Blue Stream- on stream?
In the first week of March 2000, Italian export credit agency Sace
issued a promise of guarantee (PoG) worth $1 billion to smooth
finance for the $2 billion Blue Stream gas pipeline project. The
PoG is based on the understanding that the project's sponsors ?
Italy's ENI and Russia's Gazprom ? satisfy 19 different conditions.
According to Massimo Pecorari, head of structured finance at Sace in Rome, the guarantee represents the biggest breakthrough in putting the financing package together. Pecorari is also confident the Sace move will persuade Japan's export credit agency JBIC in conjunction with local EID/MITI to release a guarantee worth an additional $650 million.
The Blue Stream project involves the construction of a 1,160km pipeline for the transport of Russian gas to Turkey across the Black Sea. The section underwater will be the most technically challenging because of the depth of 2.15km at which the pipeline will be laid. The pipeline will have a capacity of up to 16 billion cubic metres of gas per year by the year 2010, with an estimated initial capacity of 3 billion cubic metres by 2000. Nominated winning contractors are France's Bouygues Offshore, Italy's Saipem and a Japanese consortium comprising Mitsui & Co, Sumitomo, Itochu, and Turkey's Botas. Work on both the Russian and Turkish sides of the Black Sea was launched at the beginning of 2000.
London-based sources close to the deal claim there is still a lot of work before the project reaches financial close, set optimistically by Sace for the end of the second quarter of 2000.
The quality of the ongoing talks between the two sponsors is rumoured to have depressed Sace and its legal and financial advisers, Norton Rose and HSBC. Gazprom and ENI have failed to provide either Sace or its advisers with a full copy of the commercial contract between the two, instead issuing a 4-page long resume of an 80-page full contract.
Moreover, on the occasion of talks between the commercial lenders and the sponsors, held in London on March 7, sources close to the deal suggest a senior partner from Norton Rose was not admitted to the talks and asked to leave the premises. Despite requests to the sponsors, neither the commercial or legal advisers have had a chance to examine the text of the contract to date, delaying the development of the project.
Three commercial lead arrangers are working on the transaction including Mediocredito Centrale, Banca Commerciale Italiana (Comit), and the Italian office of West LB. It is surprising that two Italian banks, with limited experience of such challenging projects and the Italian office of an international lead arranger, rather than a full team from the headquarter in Frankfurt, are working on Blue Stream.
Much of the speculation in the market points towards the nature of the relationship between Gazprom and ENI. Italian supplies of gas largely depend on the Russian Federation and the two countries have traditionally worked on the basis of long-term contracts. The decision of ENI and Gazprom to team their resources on Blue Stream is a reflection of that.
However, ENI and Gazprom's conduct of the deal has surprised many in the market. Both the German and UK export credit agencies, Hermes and ECGD respectively, were meant to play a part in the project only to later find out, to the surprise of Sace, that the sponsors were not interested in having them in the deal.
Throughout the second half of 1999 Sace has been busy negotiating the financial and legal advisory mandates. In October 1999 Pecorari finally made his choice in favour of Washington-based Taylor DeJongh and London-based Norton Rose. The announcement was initially not made public pending a response from the sponsors. At that stage representatives of Gazprom communicated their displeasure with Sace's choice claiming that Taylor DeJongh, being based in the US, may have a conflict of interest given the US government's backing of the rival $2.2 billion Transcaspian project. While confirming Norton Rose as legal adviser, Sace had to look for another name and chose, this time to the satisfaction of both sponsors, HSBC.
Sources within HSBC told Project Finance they expect the project to make no progress unless the sponsors will show more co-operation and willingness to provide all the information on the contract.
Netherlands-based ABN Amro is financial adviser to ENI. ABN Amro was initially involved in the rival Transcaspian pipeline with John Work, a Caspian expert and senior project financier based in the bank's head office in Amsterdam, heading the deal team. The bank's u-turn to Blue Stream and the appointment of ABN Amro as financial adviser to ENI is rumoured to have prompted Work's resignation. Work is now president of Rompetrol.
The race between Blue Stream and Transcaspian is still open, although the PoG from Sace is an advantage for Blue Stream. And progress with the $2.2 billion Transcaspian venture has been jeopardized by gas discoveries in the Shah Deniz gasfield in Azerbaijan and disagreements over the amount to be paid for transit fees to neighbouring Georgia ( advised by Sumitomo).
It is unlikely that Azerbaijan will agree to contribute to the construction of a pipeline for the transport of Turkmen gas rather than concentrate efforts on the transport of its own gas supplies.
In an attempt to win Turkmen's favour, Gazprom has submitted proposals to the Turkmen government for the transport and marketing of Turkmen gas via Blue Stream. Neighbouring Iran has also been active in lobbying for the transport through its territory of Turkmen oil and gas. Sources in the Iranian capital Tehran told Project Finance Iran has recently made proposals to the Turkmen government for the development of a pipeline for the transport of crude from Turkmenistan to the Iranian southern port of Bandar-e Abbas on the Persian Gulf.
According to Massimo Pecorari, head of structured finance at Sace in Rome, the guarantee represents the biggest breakthrough in putting the financing package together. Pecorari is also confident the Sace move will persuade Japan's export credit agency JBIC in conjunction with local EID/MITI to release a guarantee worth an additional $650 million.
The Blue Stream project involves the construction of a 1,160km pipeline for the transport of Russian gas to Turkey across the Black Sea. The section underwater will be the most technically challenging because of the depth of 2.15km at which the pipeline will be laid. The pipeline will have a capacity of up to 16 billion cubic metres of gas per year by the year 2010, with an estimated initial capacity of 3 billion cubic metres by 2000. Nominated winning contractors are France's Bouygues Offshore, Italy's Saipem and a Japanese consortium comprising Mitsui & Co, Sumitomo, Itochu, and Turkey's Botas. Work on both the Russian and Turkish sides of the Black Sea was launched at the beginning of 2000.
London-based sources close to the deal claim there is still a lot of work before the project reaches financial close, set optimistically by Sace for the end of the second quarter of 2000.
The quality of the ongoing talks between the two sponsors is rumoured to have depressed Sace and its legal and financial advisers, Norton Rose and HSBC. Gazprom and ENI have failed to provide either Sace or its advisers with a full copy of the commercial contract between the two, instead issuing a 4-page long resume of an 80-page full contract.
Moreover, on the occasion of talks between the commercial lenders and the sponsors, held in London on March 7, sources close to the deal suggest a senior partner from Norton Rose was not admitted to the talks and asked to leave the premises. Despite requests to the sponsors, neither the commercial or legal advisers have had a chance to examine the text of the contract to date, delaying the development of the project.
Three commercial lead arrangers are working on the transaction including Mediocredito Centrale, Banca Commerciale Italiana (Comit), and the Italian office of West LB. It is surprising that two Italian banks, with limited experience of such challenging projects and the Italian office of an international lead arranger, rather than a full team from the headquarter in Frankfurt, are working on Blue Stream.
Much of the speculation in the market points towards the nature of the relationship between Gazprom and ENI. Italian supplies of gas largely depend on the Russian Federation and the two countries have traditionally worked on the basis of long-term contracts. The decision of ENI and Gazprom to team their resources on Blue Stream is a reflection of that.
However, ENI and Gazprom's conduct of the deal has surprised many in the market. Both the German and UK export credit agencies, Hermes and ECGD respectively, were meant to play a part in the project only to later find out, to the surprise of Sace, that the sponsors were not interested in having them in the deal.
Throughout the second half of 1999 Sace has been busy negotiating the financial and legal advisory mandates. In October 1999 Pecorari finally made his choice in favour of Washington-based Taylor DeJongh and London-based Norton Rose. The announcement was initially not made public pending a response from the sponsors. At that stage representatives of Gazprom communicated their displeasure with Sace's choice claiming that Taylor DeJongh, being based in the US, may have a conflict of interest given the US government's backing of the rival $2.2 billion Transcaspian project. While confirming Norton Rose as legal adviser, Sace had to look for another name and chose, this time to the satisfaction of both sponsors, HSBC.
Sources within HSBC told Project Finance they expect the project to make no progress unless the sponsors will show more co-operation and willingness to provide all the information on the contract.
Netherlands-based ABN Amro is financial adviser to ENI. ABN Amro was initially involved in the rival Transcaspian pipeline with John Work, a Caspian expert and senior project financier based in the bank's head office in Amsterdam, heading the deal team. The bank's u-turn to Blue Stream and the appointment of ABN Amro as financial adviser to ENI is rumoured to have prompted Work's resignation. Work is now president of Rompetrol.
The race between Blue Stream and Transcaspian is still open, although the PoG from Sace is an advantage for Blue Stream. And progress with the $2.2 billion Transcaspian venture has been jeopardized by gas discoveries in the Shah Deniz gasfield in Azerbaijan and disagreements over the amount to be paid for transit fees to neighbouring Georgia ( advised by Sumitomo).
It is unlikely that Azerbaijan will agree to contribute to the construction of a pipeline for the transport of Turkmen gas rather than concentrate efforts on the transport of its own gas supplies.
In an attempt to win Turkmen's favour, Gazprom has submitted proposals to the Turkmen government for the transport and marketing of Turkmen gas via Blue Stream. Neighbouring Iran has also been active in lobbying for the transport through its territory of Turkmen oil and gas. Sources in the Iranian capital Tehran told Project Finance Iran has recently made proposals to the Turkmen government for the development of a pipeline for the transport of crude from Turkmenistan to the Iranian southern port of Bandar-e Abbas on the Persian Gulf.
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