• Wednesday, 16 May, 2012

Total hits hurdle on Russian deal

 04 February 2005 00:10 GMT

Russia's Anti-monopoly Ministry has refused to approve Total's purchase of a 25% blocking stake in the country's largest independent gas producer Novatek on the grounds that the Russian company has yet to complete its corporate restructuring.
Approval would usually take about a month and is considered a simple technical step required for all major transactions in the Russian energy sector.

However, the permissions process has become a stumbling block for Total, which announced its intention to take a minority stake in Novatek in September.

Anti-monopoly Minister Igor Artemyev was quoted as saying that Novatek, headed by chairman Leonid Mikhelson, was conducting a "massive reorganisation". He added:"Until it is completed and we receive documents showing which assets the company owns, we will be unable to issue the approval".

In December, Novatek issued new stock to boost its control in two big gas producing units in west Siberia to 100%.

A company spokesman said that the ministry will be notified on the changes at the beginning of February.

Some analysts in Moscow remain concerned about the ministry's refusal because Total and Novatek are not major players in Russia's gas market, which is dominated by the gas monopoly Gazprom .

Gazprom produces around 1.5 billion cubic metres of gas per day, which compares with Novatek's 74 million cubic metres per day of output.

Analysts recalled how the ministry last year refused to approve China National Petroleum Corpration's (CNPC) purchase of a controlling stake in a small gas and gas condensate producer company, called Stimul, which finally fell into Gazprom's hands.

There are suggestions that the Total-Novatek deal may fall apart if the French company continues to experience bureaucratic hindrance.

Industry insiders pointed out that Total has been battling with the Russian government over its refusal to approve oil production expenses for the Kharyaga producing sharing development in the north of the country since the beginning of last year.

The government claimed that Total the operator of the development inflated its expenditures, before slapping on a 35% corporate profit tax despite the fact that the project is a PSA where taxes can be applied only after shareholders reimburse their prior investments.

The Stockholm arbitration court is due to consider Total's appeal against the Russian government in July.

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