Pipeliners

12-12-2005 The Moscow Times - By Valeria Korchagina - BABAYEVO, Vologda Region -- Former German Chancellor Gerhard Schroder on Friday was named to a key post on the $4.75 billion North European Gas Pipeline, the project he and President Vladimir Putin signed off on shortly before he left office. The pipeline will give Gazprom direct access under the Baltic Sea to some of Europe's richest gas consumers, and has left transit countries Ukraine and Poland fearful of losing access to Russian gas. The appointment of Schroder, a close ally of Putin and an enthusiastic backer of the pipeline project, as head of the pipeline company shareholders' committee came as pipes were ceremonially welded at the official start of construction. High-ranking Russian and German officials wearing fur hats stood in temperatures of minus 15 degrees Celsius and watched the welding in a forest clearing near the Vologda region town of Babayevo, 475 kilometers north of Moscow. Further highlighting the close energy ties between Russia and Germany, Matthias Warnig, the head of Dresdner Bank's Russian operations, was appointed CEO of the pipeline project. Putin and Warnig have been friends since Putin's days in the St. Petersburg city administration in the 1990s. The Wall Street Journal reported the two men knew each other in East Germany when Putin was a KGB agent, but Warnig has denied this. Dresdner last week sealed an $800 million deal to buy one-third of Gazprombank, and in October advised Gazprom on its $13 billion purchase of Sibneft. In Moscow and Berlin, analysts welcomed the appointments as giving the project political clout in Western Europe, but some politicians in Germany questioned whether Schroder's involvement was appropriate, given his recent role in greenlighting the project. "It stinks," said Reinhard Buetikofer, co-chairman of Germany's Greens, the junior member in a coalition with Schroder's Social Democrats until September, The Associated Press reported. Rainer Bruederle, an official of Germany's right-wing Free Democratic Party, said he hoped that Schroder's post would be purely honorary because if it were not it would raise questions about whether Schroder had kept his public and private affairs separate, The Associated Press reported. It was not clear what role Schroder or the shareholder's committee would play in the pipeline's management, or under what financial terms Schroder had accepted the post, if any. Gazprom CEO Alexei Miller stood in a forest clearing next to a long line of already connected pipes and waved for the welding to begin. After the pipes were joined, warmly dressed executives from Gazpom's German partners, BASF and E.ON, together with Prime Minister Mikhail Fradkov and German Economics Minister Michael Glos, signed their names on the pipe. Officials, dignitaries and reporters were then bused to a nearby Gazprom depot where a group of heated tents had been erected. A news conference was held, and waiters from Moscow served black caviar to guests as fireworks lit up the dark December sky. Friday's groundbreaking ceremony marked the start of construction of the land section of the pipeline, which will link to an existing network at Gryazovets, 250 kilometers east of Babayevo, and eventually run to the Baltic Sea port of Vyborg. Schroder's appointment is likely to help the pipeline consortium defuse issues arising from the Baltic Sea route, which bypasses Russia's traditional transit countries Ukraine, Belarus and Poland. Gazprom is currently attempting to renegotiate higher gas prices with Ukraine. With a planned 27.5 billion cubic meters of gas being pumped through the pipeline from 2010, rising to up to 55 bcm by 2012, gas supplies to these transit countries are potentially vulnerable. Fradkov said at the pipeline ceremony that the Baltic route would bring down the cost of transporting gas to Europe. "The fewer intermediaries there are along the transportation corridor, the cheaper and better we can carry out our obligations," Fradkov said. Miller told the news conference that Gazprom would not continue to sell gas at below-market prices to Russia's immediate neighbors, and denied that the policy change was related to political changes, such as in relations between Russia and Ukraine. "Gazprom will supply gas to everyone at European prices. Politics is when we talk about subsidies. But when we talk about equal terms for all, there's no politics in it," Miller said. Miller said the land section of the pipeline would cost Gazprom $5 billion to build and would also be used to boost gas supplies to St. Petersburg and offer extra supplies to the Baltic countries. The construction of the undersea pipeline connecting Vyborg and Greifswald, Germany, is to start in 2006 and will cost another $5 billion, Miller said. Gazprom owns 51 percent in the Swiss-registered pipeline company, while German energy giants BASF and E. ON have 24.5 percent each. Gazprom's German partners said Friday that they could offer a stake of up to 9 percent from their shares to another European company yet to be selected. Chris Weafer, chief strategist at Alfa Bank, said Schroder's appointment to the shareholders' committee, the equivalent of a board of directors, should not be viewed as a surprise. "It reflects the fact that the North European Gas Pipeline is a major political and economic project between Germany and Russia," Weafer said, adding that a European political heavyweight such as Schroder could help the project because the debate over routes and complaints from countries left out of the project would likely continue for a while. Other prominent foreign political figures could also be brought in to head various Russian energy projects, including the plan to develop the huge gas reserves in the Shtokman fields in the Barents Sea, Weafer said. Schroder's appointment could also mean that the Kremlin is rewarding him for treading softly on such sensitive issues as Chechnya, Weafer said. "Schroder devoted his political career to relations with Russia and to the energy relationship with Moscow as a cornerstone of European policy, so it makes sense that he would take this position now," said Alexander Rahr, a Berlin-based Russia specialist who is a member of the German Council on Foreign Relations and the author of a biography of Putin. "Schroder realized that the key to success with the Kremlin ... is a special personal relationship with its leader," Rahr said.