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Gas grid sales prove slow going Germany's RWE and Italy's Eni have both been ordered by the European Commission to divest some of their gas pipeline capacity but, in Germany at least, buyers have not been queuing up to make offers. RWE's attempt to dispose of Thyssengas could be delayed after Gasunie withdrew from a consortium bidding for the German gas pipeline company. The state-owned Dutch distributor and a block of more than 30 German municipal utilities in North Rhine-Westphalia had been favourites to acquire Thyssengas. Gasunie chairman Marcel Kramer complained that returns in Germany were "lower than in other European markets". He said the current regulatory environment in Germany meant the return on gas network investments were "no longer attractive". Gasunie has had a presence in Germany since November 2007 when it bought the 3,000km BEB pipeline network from ExxonShell for €2.1 billion. Meanwhile, RWE insists there are other potential bidders for Thyssengas, but a spokesman confirmed that the sale will now be pushed back from this quarter until "at least" the summer. *Regulatory uncertainty* Under a deal agreed with the European Commission in 2008, RWE must sell Thyssengas by March 2011 or face market abuse charges under an antitrust case launched by the Commission in May 2007. However, uncertainty about domestic energy regulator FNA's plans for the gas industry in Germany are hampering RWE's efforts to meet that deadline. Stadtwerke Bochum, the driving force behind the municipal alliance with Gasunie, blamed low returns and regulatory delay in Germany when it withdrew from the consortium late last year. Network companies reject FNA's claim that grid fees agreed for 2009 allowed them a 9.3 per cent return on capital. They insist that, when capital costs for construction and other factors are included, the real figure is less than half that rate - or little better than the return on long-term government bonds. Grid companies are also still in the dark about likely changes to this year's charges. The FNA has yet to finalise returns and investment proposals under the new incentivised regime introduced on 1 January. With the regulator unable to promise any ruling before late spring, RWE has little option but to put the Thyssengas sale on hold. The North Rhine-Westphalia municipal consortium is unlikely to pursue Thyssengas without a major commercial partner. Bayerngas has confirmed its interest in the 4,100km pipeline route valued at up to €1 billion (£880 million). The Bavarian group - controlled by Austrian and German regional suppliers - is in talks about forming a consortium with municipal utilities. "We want to realise this deal with partners," says Bayerngas spokesman Dirk Barz. *Regulatory sanctions* Meanwhile, in Italy Eni has become the latest utility to agree gas disposals under threat of Commission sanctions. In February the oil and gas giant announced the sale of three cross-border pipelines valued at €1.5 billion (£1.3 billion). Eni plans to sell an 89 per cent stake in the strategic Tag route to state-owned investment fund CDP. The pipeline (11 per cent owned by OMV) delivers Russian gas that covers 30 per cent of demand in Italy. Eni has also agreed to sell its 49 per cent stake in the Trans Europa Naturgas Pipeline, which crosses Germany, and a 46 per cent stake in the Swiss Transitgas route. Neither of the existing pipeline partners - Eon and Swiss Gas - is thought eager to use their pre-emption rights. *Holding strategic assets* Both Eni and the Italian government had always insisted that these pipeline holdings should be retained as strategic assets. Only last year, Eni chairman Paolo Scaroni warned that the company would "dig in its heels" over any demand from the European Commission to surrender control of the Tag pipeline. But the threat of a huge Commission fine caused a rethink. Raids on Eni premises in 2007 found evidence that it had blocked competition by hoarding capacity and deliberately underinvesting in its international routes. Such "hoarding and degrading" charges carry fines of up to £1.3 billion. A sharp cut in Eni's dividend last year was seen as provision for such an outcome. Brussels welcomed the move as "a major step towards facilitating competition in Italian gas markets to the benefit of gas customers at the same time as increasing security of supply". The settlement was a "painful process", according to Scaroni, but it seems a good deal for Eni, which will retain its contractual gas transport rights in all three pipelines. *Modest impact* With no provision for capacity auctions, the impact on competition will be modest until Eni's big supply contracts expire. The crucial Tag route will effectively remain under Italian state control because of the Ministry of Economics' influence over new owner CDP. The investment fund already has a majority stake in Italian power grid Terna. The Commission has agreed that Eni can sell its Tag stake (valued at £700 million) "to an entity controlled by the Italian state". These disposals may also strengthen Eni's case for hanging on to domestic gas grid Snam Rete Gas. A Snam sale would boost competition in Italy, but Scaroni has warned that it could weaken Eni's bargaining position with producer countries. Eni has a 52 per cent holding in Snam Rete, which is currently valued at €12 billion. In December, Eni said it was studying ways to rationalise its holdings of regulated assets. "In this area there are no dogmas," said Scaroni, "but any final decision must await the outcome of this agreement with Brussels." Source: Utility Week © Faversham House Group Ltd 2010. News articles may be copied or forwarded
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