expand deeper into the continent," says Petersen.

MOL and the Hungarian government are also playing a duplicitous game. Despite the protests behind the scenes over Gazprom’s string-pulling, the pair are also handmaidens to the giant’s further expansion in Europe. MOL has embarked on a joint-venture with Gazprom aimed at extending the latter’s Blue Stream pipeline from Turkey to Hungary. Earlier this year, Hungarian Prime Minister Ferenc Gyurcsány publicly gave his backing to Blue Stream despite being a key player in the Nabucco consortium.

Both OMV and MOL are equally in thrall to Gazprom’s might, receiving around three- quarters of their gas supplies from the giant. "They all have dealings with the Russians," says an industry source. "You can’t be in the energy business in central Europe and not have dealings with the Russians."

All of which increases the urgency for watertight EU rules aimed at diversifying energy supplies. Andris Piebalgs, the European energy commissioner, proposed measures earlier this year that would effectively shield key energy companies from foreign puppet masters.

The OMV-MOL story is an interesting sideshow to these developments, but either way Gazprom is increasing its strong grip on EU energy markets.

Energy firms in central Europe are doing business with Gazprom, whether or not they - or their governments - like it, writes Lorraine Mallinder.