Gas deal: still many things are unclear

President of Ukraine Viktor Yanukovych and President of Russia Dmitriy Medvedev agreed to apply a 30% discount to the price formula for gas imported to Ukraine from Russia. However, according to Astrum investment management experts, the absolute amount of this discount is capped by USD 100 per 1,000 cubic meters. The discount comes into effect as of 2Q10. The parties agreed that Ukraine will import 30 bln cubic meters of natural gas in 2Q10-4Q10 and 40 bln cubic meters in 2011. According to our estimates, the discount for the price formula essentially means that Ukraine will obtain imported gas for USD 233 per 1,000 cubic meters in 2Q10, for USD 245-255 in 3Q10, and for USD 255-265 per 1,000 cubic meters in 4Q10. As Ukraine has already imported as much as 6.5 bln cubic meters of natural gas in 1Q10 at a price of USD 305 per 1,000 cubic meters, the average price for imported natural gas in 2010 should be close to USD 260 per 1,000 cubic meters, up 24% compared to the average 2009 price of USD 210 per 1,000 cubic meters.

What remains less clear is the physical volumes of gas to be imported in 2010. The parties agreed that Ukraine will import 36.5 bln cubic meters in 2010, including the 6.5 bln cubic meters already imported in 1Q10. However, our estimates show that 33 bln cubic meters of imports will be enough for the economy. If the 33 bln cubic meters option materializes, then Naftogaz will have to pay USD 2.3bln less for the imported gas. However, if Ukraine indeed does import 36.5 bln cubic meters of gas in 2010, the total 2010 imported gas bill should amount to USD 9.3-9.4 bln, which is only USD 1.4-1.5bln less than the scenario envisaged according to the previous agreement although Ukraine will import an additional 3.5 bln cubic meters. We think that the latter scenario is more probable and downgrade our external trade deficit forecast for 2010 from USD 2.3bln to just USD 0.9bln. We also adjust our current account forecast for 2010 from a deficit of USD 0.5bln to a surplus of USD 1bln.

The impact of the new gas accords on internal gas prices remains unclear. As the average 2010 imported gas price should still be 24% higher than the 2009 price, we expect that there will not be any significant gas price cuts for industrial consumers. We see the most likely scenario is the freeze of these prices throughout 2010. At the same time, the issue of gas price increases for households and municipal utilities is still high on the agenda. We maintain our view that the government will still have to increase these prices in 2010. However, the government is likely to negotiate with the IMF about a residential tariff increase in 2010 which should be much less than the 95% cumulative growth we previously envisaged. Thus, we put our inflation forecast for 2010 under review.

Russia suspends duty-free imports of Interpipe's pipes

Astrum

Since April 1, the Federal Customs Service of the Russian Federation started levying duties on imported pipes of Interpipe due to the lack of agreement on the size of 2Q10 quota for dutyfree imports. The final decision on the quota prolongation and its size should be approved on April 15.

In the case that there is no positive decision on the prolongation of the duty-free import of Interpipe’s pipes to Russia, the Group’s sales should go down significantly.

In 2009, Russian pipe market accounted for up to 40% of the Group’s sales, while Interpipe controlled Nyzhnyodniprovsk Pipe (NITR: U/R) and Novomoskovsk Pipe (NVTR: BUY) sold to Russia 46% and 26% of their pipes.

Due to Russian investors IUD gets further deferral of debt repayment

Ukrainian corporation Industrial Union of Donbass (IUD) whose controlling stake was recently bought by consortium of investors managed to persuade its creditors to allow it to pay only interest on its debt of USD 3.3 bn until March 2010. Such an agreement was in place till the end of the 2009, however, former owner of the controlling stake Sergei Taruta could not manage to persuade creditors to prolong the agreement. It is said that the new agreement with creditors was mainly achieved due to Russian businessment that enter into the investment consortium that owns controlling stake in IUD

50% plus two stock of ISD sold to consortium of investors

Alexander Katunin, the owner of Swiss metal trader Carbofer Group and the former co-owner of Russia's Evraz Group, together with a group of financial investors and with the participation of Russia's Vnesheconombank (VEB), has purchased a controlling interest in Donetsk-based Industrial Union of Donbas (IUD) Corporation. The new partners have helped the company to strengthen its position on the global market, the IUD said in a press release.

Alexander Katunin (who was a co-founder and a shareholder of Evraz Group until 2004), an owner of the international steel and iron products trader Carbofer Group S.A. as well as logistic and production companies, have bought a 50% plus two stocks package in the IUD. A 49.99% share still belongs to Serhiy Taruta and Oleh Mkrtchan," the press release reads.

The IUD, founded in 1995, is an integrated holding company that owns or manages stakes in mining and metals enterprises. The group's core assets are the Alchevsk Iron & Steel Works (AMK), Alchevsk Coke-Chemical Plant and Dzerzhynsk Iron & Steel Works (DMK) in Ukraine, as well as Dunaferr in Hungary, and ISD-Huta Czestochowa in Poland. Source.

Naftogaz to have $4 bn deficit in 2010?

According to prediential representative on energy security Mr. Sokolovsky Naftogaz should have about $4 bn deficit in 2010. In a simple addition substraction game he told that in 2010 Naftogaz should pay Russia about $10 bn for gas, while Ukrainian market is forecasted to generate in payments about $5 bn. Where will the other $5 bn come? Mr. Sokolovsky thinks that there will be a contraction in gas demand for about $1 bn. In the end we have 10-5-1=4, which is $4 bn that Naftogaz will miss. Source.