Archive for the ‘emerging europe’ Category

Russia, Italy, Turkey confirm Samsun-Ceyhan pipeline deal

ENI logoThe Vice Prime Minister of the Russian Federation, Igor Ivanovich Sechin, the Russian Minister of Energy, Sergei Shmatko, the Minister of Energy of the Republic of Turkey, Taner Yildiz and the Minister for Economic Development of the Italian Republic, Claudio Scajola, signed today in Milan a joint statement concerning the construction of the Samsun-Ceyhan oil pipeline between Turkey’s Black Sea coast and its Mediterranean coast.

The agreement testifies the level of cooperation among the three Governments, in particular in the energy sector, and it underlines their joint commitment to enhance energy security in their respective countries and in the European market through the diversification of transport routes, as well as the protection of the environment.

In line with the agreements signed in Ankara on August 6th 2009 by the representatives of the Russian Federation and the Republic of Turkey, which envisage the participation of Russian oil companies in the Samsun-Ceyhan Project, the Ministers agree that this initiative will contribute to strengthening security of supply, to protecting the environment and to enhanced cooperation.

At the same time, representatives of Eni, Calik Holding, JSC Transneft and Rosneft, the energy companies involved, signed a Memorandum of Understanding which envisages the commitment to discuss the definition of the economic and contractual conditions for Russian companies to participate in the Samsun-Ceyhan Project in order to ensure the volume of crude that would guarantee the economic sustainability of the project.

Eni (NYSE:ENI) has been heavily involved in the oil pipeline project since 2005 and will play a leading role in its realization. In 2006, Eni bought 50% of Trans Anadolu Pipeline Company (TAPCO), the company designed for the realization and management of the Samsun Ceyhan pipeline.

The project has been developed taking environmental issues into consideration and adopting measures which comply with the most rigorous international safety standards. Furthermore, in order to cause minimal disturbance to the environment and existing infrastructure, the pipeline will be built along existing pipeline routes.

The Samsun-Ceyhan pipeline will facilitate safer transport across the Bosphorus and Dardanelles Straits as well as reducing the impact on the region’s complex and delicate ecosystem.

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Unnatural activity on Turkcell points to another leg up

Having been a long term holder of Turkcell (NYSE:TKC)  & having written about it here on my own blog & Seeking Alpha on a number of occasions, I hadn’t thought recently about an article on the subject. However, a few things in the past week have brought it to the forefront of my mind & a conversation with a contact yesterday peaked my interest, so have been doing some back research & looking a little more intently at the action over the last week.

As (hopefully) anyone that is reading this article knows, Turkcell is the market leader by subscribers & mobile revenues in it’s domestic market, with more than 36.3 million users, or 60%, whilst competitors Vodafone & Avea (Turk Telekom) have 24% & 16% market share respectively.

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Last week along with 15 of the country’s major banks, Standard & Poors upgraded TKC‘s long term foreign currency rating from negative to stable. TKC has also been a pretty strong performer this year, hitting a low of $11.15 in March up to a high of $18.09 on Wednesday (of which more in a moment). Looking at the long term chart, it’s been a pretty good trend all year, adhering to it’s 20 day SMA, albeit with some volatility coming in in the last two months or so & also increased volumes being traded since August.

Recently we have seen some interesting sell activity in the stock, with plenty of unnatural selling pressure on Monday 21st September, when more than 75% of the daily trades on the NYSE for TKC were sells, against an exchange average of 48%, this is the first thing that caught my eye, but dismissed as housekeeping & profit taking, which is understandable.

This was then followed by two straight days of reasonably heavy buying, followed again by some sustained selling pressure on the 24th September, again followed by heavier than normal buying again. On Monday this week, we saw this activity starting again,out of  120k  TKC shares traded 94k or 77.85% were to the short side against an exchange average of 47%. Then yesterday, we saw TKC share volume shoot to nearly 2.3 million shares traded & the stock dropped $0.90 or 5% in an hour. OK, the markets took a tumble yesterday all over, but this is unprescedented for TKC since February this year.

People may be getting nervous on emerging & developing markets & admittedly, we have seen increased volatility coming in in the last 20 days trading, however, Turkcell registers normal daily volumes of of circa 660k shares traded, yesterday we saw 2.273 million shares exchanging hands.

Looking historically at TKC from a technical perspective over 2009, whenever we have seen volatile activity as above, it has been a precursor to another leg up in the stock, as per the chart below.

TKC_12_month

On the basis that it has just been upgraded on a long term basis, it’s major shareholder is Sonera BV (Telia Sonera of Sweden) & it has just launched 3G along with a raft of new services, I’m a perma-bull on this stock. I spent quite a bit of time researching yesterday & was not able to come up with one single reason why TKC has sustained such a beatdown, I can only surmise that some speculation has been going on in Hedgistan & expect to see another brisk leg up. Correspondingly, yesterday I added 50% to my position at 17.01 & am quietly confident we will see $20 in quick time.

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MyStockVoice.com is now alive & kicking

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It’s taken a while & it’s been an interesting experience, but am pleased to say that we released MyStockVoice.com into public beta. For me personally, there have been a few challenges, “assisted” along the way by re-locating with my family from Switzerland to Slovakia.

The team at Connection Services who have designed & support the MSV platform have been excellent, especially when responding to an ever changing set of requirements. MyStockVoice started as this WordPress blog, where I could muse on my views on Emerging Markets & BRIC economies. A conversation with a friend who works in the City (London) encouraged me to look at doing something a little more. The original format, was a forum, then a newswire service & now it’s a fully fledged blog publication platform. So you can imagine how happy my colleagues at CSL were, when I tripped back every few months & said “right, this is what we are doing now”

Our aim at MSV is to provide an ever widening audience with value insights into what is rapidly becoming a major topic for hedge funds, investment managers & retail investors alike : BRIC & Emerging Markets. International stocks traded on US exchanges are becoming ever more popular, especially via Depositary Receipts (ADR,ADS,ADN) , for the more cautious or long minded, a number of ETF (Exchange Traded Funds) have sprung up to service the appetite to take part in these growing economies.

Covering all the major regions, MSV provides focussed channels into a variety of sectors & also specific categories for Macro Econmics, ADR & ETF investing. We are pleased to be working with some well established names from the investment community, along with faculties such as Knowledge at Wharton, the Economics Faculty at Beijing University, Skolkovo Business School in Moscow & Cranfiedl University in the UK.

Our strapline is “your community … your voice”  & to reflect this, we will be bringing our readers plenty of new unique content. Much of my time in the last two to three months has been spent contacting individual bloggers & also online media services that are based in the regions covered. In this way, we can present a “blend of thought”, that will allow our subscribers to formulate informed opinions on their own particular areas of interest.

So, enough jawing from me, but to close, Alex, Chris & myself would like to thank the team at CS & all the people that have had input into the project. We sincerely hope that you enjoy the MSV experience & are always open to new ideas, partnership opportunities & most of all feedback.

Many thanks

Paul

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Ukranian power plays could benefit Turkcell

ukrtelecomUkraine‘s telecommunications sector is, potentially at least, in line for a major shake up, with plans to privatise a controlling stake in state-owned landline operator Ukrtelecom. Proposals to sell off Ukrtelecom have been around since the 1990s, with different formulas and percentages being floated at various times, along with varying assessments of the company’s net worth.

In the latest version of the plan to privatise Ukrtelecom, an open joint-stock company that holds a 70% market share of local landline operations, the government has proposed selling off it’s block stake of 67.79% of Ukrtelecom’s shares. Currently, the state has a 92.79% stake in the company, with the company’s employees holding a further 7.14%.

The government’s plan, announced in February by the State Property Fund (SPF), initially foresaw the privatisation process beginning in March, though this did not take place, casting some doubt on the timeframe for the sale.

Although it did not meet its own deadline to start the process, the government has recently put Ukrtelecom back on the agenda. During a visit to South Korea in mid-July, Prime Minister Yulia Tymoshenko called South Korean firms to place a bid for Ukrtelecom,as she pushes to attract Asian investment into the Ukrainian economy. This is part of a wider drive by Timoshenko to privatise a number of state owned assets, including 5 regional energy companies.

However, the government may have missed the boat if it is hoping for a substantial cash windfall from the sale of Ukrtelecom, with the company’s overall value having slipped badly in the past year. The stake in the company that is to be sold off was estimated to be worth around $3bn in 2008; current pricing puts it at around $940m, mainly due to the sharp fall in the local currency.

Its attractiveness as an asset has not been helped by Ukrtelecom recording a $194m loss last year, compounded by a further $32m worth of red ink in the ledger for the first quarter of 2009, a turn around from a net profit of $33m at current rates in 2007.

More likely to give potential suitors pause than the telco’s financial statements is the political cloud that hangs over the proposed privatisation, with President Viktor Yushchenko staunchly opposed to the sale. In February, after the plan to privatise Ukrtelecom was unveiled, a senior official of the president’s office said Yushchenko would do everything possible to block the sale.

Yushchenko and Tymoshenko, formerly close allies, are at loggerheads over numerous issues, including management of the faltering economy, combating corruption & ties with Russia. Having repeatedly blamed the Tymoshenko-led government of failing to protect the economy and the Ukrainian people from the fall out of the global financial crisis, it is no surprise that the president has opposed the sale of Ukrtelecom.

According to the SPF, there are at least 10 companies interested in bidding for the Ukrtelecom stake, though this assessment was made in March, and could be optimistic given the present variable political and economic climate. “Climate change” notwithstanding, one interested party is Turkey’s largest mobile phone operator, Turkcell (NYSE:TKC) which already has a presence in the Ukrainian telecoms sector, owning a controlling interest in Astelit, the country’s third-largest mobile services provider, which services 20% of the mobile market.

In mid-February, as discussions over the privatisation of Ukrtelecom again gained momentum, Turkcell’s chief executive officer, Sureyya Ciliv, said his firm was considering making a bid for the landline operator.

“It is an interesting situation but we need to understand the terms of the deal, and our teams are studying that. Based on the study, we will make a decision if we are a serious interested party who is willing to bid.”

What could be of more interest for Turkcell & the Ukrainian goovernment, is TeliaSonera looking at gaining a greater stake in Turkcell. The Swedish multi-national is eager to penetrate new markets in Eurasia & already has a growing fibre network building out in Ukraine. My view is that this has a greater chance of success than courting Asian investors to come into the Ukranian market, time will tell.

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Vodafone steps up to the plate, backed up by Emerging Markets

vodafoneLast week Vodafone Group (NYSE:VOD) released an interim management statement that considering the current economic climate, I consider to be pretty upbeat. I have been a long term holder of Vodafone stock on the London Stock Exchange & have over the last year traded the NYSE traded ADR up & down on swings. However with the current market, I am now looking for some growth & value plays. Looking a little closer at the report & doing some quick analysis of some of the major themes contained, I am now quite bullish on VOD going forward & will be picking up some shares for my investment portfolio. As of writing Vodafone was trading at £121.00 in London & $19.64 in New York.

Comment from : Vittorio Colao, Chief Executive

“In the first quarter the service revenue trend in Europe was consistent with the previous quarter and we continued to see good growth in India and South Africa. Our total communications strategy is delivering well, with organic data revenue up 19% and organic fixed line revenue 7% ahead of the comparative period. Free cash flow generation was strong at £1.9 billion, up 21%. The Group has reaffirmed its guidance for the full year.”

Highlights from the report :

  • Group: Revenue £10,743 million, up 9.3%
  • Group data revenue of £888 million, up 19.4% on an organic basis
  • Free cash flow of £1,896 million, up 21.2%; net debt at 30 June 2009 of £31.2 billion
  • Cost reduction programme on track
  • Proportionate mobile customer base of 315.3 million; 8.0 million net additions during the quarter
  • Europe: Service revenue up 4.4% driven by FX benefits. Data revenue up 17.8%. Fixed line revenue up 5.7%
  • Africa & CEE: Service revenue up 26.3% including Vodacom acquisition,Vodacom organic growth of 5.2% offset by weakness in CEE
  • Asia Pacific and Middle East: Service revenue up 21.8%
  • India service revenue growth of 23.0%

Interesting to see Vodafone making a point of mobile data revenues & 19.4% grwoth is a pretty impressive statistic. Much of this being driven out of Europe, where one of the big booms in mobile data is the popularity of 3G wireless broadband dongles (USB sticks) on “Unlimited” packages, which all the major operators have adopted. Vittorio Collao announced a major cost cutting initiative last November 2008, targetting cost reductions of $1.45Bn by  the end of the 2011 financial year in order to offset the pressures from inflation and the competitive environment and to enable investment in revenue growth opportunities. Savings of more than 65% of this target are expected to be generated by the end of the current financial year.

Vodafone has been at the forefront of network sharing, originally this started in the UK with Orange, now the group has signed a pan-European deal with Telefonica-O2, which will see network sharing being implemented in Germany, Ireland, UK & Spain. Analysts see this as a huge positive, as the deal is set for a ten year term & should save each company in the region of $350 million per annum. The growth figure of 8 million subscribers runs in line with analysts global forecasts for 2009 of circa 13%, as Vodafone is one of the higher value operators in each of its markets, the fact that it is expanding subscribers in a high churn market is positive.

“Old” Europe is the only area where Vodafone operates both fixed & mobile services, predominantly in the UK, Ireland, Spain, Potugal & Germany, where it is the second largest provider of broadband via its Arcor business unit. Having already discussed the cost savings initiative with Telefonica, the main story here is on how Vodafone are manbaging to reduce churn & promote ARPU via new services. Vodafone is far & away the leader in all of these markets regards business services (excepting Germany, which is dominated by T-Mobile), with consumer playing a strong supporting role, crucially the majority of these accounts are postpaid, which is reflected in higher service revenues than is the norm in this sector.

Another area that Vodafone is finally catching onto is the machine-to-machine market, or M2M. The company has made some recent investments in this sector & is set to benefit as the market grows from $4.2Bn in 2008, forecast to rise to $12.5Bn by 2012. It’s not all good upbeat news though, as recent EU intervention in roaming charges has had a detrimental effect on voice service revenues aceross the board. Retail termination costs have hit this part of the business very hard, with only Netherlands showing minimal growth of 0.6% mainly due to MVNO operations, whilst at the other end of the scale, Greece voice revenues sank by 15%.

In “new” Europe (CEE) & Africa, the atypical Emerging Markets,  we are presented with a mixed bag, however the region saw service reveues grow by 26.5%, mainly due to Vodacom (of which more later). Vodafone has seen serious competition in Romania, where no less than 6 operators are competing for one of the lowest ARPU generating populations in Europe, the situation not being helped by the extremely poor performance of the Lei versus the Euro. Similarly, Turkey has not been the shining star that Vodafone had expected when it launched their in 2005. However, now that 3G services are finally being launched, Collao today announced that the company would be investing up to $675 million in network infrastructure over the next 12 months, as Turkey has very low fixed line connections, mobile broadband is set to be a revenue enegine. I also have a feeling that as & when Turkey accedes to the EU, plenty of “rural” grant funding will be made available for the three network operators to provide near 100% coverage. At time of writing, there are some rumours of Turkcel & Vodafone entering into limited network sharing on 2G (GPRS) services, but these remain unconfirmed.

Meanwhile, Africa has seen a real boost this year, with Vodafone finally acquiring a majority interest in Vodacom South Africa from Telkom, as we discussed earlier this year in Consolidation hits Rainbow Nations telecom sector; Vodacom is now the flagship Vodafone brand in sub-Saharan Africa & has recently listed on the Johannesburg Stock Exchange. Another hit in this region is Vodafone’s 40% majority holding in Kenya’s Safaricom. Jointly the two companies launched the mobile payment platform M-Pesa back in 2007 & it has gome through a number of modifications & upgrades since then, winning a United Nations award along the way. The service has 5.75 million users signed up in Kenya & now that it has been proved & tested, look to Vodafone to launch M-Pesa in a number of new regions in Africa, such as Nigeria, Ghana & South Africa. An interesting video on Safaricom & M-Pesa can be viewed here : Michael Joseph

Vodafone’s controversial investment in Essar , seems to be paying off handsomely, as the Indian carrier now operates in all 26 mobile circles across the sub-continet. Service revenues jumped by 23% with the subscriber base leaping 56%, or  by 77 million subscribers in the last year. Vodafone will also be launching M-Pesa in India this year & it is thought that up to 17% of the subscriber base will ustilese the m-payment system. Vodafone-Essar recently applied & was granted both a national Internet Service Provider & National Long Distance licences, from the Indian Government, as expectations run high on the “last mile” being finally opened. The NLD licence will have an immediate effect, as Vodafone will now be able to backhaul its own national STD voice traffic & not have to rely on local carriers, which will be a welcome development since mobile voice terminations have fallen by 5% in India in the last year.

In Asia Pacific, there is only one big story & that is the merging of Vodafone Australia & Hutchinson Whampoa’s 3 in order to create a realistic competitor to government owned Telstra. The new Vodafone-Hutchinson Australia is a 50-50 JV, which will carry the Vodafone brand & now has a combined cutomer base of just over 6 million users. Vodafone will be looking to leverage its Vodafone Live! content platform here & significant cost savings on network (roaming charges) can be expected, the combined networks now have 98% coverage of metropolitan areas across the country. Vodafone will also receive a deferred payment of AU$500 million from Hutchison-Whampoa, to reflect the difference in the joint business assets (network).

So all in all, a home run for Vodafone in its first quarter of the current financial year. Considering the global economic environment, I feel that this is a great performance (although possibly helped along by currency rates) & that if the management team can keep a firm grip on the operating companies, Vodafone should be one of the strongest performing telecoms companies for 2009-2010. Continued expansion in both India & Africa, along with the introduction of services such as M-Pesa will attract & hold valuable customers. I’m long on the ADR, having bought in last week at $18.68 & am looking for it to exceed $23.50 within three months.

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Swedbank opens kimono on Baltic Lending … not a pretty sight

SwedbankSwedbank, Sweden’s fourth largest lender & one of the biggest banks in the Baltic region, revealed the full scale of Swedish exposure to economic turmoil in Eastern Europe last week. The bank posted dismal figures due to large losses on loans made to firms in the troubled Baltic region.

Swedbank was the first in a series of Swedish and other Nordic banks scheduled to announce results in coming days as the region’s lenders count the cost of aggressive expansion in Latvia, Lithuania and Estonia. Nordic banks piled into the former Soviet states after their entry into the European Union in 2004 and initially prospered from rapid growth in the region.

The bank revealed a surge in bad loans from the Baltic States and Ukraine. Investors were reassured by the bank’s insistence that it could weather the storm without raising fresh capital, pushing the stock up more than 11 % after a day of volatile trading. At the same time, it announced that it would slash 16% of its workforce. However, it closed on Friday up 21.5% as investors were reassured that it would not raise extra capital.

The worse-than-expected second-quarter losses show that Sweden’s banking sector is still facing a barrage of bad loans from the Baltic States, even as the country is hailed as a financial role model after its recovery from a banking crisis in the 1990s. Bank’s aggressive lending has backfired in recent months as the Baltic economies have plunged deeper into recession than anywhere else in the EU.

Swedbank, the largest lender in the Baltics, posted net losses of SKr 2, 01bn ($257m), compared with net profits of SKr 3,6 bn a year earlier. It was the bank’s second consecutive quarterly loss and much worse than the SKr 1,27 bn deficit forecast by analysts. Loan losses soared from SKr 423 mln a year ago to SKr 6,67 bn, with about two-thirds of the amount in the Baltic States and a third in Ukraine. In response, the bank said it planned to reduce staff by 3,600, about 16 % of its workforce, by this time next year, with most of the cutbacks in the Baltic States.

“The most recent quarter has been marred by continued uncertainty about the future of the economy,” the bank’s Chief Executive, Michael Wolf, said in a statement. “The recession is now making itself more visible, and all signs are that the downward trend will continue for some time.”

Faced with mounting losses on loans in recession-hit economies, where bad loans have shot to highs of 18% of total lending in Latvia and 24% in Ukraine, Swedbank is trying to cut costs and lower its risk profile to secure funding and ride out the storm. Swedbank will continue to close branches and increase staff cuts as it takes a defensive stance, in anticipation of further economic hardship in the region, having followed a more aggressive path of expansion, the bank will be returning to more traditional practices.

“We are taking the necessary steps to right-size business units to reflect the lower economic activity in the banking sector as a whole,”  said Wolf  “We expect impaired loans to increase in the second half but it will be less than in the first half”

The negative results came after a mission from the International Monetary Fund visited Latvia recently in order to negotiate the release of a € 200 mln ($283m) tranche of a €7.5bn emergency loan agreed late last year. The IMF has held back the funds while it seeks commitments from the Latvian government over structural reforms, increasing nervousness that the rescue package could unravel.

Swedbank assured investors that it was strong enough to absorb its Baltic losses, quashing fears it would have to raise fresh capital. The bank’s chief financial officer, said the bank had “a very resilient capital situation”

Another Swedish bank – SEB, the second-biggest banking group in the Baltic region after Swedbank, is to report activity results next week. Analysts forecast that its operating profits will be down more than 40 %.

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EU pins hopes on Nabucco pipeline to disengage from Russian energy hegemony

nabuccoTurkey and four EU member states have signed a historic deal in Ankara allowing work to start on the Nabucco natural gas pipeline, which is aimed at allowing the European Union to tap directly into non-European gas reserves.

The Nabucco Intergovernmental Agreement that was signed by representatives of transit countries Turkey, Bulgaria, Romania, Hungary, and Austria, represents a huge symbolic step toward diversifying EU energy supplies. The project should carry gas reserves to Europe from the Caspian Sea region, Iraq, and the Middle East — and not from Russia, currently the EU’s biggest and most capricious supplier. At the ceremony, European Commission President Jose Manuel Barroso called Nabucco “a truly European project” that “will provide energy security to Turkey, to Southeast Europe, and to Central Europe.”

“I sincerely believe we are starting to confound the skeptics, the unbelievers,” Barroso said. “Some time ago people said that this project would not go ahead, that the negotiations seemed irrevocably blocked. Now we have an agreement and I believe this pipeline is now inevitable rather than just probable.”

EU officials insist Nabucco’s intention is not to pick a fight with Moscow, but they make no secret of the fact that Russia’s reputation as a supplier has taken a beating following repeated gas spats with Ukraine — and that finding reliable alternatives is now an EU priority.

The 3,300-kilometer Nabucco pipeline — which should run from eastern Turkey to the Austrian capital, Vienna — is expected to come online in 2014. When fully operational, it could carry 31 billion cubic meters (bcm) of gas annually and supply between 5-10 percent of the EU’s projected gas consumption in 2020.  Russia, the bloc’s largest external supplier, provided around one-quarter of the EU’s gas at the last reliable count.

“The consequences of the Nabucco project will reach far beyond simply laying down a pipeline and filling gas into it,” Hungarian Prime Minister Gordon Bajnai said in Ankara, hinting at the broad impolications for the 27-member EU. “This will have very significant, positive consequences in the economic, social, and political sense for all of our citizens.”

Nabucco has always been seen to have a political dimension, and Russia’s reliability as a provider has suffered in recent years, with many new EU member states distrustful of Moscow’s motives. But the European Commission’s energy spokesman, Ferran Tarradellas, told RFE/RL last week that moves to diversify EU energy supplies did not mean the bloc was turning its back on Russia.

“Nabucco is going to make a contribution — it’s going to [deliver] gas from different sources, through different transport routes, and therefore it’s going to bring more security of supply, more freedom of choice to European markets,” Tarradellas said. “But this doesn’t mean that we’re not going to go on working with Russia. On the contrary, Russia is very likely to remain our main supplier of gas and Nabucco has never been a project against Russia.”  Tarradellas said the EU has been “very transparent with our Russian friends.”

Senior Russian officials have stated publicly that the EU’s efforts to lessen its energy dependence on Moscow are driven by “Russophobia.” Privately, EU officials argue that regardless of Russian objections, the bloc must look out for its own energy security. They point out that most eastern member states are wholly dependent on Russian gas.

“You know our history with Russia and Ukraine,” one senior European Commission official commented recently, alluding to the recurrent price disputes between the two countries which saw half of the EU’s member states suffer debilitating gas shortages as Russia turned off the taps in January. Briefing journalists in Brussels, the official intimated more than once that enhancing EU member states’ security of supply and lessening their reliance on Gazprom amount to the same thing. The benefits of Nabucco in this regard, he said, will be felt from “Greece to Hungary” and in the Western Balkans, and will extend as far as Poland, Germany, and France — all of which will have access to the gas transported to Europe via the pipeline.

Nabucco has long been hampered by a lack of commitment from both suppliers and investors. Searching for the initial 8 bcm of gas needed annually to start up Nabucco, EU officials are looking to Azerbaijan’s Shah Deniz II gas field, projected to go online in September, to provide the necessary start-up volumes. Azerbaijan’s recent 500 million cubic meter deal to sell gas to Gazprom does not appear to worry Brussels, where officials say the deal is just a small portion of Azerbaijan’s overall gas output. EU sources also say Azerbaijan’s government thinks that country could produce “far more” gas than the 8 bcm needed to make Nabucco viable. There is talk of a possible 30 bcm being available from Azerbaijan alone by 2015. Given the mounting geopolitical risks in the South Caucasus, however, EU decision-makers are exploring alternatives as well.

Should anything go wrong with the South Caucasus transit corridor, Iraq is said to be in a position to step in and supply the minimum 8 bcm needed annually. Iraqi Prime Minister Nuri al-Maliki was attending the Ankara signing ceremonies. The bloc is setting its sights much higher, hoping to reach beyond Azerbaijan to the massive reserves held by the Central Asian states.

Tarradellas also said Turkmenistan is the next natural target for Nabucco after Azerbaijan.”Turkmenistan has large reserves that have been proven, so probably it’s going to be the next country that is going to be an important player on the Southern Corridor project. We have also contacts with Kazakhstan and with Uzbekistan as possible future suppliers.”

Turkmenistan has at least one gas field with a proven capacity of 4 trillion-14 trillion cubic meters — enough to keep Nabucco operational at its currently projected levels for at least 120 years. The EU is working with Azerbaijan and the Central Asian countries to set up a Caspian Development Corporation (CDC), a commercial enterprise tasked with establishing transit routes — possibly a pipeline — across the Caspian Sea.

But Brussels is now playing down earlier promises extracted from Ashgabat to guarantee the EU 10 BCM a year. This was a “political commitment,” the official said on July 10. He said the Central Asian countries would always keep their options open until the last possible moment to maximize their bargaining power and commercial advantage with regards to all prospective buyers.

The Brussels-based official also described Nabucco’s main impact on Turkey in terms of reducing that country’s dependence on the current dominant supplier, Gazprom. Nabucco’s gas flow, the official said, will be reversible, enabling Turkey to switch at will from Russian supplies to gas coming from the North Sea, Algeria or Libya.

Should Nabucco fail to tap into the Central Asian gas reserves, prospects for its large-scale expansion will remain bleak. The EU source said there are “no great hopes” for the Pan-Arab Pipeline which connects to Turkey via Syria, as most of the Middle Eastern gas is expected to move south.
Iran, with its large reserves, is not a “desirable” partner for Nabucco in the current political climate, in the words of the EU official. He also underlined the fact that Iran presently imports gas.

Given that the South Caucasus Pipeline from Azerbaijan to Georgia can currently handle only 10 bcm a year, there exists an obvious transit bottleneck. Officials in Brussels say the capacity of the pipeline could be doubled but decline to comment further. “The EU has no preference” as to the location or contractors of any other prospective pipelines, said one senior source.

The bloc’s casual stance could undermine prospects for the White Stream pipeline project, to run under the Black Sea from Georgia to Romania, recently elevated to the status of a priority EU project. Officials say Nabucco with its current prospects will offer a “very good” rate of return at a low risk. The EU itself has agreed to bankroll 250 million euros of the estimated total cost of 7.9 billion euros.

This article first appeared in Radio Free Europe

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