Sunday, May 31, 2009

The Privatization of Electricity Companies in the SEE Region

The report that Vidmantas Jankauskas and I wrote for USAID and NARUC is finally publicly released. I'm very happy to say. It is about the privatization of the electricity distribution companies in Bulgaria, Macedonia and Romania. Through case studies we explore key issues that have influenced the successful or not-so-successful outcomes of these privatizations. The overall objective of the project was to create a list of issues that can help future privatizations. I think we have done this. But any feedback on this would be greatly appreciated. You can find the full report on the REKK website.

Thursday, May 21, 2009

Types of Gas Networks - boring but interesting

The below discussion is a little out of context, and season, but nonetheless, I thought it was good to put in context the different business models. I'm drawing on something that I'm working on right now, so excuse the out of context nature of the text, but it should still be informative.

Gas networks are not national in scope. The discussion of the impact of the Russia-Ukraine gas dispute is many times broken down by country with some emphasis of the regional impact. However, it is the very nature of all networks that they are not isolated. In general, constrained networks, particularly in energy, have limited flexibility and contain limited redundancies. These security of supply elements are at their starkest in times of crisis, whether it is electricity blackouts or gas supply disruptions, in cases where there is greater systemic flexibility, disruptions will occur less or last for a shorter period of time. Therefore it is important to consider the current and future design of the CEE and SEE gas network and the accompanying business models. It is at this point that the economics, geopolitics and social impacts of the 2009 gas disruption and how to mitigate a repeat of it are most visible.

If we look at the different characteristics of the security [of supply] question, it arises that networks are at the core of the problem, and today this assumption is subject of a consensus. We may consider two types of possible network development in order to secure supply.

1. Transit pattern: build more pipelines between suppliers and consumers and thus increase the capacity of existing infrastructure in order to get more gas in the market.

2. Network pattern: reinforce the communicability of the internal system by creating links between consumers; strengthen the interconnections between member countries. (Pirovska 2004:7)

The first option of network development, explained by Pirovska, is chosen by Gazprom which seeks to increase capacity through multiple transit pipelines and corridors in order to directly connect with national TSOs. By supplying countries through this method, there is little economic incentive for national suppliers to build interlinking gas systems – as long as the gas continuously arrives.

However, if the development of an efficient and competitive market is chosen as a viable goal in gas network development, which also stresses the need for contingencies for security of supply, than strengthening local and regional networks should be a high priority. The example that can be used here is the development of the New European Transmission System (NETS) project promoted by MOL. This seeks to integrate the national gas networks of the SEE and some CEE countries into a grouping of companies with a highly integrated gas network with multiple inputs points. However, so far, there has been limited interest in developing this concept from potential participating countries.

These two methods of network development are both supported by the EU, but the first option is certainly the most prevalent in the SEE and parts of the CEE region. The halting of gas deliveries in January 2009 from Russia underscores, from a security of supply point of view, the vulnerability in the first system and the long term viability in the second of network pattern development.


Pirovska, Margarita. “Interconnection of East European
Natural Gas markets: towards a
cooperation between players?.” working paper, 2004.

Friday, May 8, 2009

Oh Wait! Who owns Emfesz?

To add to the ongoing saga of what is happening with the shutting down of RosUkrEnergo, here is this very interesting piece in describing what appears to be an illegal taking of the whole Emfesz company.

Mabofi Holdings Limited has on Thursday claimed it is the “legal owner of 100% of the issued share capital" in Hungarian natural gas trading company Emfesz, which was sold to Switzerland-based RosGas. Mabofi said it would seek legal ways to have its ownership restored.

Since the article will soon be restricted unless you register with, I'll describe what they write.

Cyprus-registered Mabofi is part of Group DF Limited, the holding company of the business assets of Dmitry Firtash.

The rest below is from a statement released by Director David Brown(cf, it really is classic.

“Mabofi discovered on the morning of the 6th May 2009, that the shares in Emfesz had been fraudulently transferred to a Swiss company registered in Zug, Switzerland, RosGas A.G. This purported transfer has been registered with the authorities in Hungary. There is no information available as to the beneficial ownership of RosGas, but one of its directors is Mr Tamás Gazda, a Hungarian lawyer, who was employed by Emfesz, under the direct instructions of the Emfesz General Director, István Góczi."

“Neither Mabofi, Group DF or any of the senior management of the group had any knowledge of this transaction, and have given no approval whatsoever. Our understanding is that István Góczi (who is in the process of being removed from the board of directors of Group DF Limited) has carried out this transaction based on a power of attorney given to him in October 2004, primarily giving him the powers to carry out the original acquisition of Emfesz."
“Mabofi is now actively pursuing all of its legal rights in Hungary, Cyprus and Switzerland, and is confident that the ownership of Emfesz will be restored to its rightful owner as soon as possible."
(my emphasis)

I guess I should amend my last post. But then it is only Friday afternoon and who knows what will emerge by Monday morning. Either way, just when you start to formulate an analysis and perceive some strategic moves, there emerges some completely different information that throws the analysis into the trash. Now the only step is to dig into who Istvan Goczi is and why he is being removed. I think one could speculate that he may not have been working with only Group DF Limited interests in mind. But let's wait and see what crops up next week.

Wednesday, May 6, 2009

The Rebirth of Middlemen for Russian Gas

The arranged demise of RosUkrEnergo (RUE), the intermediary of Russian gas, after the Russian/Ukraine gas dispute in January 2009 was meant to bring clarity to purchasing Russian gas. The contracts held by RUE involved deals with Hungary's Emfesz and Poland's PGNiG. With the shutting down of the company these buyers have had to find another way of buying gas from Russia. It seems though that the role of intermediaries is not over.

You would think - well, depending how long you thought for - that you could just go to Gazprom and buy the gas that you needed. I mean, who else sells gas in the quantities that a domestic supplier needs in CEE? PGNiG is pursuing this strategy by agreeing to buy gas from Gazprom according to newsreports:

May 4, 2009
Rzeczpospolita, 29 Apr 2009, online:- Polish newspaper Rzeczpospolita has found out that the Polish national oil and gas concern PGNiG, which estimates its gas supply shortage at 2.5 billion cubic metres, is not going to accept the gas supply offer of the Hungarian Emfesh (sic), as it prefers to buy gas directly from a producer rather than from an intermediary.

The brief article goes on to say that PGNiG is in talks and early agreement with Gazprom. But we'll have to wait and see what entity the deal is inked with. BECAUSE, it is interesting to note that a) Emfesz was even bidding to supply gas to PGNiG and b) that Emfesz just announced that it would be buying gas from RosGas AG. According to Emfesz and this analysis by Roman Kupchinsky in his posting from the Jamestown Foundation, RosGas AG actualy belongs to the owners of Emfesz and Gazprom. However, this connection to Gazprom has been denied by Gazprom, as Kupchinsky explains and disputes.

At this point, there are a lot of loose ends and I'm not sure how to draw a conclusion about this. I can only say that it is interesting that Emfesz was bidding to supply Poland with gas when it would obviously be buying gas from Gazprom, and possibly through RosGas, which could supply the contract. We'll have to wait and see which entity PGNiG signs the contract with. Either way, the demise of RUE does not signal the end of murkey ownership and supply structure when it comes to Russian gas. Kupchinsky explains the establishment of RosGas as reward for one of Emfesz's owner for loyalty. I think there are other ways, even for Russians, to reward loyalty, we'll have to wait and see how other factors in Hungary, particularly with Russia's new interest in MOL play out. Loyalty is most effective when you are working together over the long term.