Finland boosts Baltic gas independence as it takes control of pipelines

By bne IntelliNews November 4, 2014

bne -

Finland is the latest country in the Baltic region to take control of its gas industry, with the government announcing on November 3 that it has agreed to buy a majority stake in national utility Gasum. The deal follows similar moves towards greater independence from Russia in Lithuania and Estonia, and should help accelerate plans for a regional LNG facility.

The government said in a statement that it would pay €510m to buy a 31% stake from Finnish power utility Fortum (in which Helsinki holds a majority stake) and 20% from German utility E.ON. The deal will boost the state's overall stake in Gasum - which sells and distributes gas in Finland - to 75%. Russian state-controlled gas giant Gazprom is the other remaining shareholder.

"The transaction is to ensure that Gasum has the capabilities to develop Finland’s gas market and infrastructure in the best possible way regarding natural gas, biogas and liquefied natural gas (LNG)," added the statement from the Prime Minister’s Office.

Finland's government would also consider buying Gazprom's stake in Gasum should the Russian firm decided to sell, a senior official told Reuters. "If such situation would come, we would have to assess it," said Eero Heliovaara from the state ownership steering department.

Should such a deal come off, it would likely be welcomed by the EU, which is pushing to break Russia's dominance of the isolated gas networks in the Baltic region. 

It would also suggest something of a turnaround in Helsinki, which earlier this year came under pressure over  a flagship deal with Moscow on a new nuclear plant. Helsinki was also reported to be amongst those states at the eastern end of the EU that were trying to block sanctions against Russia.

At the same time, Finland still remains 100% dependent on deliveries from Gazprom. Importer Fortum has a long history of cooperation with Moscow, and holds several large energy assets in Russia.

Regional trend

The move to buy Gasum suggests Helsinki is now ready to increase independence from Russia and promote energy cooperation with other EU states. 

On the one hand, taking control of Gasum will help Helsinki push through unbundling of the company, which controls both gas sales and the country's pipelines. Finland currently has an exemption to EU regulations demanding the two sides of the business are separately owned. However, that would change as soon as it's network plugs into another EU state, which would happen with the LNG project.

Heliovaara suggests Finland is more interested in the country's pipelines than Gasum's sales unit. In the case that unbundling occurs, the government would likely seek to retain control of the grid, while divesting the sales side of the business, Heliovaara said. "I think that in that case, the state's interest will definitely be in the grid."

The move is another signal that the Finnish government is looking to accelerate a long delayed plan to develop a pan-Baltic LNG facility. Gasum plans a-Finnish based project, but recently scrapped talks with Estonian peer Alexela on cooperation. The Estonian side has regularly claimed that Gasum has been putting obstacles in the way - raising suspicion in some quarters that Gazprom may have been influencing decisions at the Finnish company. 

However, shortly after Gasum broke off talks with Alexela, Finnish Prime Minister Stubb and Estonian peer Taavi Roivas insisted another agreement is close following a meeting in Brussels. The European Commission has called on Finland and Estonia to demonstrate "clear political will to accelerate the necessary investments".

Pushed out

Not only does the Russian giant own a significant stake in Gasum, but as Finland's sole supplier of gas to importer Fortum, it has considerable leverage over the country's approach to alternative supplies. At the same time, E.ON has lent Gazprom a lot of support in the region in recent years. Until earlier this year, the pair controlled all of the Baltic gas utilities and pipelines via their combined stakes. 

However, Finland will be joining a regional trend if it does wrest control from the pair. They were pushed out of the Lithuanian gas industry earlier this year following a bitter fight with Vilnius.

Apparently tiring of the ongoing fight, E.ON then sold its 33.6% stake in Eesti Gas to Fortum earlier this year, handing the Finnish buyer control. Tallinn - which surprised observers by declining  to buy the E.ON stake - is now concerned that the utility's owners have missed deadlines on an order to spin off the country's pipelines by the end of the year.

The divestments  tally with the German firm's strategy to sell in smaller markets in order to rationalise assets and reduce debt. However, alongside Gazprom it remains firmly in charge of Latvija Gaze, which - not coincidently - owns the only strategic storage facility serving the region. 

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