Estonia steps up to wrest gas pipelines from Russian control

By bne IntelliNews November 7, 2014

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Estonia gave the green light on November 6 to a plan to buy control of the country's gas pipelines. When Tallinn finally frees the network from Gazprom's grip,  Russia will have lost control of all but one of the gas networks on its north-western border over the past 18 months or so.

Tallinn has handed Economy Minister Urve Palo the power to acquire the majority holding in EG Vorguteenused. Calling the move another big step in achieving Estonian energy security, Prime Minister Taavi Roivas told a press conference that the deal is ready to go.
"We expect the transaction to take place in the near future," he said according to news agency Leta. "We will disclose the conditions after the transaction has taken place."

The asset is expected to cost at least €60m, according to earlier estimates by EG Vorguteenused's chairman, the newswire reports. The state plans to acquire the majority stake via electricity grid operator Elering, which was unbundled from fellow state company Eesti Energia in 2009.

Estonia wants to take control of its gas pipeline network because it is currently 100% reliant on imports from Gazprom for the 1bn or so cubic metres of gas it consumes annually.  Cut off from European gas grids by their recent Soviet past, the Baltics pay some of the highest gas prices in Europe. 

Leveraging the EU's Third Energy Package, which demands that gas supply and distribution are separately owned,  Estonia followed in the footsteps of  Lithuania at the start of the year by forcing the national gas group Eesti Gas to spin the pipelines off into new company. Gazprom and Russian gas trader Itera hold 47% of EG Vorguteenused, while Finland's Fortum raised its stake to 51.3% when it bought 33% from E.ON in the summer.
Estonia also ordered Eesti Gas shareholders to sell EG Vorguteenused by the start of 2015. That is also when Lithuania will launch the region's first liquefied natural gas (LNG) platform, giving Estonia the chance to diversify its gas supplies, if the pipeline is taken out of Gazprom's hands. Leveraging the new LNG platform, Lithuania has already earned itself a short term discount, and is now in talks on a longer contract.

However, in June, Estonian officials complained that Eesti Gas shareholders had missed a deadline to report on progress in selling the pipeline operator. They warned that a hefty fine would follow if a deal was not completed by the end of the year. 

Birds of a feather 

Estonia meanwhile continues to try to press on with an EU-backed scheme to build a regional LNG facility. To go forwards, that is likely to have to be in partnership with Finland. On November 3, Helsinki signed off on a deal with Fortum and E.ON that will hand it control of Gasum. Although Gazprom retains a 25% stake in the Finnish utility, the move still removes the country's gas pipelines from Russian control.

Assuming Estonia completes the final step, by the end of the year Gazprom will have lost control of pipelines in three out of the four countries at the eastern end of the Baltic Sea slip. 

While that might be seen as encouraging for Latvia to complete the set, despite some talk Riga has proved reticent thus far. The fact that the country is host to the region's only underground storage facility - which also serves Western Russia - leaves it facing a much tougher fight. 

Latvia also backed out of talks to buy a large stake in national gas utility Latvijas gaze late last month, with the PM claiming Riga cannot afford the deal.

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