Belarus lures more investment from Gazprom

By bne IntelliNews September 17, 2013

Sergei Kuznetsov in Minsk -

Russia and Belarus may be at each other's throats over the collapse of their potash joint venture and the subsequent arrest of the chief executive of Russia's Uralkali during a visit to Minsk, but it was all smiles at a recent meeting between Gazprom and the Belarusian government.

Alexey Miller, Gazprom's CEO, assured President Alexander Lukashenko during a visit to Minsk on September 13 that his company would boost its investment in the modernisation of the gas transportation system, as well as in the expansion of gas storage facilities. The Russian state-controlled company acquired Belarus' gas pipeline network for $5bn in 2007-2011. "The volume of investments will rise by 20% in comparison with the previous year," Miller said, as quoted by the presidential press-service. He did not specify how much was invested in 2012, though in November Miller said Gazprom was ready to invest about $2.2bn in the near future in the modernisation of the Belarusian gas pipeline network, and $1.1bn in the expansion of gas storage facilities.

Judging by Lukashenko's remarks, his administration is satisfied with the current cooperation with Gazprom. "While preparing for the meeting, I was surprised to discover that maybe, for the first time in many years, which is strange, I have nothing to reproach Gazprom for. We have paid for everything we have bought from you. You have paid for everything you have transported via Belarus... The new projects and programmes which are on offer for discussion today are very interesting for us," Lukashenko said.

Gazprom's tower

Gazprom is one of the biggest foreign investors in the Belarusian economy, and has started another project in Belarus that seems to be a question of prestige for the energy giant. The talk is about a new headquarters for the company's local subsidiary Gazprom Transgaz Belarus (formerly Beltransgaz).

A new 182-metre office building will be part of a multifunctional complex, which is planned to include sports and healthcare centres, as well as other public premises. Vladimir Semashko, first deputy prime minister of Belarus, told reporters on September 13 that Gazprom intends to invest $500m in the complex.

Lukashenko has granted Gazprom by special decree the right to build this compound. According to the document, which was signed in April, the Russian gas monopoly will pay $34.2m for pre-construction preparations, as well as finance the construction of a traffic junction nearby.

Gazprom's complex will be built on the territory of one of Minsk's currently operative bus stations. The station will be demolished, a prospect which has sparked criticism in the local non-state media. But this criticism is low profile and seems to be on the wane.

Another project that Belarus is trying to involve Gazprom is the construction of a new complex for Grodno Azot, the state-owned producer of nitrogen fertilisers, to be located near the border with Poland and Lithuania.

An announcement was made in July by Belneftekhim, the state oil and chemical concern which is an umbrella structure for Grodno Azot, that it had started negotiations on the issue with Gazprom's investment subsidiary, Gazprom Investproject. According to Belneftekhim's statement, the sides "reached an agreement to work out a scheme for the joint implementation of an investment project to build a nitrogen complex." A working group of experts from Gazprom and Belneftekhim was created to carry out the potential agreement.

Why are the Belarusian authorities interested in Gazprom's participation? The reason is that the main raw material for Grodno Azot is gas, which could be supplied by Gazprom at a low price. Grodno Azot needs about 1.5bn cubic metres of gas annually.

According to the information package prepared by the Belarusian authorities for potential investors, the total amount of investment required for the project is estimated at $1.01bn. The location of the complex close to the EU border should make it easier to export Grodno Azot products through Baltic seaports, in particular the Klaipeda port in Lithuania.

Konstantin Mayanov, chief executive of Grodno Azot, tells bne that consultations with Gazprom Investproject are underway, but declined to comment further. "You should ask Gazprom Investproject. I can't comment on the plans of our partners," he said. However, the latter company's press-service did not response to an e-mailed request.

Previously, the Belarusian authorities attempted to negotiate the possible investment in a new Grodno Azot complex with another Russian company, nitrogen and phosphate fertiliser producer EuroChem, but without apparent success.

"Grodno Azot is financially in a much better position now than it was some time ago, which is certainly not helping to speed up the process," Daniel Krutzinna, a partner with Civitta consulting company, tells bne.

Belarus lures more investment from Gazprom

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