Finnish Fortum's reported buy of Estonian gas utility threatens energy independence

By bne IntelliNews June 5, 2014

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Finland's Fortum has bought E.ON's stake in Estonia's national gas utility Eesti Gaas to become the majority shareholder, according to local media. The deal appears to go against the current grain in Europe by increasing energy dependence on Russia.

Eesti Paevaleht reports that Fortum has bought the German giant's 33.6% stake in Estonia's largest gas seller and distributor, despite no official announcement of a deal. Fortum's Estonian country manager Margo Kulaots refused to comment, according to Baltic Business News. "I do not confirm or deny it," she said.

The deal appears to place Estonia's gas market under greater Russian influence, just as other Baltic states are pulling away from Moscow - a trend that has accelerated since the Ukraine crisis - and the EU pushes to increase diversity of supplies. In May, following a bitter fight with Russian state giant Gazprom, Lithuania secured control of its national gas supplier and pipeline operator when it bought out stakes from E.ON. 

Fortum is the main importer of Russian gas to Finland, which is 100% reliant on supply from Gazprom. That leaves it exposed to pressure from Moscow and strongly suggests the deal will hand the giant Russian gas exporter a stronger grip on Estonia's gas sector. 

Fortum will add the newly acquired stake to the 17.72% it already held in Eesti Gaas to leave it with 51.38%. However, BBN reports that it will continue to share operational control with the other large shareholders. Gazprom owns a direct stake of 37%, and controls the 10% held by Latvia's Itera Latvija.

Fortum has longstanding, strong ties in Russia - and to Gazprom in particular. It sells power and heat generation in the northwest of Russia, accounting for 20% or so of revenue, and is a shareholder in regional generator TGC-1. It owns 31% in Finnish gas importer Gasum, with Gazprom holding 25%. The Finnish government (24%) and E.ON (20%) hold the remainder. 

While E.ON's divestment of its stake is not a surprise, the reported buyer is more unexpected. 

The German company has been offloading assets across the region recently as part of a drive to reduce debt. In November it announced it was ready to sell the Eesti Gas stake. However, its suggestion that Gazprom and Itera Latvija join it to sell the company to an international fund was rejected.

Local media claim that a group of Estonian businesses had shown interest in buying out the stake. However, as an existing shareholder, Fortum has now exercised its pre-emptive rights, despite the fact that it had earlier indicated it may also be interested to sell. 

Tallinn notably failed to put its rights to use; the ministry of economic affairs rejected approaches from E.ON last year. While thanks to the large contribution of shale oil Estonia is far less exposed to dependence on Russia gas than its Baltic neighbours, the decision appears to go against the grain right now.

Latvia's president insisted in early June that Riga should look to buy national gas utility Latvijas gaze, with Gazprom, Itera Latvija and E.ON also featuring on its shareholder roster. Meanwhile, having secured control of Lietuvos dujos and Amber Grid, Lithuania has made an offer to buy Gazprom out.

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