30 december 2011

Prime Minister Vladimir Putin meets with Gazprom CEO Alexei Miller

During the meeting Vladimir Putin and Alexei Miller discussed all aspects of Gazprom’s performance, focusing particular attention on the South Stream project. They also discussed gas cooperation with Ukraine. Putin called the country Russia's main strategic partner in supplying gas to European consumers.

Transcript of the beginning of the meeting:

Vladimir Putin: Mr Miller, today we are going to discuss all aspects of Gazprom’s performance. The winter has not yet begun in full swing in the European part of the country, but it is imminent. You have already reported to me on the work of the large-scale energy industry in general and Gazprom in particular, so let’s begin now with the South Stream. I’d like to thank you and all those who promoted this project. We have made one more important step forward with our Turkish friends. When will it be possible to begin construction?

Alexei Miller: Indeed, Turkey’s authorisation to carry out this work in its exclusive economic zone, the Black Sea shelf, is a major step towards the construction of a gas pipeline from Russia to Bulgaria, that is, from Russia to Europe, through the Black Sea. We hope to complete all project and design work on the Black Sea shelf before the end of 2012. We are planning to start building the marine section in early 2013, that is, in a little more than a year, and to complete it in December 2015. We hope to supply the first commercial gas to Europe in late 2015.

Vladimir Putin: I think it would be better to start next year, at the end of next year. It's not such a big difference, but it would still be better to start in 2012.

Alexei Miller: Okay, Mr Putin, that's what we'll do.

Vladimir Putin: What about the total funding of the project? What about the marine and surface components?

Alexei Miller: The combined technical and economic feasibility report, which has already been completed and accepted, estimates the cost of the marine section at 10 billion euros. The length of the four-string pipe is 925 km and its design capacity is 63 billion cubic metres of gas.  

Vladimir Putin: What about the surface section?

Alexei Miller: The surface section will cost 6.5 billion euros. Its length is a little over 2,000 km.

Vladimir Putin: So, the total cost is about 15 billion euros?

Alexei Miller: A little over 15 billion euros.

Vladimir Putin: How will Russia and its foreign partners fund the project? Our partners are the German company BASF, the Italian company Eni and Electricite de France. 

Alexei Miller: The financial burden is distributed between the partners in proportion to their shares in the project: 50% belongs to Gazprom, 20% to Eni and the rest to Electricite de France and the Germans. Under the plan, 30% will be paid by our shareholders and 70% will come from credit financing.

Vladimir Putin: So, if 15 billion euros is the total cost, Russia will have to pay about 7.5 billion, correct?

Alexei Miller: Yes, that's the Russian share. Foreign participants – the Italian, French and German companies – will only participate in building the marine section; joint ventures will fund the construction of sections in transit countries independently.

Vladimir Putin: There's Bulgaria…

Alexei Miller: Bulgaria, Serbia, Hungary, Slovenia, Austria, gas pipeline branches to Croatia and Serbia. We are considering extending a pipeline branch to Macedonia…

Vladimir Putin: Have we signed the documents with all transit countries?

Alexei Miller: We have signed intergovernmental agreements with all of them. As you know, we have also signed all the necessary documents for joint ventures at the corporate level. They have already been established de jure, and are in operation. Prospecting is carried out at all national sections, and we have already switched to territorial planning. We are conducting all work strictly according to our schedule. We foresee no obstacles to reaching our goal on time, and we intend to supply the fist gas in late 2015.

Vladimir Putin: Mr Miller, I’d like to draw your attention to the fact that Ukraine is our main strategic partner in supplying gas to Europe. We are pumping the main portion of our gas through its territory. We have contracts with Ukraine both for the supply of gas to its consumers and for gas transit to Europe.

I remember how seven or eight years ago we were negotiating a consortium with Ukraine and other European partners, and even signed a memo between Germany, Russia and Ukraine.

Alexei Miller: Yes, it was in 2003, Mr Putin.

Vladimir Putin: Exactly. What are the prospects of work in this direction?

Alexei Miller: Our Ukrainian colleagues submitted the consortium idea to the agenda for our gas talks in the last few months. We discussed this idea with them in detail, in particular a consortium with Gazprom’s participation. These talks have not been concluded. We have reached an understanding on common figures and have agreed to resume talks in January.

Vladimir Putin: How do our Ukrainian friends estimate the cost of the Ukrainian gas transportation network?

Alexei Miller: They have quoted a substantial sum – $20 billion. Its size is due to the fact that the network’s modernisation will also be quite expensive. Today we can only talk about tentative estimates. We must establish how much this modernisation will cost. Different figures are being quoted – from two to three billion euros to seven or eight billion. Therefore, the cost of the Ukrainian gas transportation network is not merely payment for shares in the future consortium. It is important to realise that upgrading it will also require considerable expenditures.

Vladimir Putin: As I see it, in this case a major discount on the price of gas was also part of the deal. How much would it be for one year?

Alexei Miller: Our Ukrainian colleagues spoke about this discount at the talks. If we proceed based on 40 billion cubic metres of gas – this is the amount that Ukraine should take on under the current gas supply contract – they…

Vladimir Putin: …should buy.

Alexei Miller: Yes, they should buy. The discount would amount to $9 billion per year.

Vladimir Putin: Mr Miller, I understand that these are complex and specific issues. At the same time, I’d like you to continue these talks with our Ukrainian friends, bearing in mind that Ukraine has been, and will, I hope, remain our strategic partner in this area of our cooperation. I’m considering the growing requirements of European consumers. Some of them require more gas because they have renounced their nuclear power industry. No doubt, the Ukrainian gas transportation network will be in high demand, and I would ask you to continue the talks with our friends in Ukraine. I hope you will bring them to a successful completion. 

Alexei Miller: Mr Putin, as soon as the New Year holidays are over, we will continue the talks with our Ukrainian colleagues in line with your instructions.

Vladimir Putin: Good.