Gazprom was not given money for the "Turkish flow"

It was not possible to attract funds from foreign banks and is unlikely to succeed.
"Gazprom" specified the cost of building a sea gas pipeline to Turkey. "Previously, we said that the cost of [the Turkish flow] could amount to 6 billion euros, but now we estimate about 7 billion euros," Andrei Kruglov, deputy chairman of the board of Gazprom, said on Thursday at the investor's bottom in London.

The costs of the "Turkish flow" are likely to lie entirely on the company - to attract funds from foreign banks has not yet turned out and is unlikely to succeed, it follows from the words of Kruglov. "Based on the existing reality, most likely the" Turkish flow "will be initially financed from the budget of" Gazprom ", - he stated.

"Turkish flow" became the successor of the pipeline "South Stream", the construction of which began, but in 2014 was stopped. It is assumed that the Turkish Stream will pass through the Black Sea and take over part of the export flow of Russian gas currently being transported through Ukraine. According to the project, two lines of the pipeline with a length of more than 900 km and a capacity of 15.75 billion cubic meters will go to Turkey. m per year each. The first is designed to supply gas to the internal market of Turkey proper. And the second, as planned, must pass through the territory of the country and provide supplies to the countries of South and South-Eastern Europe.

The construction of the offshore part of the gas pipeline began in May 2017. Now more than 800 km of the pipeline are laid in the water, 224 km of them are accounted for by the second line.

Initially, it was assumed that Gazprom would at least partially be able to attract borrowed funds. "All the conditions for the implementation of the project" Turkish flow "on the terms of project financing are available. There was no inter-agreement - and there was no question about project financing. To date, this topic is open, and we are working on this issue, "- said Oleg Aksyutin, a member of Gazprom's management board and head of the South Stream Transport BV project company, on February 28, 2017.

In June 2017, Kruglov reported that Gazprom had already begun negotiations with both Russian and foreign banks on project financing of the project. But on August 2, 2017, the US introduced new sanctions against Russia. They give the US president the right to impose sanctions on those who have once invested from $ 1 million in Russia's construction of export pipelines or provided equipment, technologies and services for these purposes. The amount of such transactions during the year is limited to $ 5 million.

In fact, Gazprom admitted that it was not possible to attract project financing at the construction stage of the Turkish Stream, says Dmitri Marinchenko, Director of Fitch Corporation. "It's no wonder - the risk of sanctions continues to loom before the project. The fact that Gazprom will have to fund 100% of the Turkish flow, and simultaneously build the Nord Stream-2 and the Siberian Power, has already led to a record increase in capital investments. According to the calculations of the company itself, - continues Marinchenko, - on the whole, the investment program will reach almost 1.9 trillion rubles. in 2019, and in 2017 it was 1.6 trillion. "

In addition, Marinchenko recalls, in the next two years, Gazprom will have to pay off debts worth more than $ 20 billion. Thus, the company will have to borrow a lot, he said.

Part of the debt, which will grow because of the costs of building the Turkish flow, Gazprom plans to refinance through project bonds, Kruglov said yesterday. The main source of repayment of project bonds will be revenue received by a special purpose company (project company) for the project. This is one of the forms of project financing, commented to Vedomosti in Gazprom.

The introduction of sanctions could not but complicate the structuring of Gazprom's pipeline projects based on project financing, suggests Denis Perevezentsev, vice president and senior analyst at Moody's. "Risk management departments of financial institutions may have their own, more stringent criteria for financing projects for which sanctions may theoretically be extended, which may limit their participation in financing similar projects," Perevezentsev explains.

Placement of foreign currency bonds is a much simpler way to attract borrowed funds, says Raiffeisenbank analyst Denis Poryvai. "But finding 7 billion euros in the debt market is not a trivial task, even in a more peaceful geopolitical environment," he said. - In the classical version of project financing, when borrowed funds are attracted from banks, the condition of default on these obligations can be the inability to complete the project due to force majeure - sanctions, for example. Apparently, banks assess the risks associated with the project as high and take them on themselves do not want to ", - explains Poryvay. Investors who will be ready to buy bonds, much more, and a deep study of risks, many of them do not do, he says.

The clarification of the main source of repayment makes this debt in a certain sense subordinated to Gazprom's unsecured debt, suggests Poryvai: "Credit risks for such bonds will be slightly higher than for Eurobonds issued directly by Gazprom.

In addition to the constantly present "spirit of sanctions", banks may have more real fears, Marinchenko said: "There are no guarantees that gas will flow through the second line in 2019 - there is no infrastructure on which Europe could take this gas."

Prospects for the second thread of the Turkish Stream are not yet obvious. Firstly, its route has not yet been determined: it can start on the Turkish border either with Bulgaria or with Greece, said Alexander Medvedev, deputy chairman of the Gazprom board. Secondly, the land part of the Turkish thread of the second line will be in full compliance with the norms of the European Commission and will be implemented by the gas transport operators of European countries, Medvedev said yesterday at the bottom of the investor. The existing practice of construction of gas pipelines within the EU implies that the final investment decision is made only after receipt of a sufficient number of requests for reserving pipe capacities (open season). None of the European gas transport operators to hold a similar competition has not yet reported.

"It seems that Gazprom with a greater degree of fatalism began to regard the possibility of actually launching the second thread of the Turkish Stream in 2019," Marinchenko supposes. - If the European partners do not have an acute economic interest to participate in the construction of a gas infrastructure for taking gas from the second line (and it seems not to be observed), it will remain "dry" for a while.

Gazprom's chances of attracting project financing for its second new export pipeline to Europe, Nord Stream-2, Marinchenko, estimates as higher thanks to the participation of foreign partners in the project. "But before obtaining all permits and starting the construction of the sea part, banks and creditors are unlikely to seriously consider participation in this project," concludes Marinchenko.