Russia's Gazprom Neft to buy Serbia's NIS oil monopoly

Updated September 11, 2008

   Gazprom Neft will both buy out 51% in Serbia’s NIS oil monopoly at the state, and 20% of stocks at the minority stockholders - individuals. The assessment of Deloitte & Touche that estimated NIS (Naftna Industrija Srbije) at €2,2 billion should become the basis to determine the price of the agreement. Thus, Gazprom Neft has to pay €428 million more for the deal without getting the additional rights.

   As it came out, on Tuesday, September, 9, Serbia’s Vice Premier, Minister of Economy and Regional Development Mladjan Dinkic declared that if Gazprom Neft bought out 51% of NIS, it should make the obligatory offer to the individuals - stockholders of the company. According to the calculations of Serbia’s government, the individuals will own almost 20% of the enterprise’s stocks.

   On Tuesday, September, 9, Serbia’s parliament ratified the energy agreement with Russia that covers the sale of NIS’s controlling interest to Gazprom Neft and guarantees the joint construction of the 400-km-long section of South Stream gas pipeline in Serbia. NIS owns two oil refineries in Pancevo and Novi Sade with the aggregate capacity of 7,3 million tons and two chains of gas filling stations. The company is the monopolist in Serbia’s oil and gas industry (occupies 72% of the wholesale and retail market). According to the protocol attached to the agreement, Serbia agreed to sell 51% of NIS for €400 million plus €500 million of investment commitments. However, then, some representatives of Serbia’s authorities stated that the price was inadequate. Later, in Gazprom Neft declared that the company was ready to consider the significant increase of the investment amount, but didn’t announce the sum.

   On Tuesday, September, 9, the agreement was ratified. However, if Gazprom Neft considered the protocol as signed automatically, Serbia’s authorities didn’t agree and declared that the price would be discussed additionally taking to account the independent assessment of the enterprise made by Deloitte & Touche (€2,2 billion). The offer became the additional commitment for the citizens of Serbia. NIS’s employees and citizens are assumed to get the stocks free of charge. As the adviser of Serbia’s Economy Minister Nikola Papak explained, the stocks’ transfer to the employees will be carried out at €200 for one year of employment. So, the enterprise employs 24 126 people with 491 000 years of employment, and they can expect to receive 4,46% of the company’s stocks. 15% more will be directed to Serbia’s citizens within the framework of privatization (each citizen receives in one stock), and the state will own 29,6% of stocks. According to Mladjan Dinkic, Gazprom Neft is obliged to buy out stocks at the price not less than the assessment of Deloitte & Touche, i.e. it should pay at least €428 million more.

   Gazprom Neft was aware of the obligatory offer for the individuals, but refused to name its price, as declared in Russia’s oil company. "The buyout’s terms are one of the many issues that will be discussed with Serbia’s party within the preparation of the deal", as say in the company. The gas section of the agreement can become one of the issues of these talks. Mr. Dinkic marked that Serbia wasn’t satisfied with the capacities of its section in South Stream and wanted to increase the volume from 10 bcm to 18 bcm of gas per year. The project capacity of the overall South Stream attains 31 bcm of gas per year, and the launch of the sea section is planned for 2013. In Serbia’s Economy Ministry did not explain, whether Gazprom’s concession on the capacity of the gas pipeline would influence on NIS’s price.

   "The final route of South Stream is not approved yet, and its crossing through Serbia’s territory is quite favorable, and both NIS and Gazprom Neft can demonstrate their strong positions in the negotiations", as Konstantin Batunin from Alfa Bank considers. Former adviser of Serbia’s Energy Vice President Zorana Z. Mihajlovic Milanovic agrees that the terms of NIS’s sale "are closely related to the gas agreement with Russia". In Mr. Batunin’s opinion, the parties should reach a compromise to ink the deal.