Russia's PM approves deal for Gazprom to buy Kyrgyz gas operator for $1

Moscow (Platts)--12Jul2013/614 am EDT/1014 GMT


Russia's Prime Minister Dmitry Medvedev has approved an intergovernmental agreement that will see Russian gas giant Gazprom acquire 100% of Kyrgyzstan's debt-ridden national gas operator, Kyrgyzgas, for $1, according to a statement late Thursday on the Russian government website.

Under the draft agreement between Moscow and Bishkek, Gazprom will obtain full control over Kyrgyzstan's gas pipeline system, pumping stations, underground storage facilities as well as gas wells currently held by Kyrgyzgas. But once the agreement is terminated, state-controlled Gazprom has to sell all the assets back to Kyrgyzstan at a market price, which will be determined by an independent appraisal body, according to the statement.

The agreement is to last for 25 years, but may be extended for further five-year periods.

According to Kyrgyz media, Kyrgyzgas had a total debt of $25.6 million at the end of 2012.

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Once acquired by Gazprom, Kyrgyzgas will continue to supply gas in Kyrgyzstan, ship it via the country's territory, and construct and maintain the gas transportation and storage facilities, the draft agreement said.

The Russian side guarantees investments of at least Rb20 billion ($610 million) within the first five years of acquiring 100% in Kyrgyzgas, it said.

Kyrgyzstan authorities are to approve gas sales prices -- which will be reviewed once a year -- that will guarantee Kyrgyzgas an annual internal rate of return of 12% for 25 years, the draft agreement said, and the Kyrgyz side will guarantee timely payments by state-controlled bodies and companies for gas supplied by Kyrgyzgas.

Russia's energy and foreign affairs ministries are tasked with holding gas talks with Kyrgyzstan and signing the final agreement, the statement said.

Gazprom estimates Kyrgyzstan's gas demand at some 700 million cubic meters/year, of which 95% are exports from Uzbekistan, according to data on the company's website.

Kyrgyzstan has its own gas fields, which, according to Gazprom's estimations, hold 6 billion cubic meters of proven gas reserves. But development of the reserves is challenging due to their geological features and insufficient infrastructure, Gazprom says.

--Dina Khrennikova, dina.khrennikova@platts.com
--Edited by Deepa Vijiyasingam, deepa.vijiyasingam@platts.com

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