THE GASMAN COMES

State-owned Bulgarian gas transmission and supply company Bulgargaz Holding is looking to become a major regional player through a stock offering and partnerships with major European energy firms.

The firm has long played a role in regional gas transmission and is now looking further afield as Europe considers its energy situation. It is working with other distributors on projects to diversify Europe's gas supply, bypass bottlenecks and find new sources of gas in Bulgaria. The company said it believes going public will help raise capital, and Bulgargaz's profile, for further ventures.

In August, Bulgargaz Holding general manager Lyubomir Denchev announced the company will go public within the next three years. It plans to offer 20 to 30 percent of its capital on a free float, beginning with the Bulgarian Stock Exchange. The long-term plan is to list on the London Stock Exchange, Denchev told the press. The value of the listing will depend on how much money the company requires for investment at the time. Denchev said Bulgargaz Holding was targeting market capitalisation of between $3.3 billion and $13.4 billion. Currently, the company has paid-in capital of $1.34 billion.

Before the listing, the company will have to be removed from the list of strategically important firms prevented from privatisation because of the belief that it serves the national interest to keep them in public ownership.

Bulgaria's location between the energy-rich Middle East, Caucasus and Central Asia, and Central Europe has seen its profile as an energy transit hub grow as worries about supply multiply in the West, and new sources are found in the East.

Bulgargaz has been a key link in regional gas distribution for some time. A considerable share of the company's revenues comes from piping Russian gas supplied by Gazprom to Greece, Turkey and Macedonia. The company has transported 10.8 billion cubic metres of gas since the beginning of 2007, a year on year increase of 20 percent.

Bulgargaz is currently almost entirely dependent on Gazprom's gas. At the end of last year, the two firms signed a deal on supply and transit that is valid until 2030, superseding one that was set to expire in 2010. The new agreement includes price increases once or twice a year to bring the price Bulgargaz pays Gazprom up to that of other European networks, said Gazprom.

While relations with Gazprom remain strong, Bulgargaz is now looking to increase its role as a key player in European energy security and diversification. It is a leading shareholder in projects such as the $6.23 billion Nabucco pipeline project, which will carry natural gas from the Caucasus, Middle East and Central Asia to Central Europe and a $700 million pipeline from the hydrocarbon-rich Caspian Sea to the Aegean coast of Greece. Nabucco is designed to diversify Europe's energy supply away from an increasingly unreliable Russia. Other shareholders include Austria's OMV, Hungary's MOL, Turkey's Botas and Romania's Transgaz, with German firm RWE Ruhrgas also looking to participate. The second pipeline would bypass the crowded Bosphorus in Turkey, performing a similar role to the Burgas- Alexandropoulos oil pipeline project currently underway.

In July, Bulgargaz and OMV made several preliminary agreements, including co-operation in gas exploration in the Black Sea. While Bulgargaz has kept details of other areas of collaboration under wraps, industry insiders believe they could include the two companies working together on OMV's petrol stations.

“OMV is looking for opportunities to enlarge its gas exploration activities in the Black Sea region. OMV has good co-operation with Bulgargaz because of the participation in the Nabucco project and it is normal to look for partnership opportunities,” an OMV statement said.

Denchev said he hopes to form more partnerships as Bulgargaz grows in capital and clout, and the holding firm is also negotiating with German firm E.ON Ruhrgas and Gaz de France.

The Bulgarian government has drawn up plans to build a huge national energy holding company, including Bulgargaz, to cement and develop the country's position as a leading energy exporter in the region. The umbrella holding company would then make deals with energy companies operating in the region and could be listed on a foreign bourse. Denchev said if the government gives the green light, Bulgargaz would go public on its own.

According to Denchev Bulgargaz will significantly improve on its $68.3 million net profit from last year, but he declined to be more specific.

As in other energy sectors, Bulgaria has an important role to play in Europe's gas supply and security. Bulgargaz looks set to benefit from this, having won the confidence of major private partners in the region.

Andrew MacDowall
Oxford Business Group analyst
www.oxfordbusinessgroup.com