Russia, Kyrgyzstan draft agreement to handover gas facilities to Gazprom
MOSCOW. July 12 (Interfax) - Russia and Kyrgyzstan have drafted an intergovernmental agreement to hand over the Central Asian country's gas facilities to Gazprom, according to an order Prime Minister Dmitry Medvedev signed on July 9.
Kyrgyzstan will set up a wholly owned subsidiary of Kyrgyzgaz in the form of a limited liability company and transfer all of Kyrgyzgaz's assets to it, including gas pipelines, gas distribution stations, underground storage facilities, land and other property, rights and interests. All of the shares in this LLC will then be sold to Gazprom for $1.
In exchange, the Russian gas giant pledges to invest at least 20 billion rubles over the next five years in the modernization and overhaul of Kyrgyzstan's gas infrastructure.
The agreement imposes certain restrictions on the Russian side. Shares in the new LLC, as well as its assets associated with gas infrastructure can be divested to Gazprom subsidiaries or other legal entities in which Russia holds a blocking stake, but only with the agreement of Kyrgyzstan. Gazprom will be able to do freely manage other assets.
Kyrgyzstan will also guarantee the LLC's exclusive right to import natural gas, complete and timely payment for gas by government-funded consumers, and to not use special rights to manage the company that would violate or encroach on the rights of its shareholders.
The country also guarantees that its regulators will set gas prices at a level that will cover the company's expenditures on gas acquisition, transportation and storage and other costs associated with its business, and provide a profit that will give Gazprom an internal rate of return of at least 12% in real terms for a period of 25 years. The price regulator will be required to review gas prices at least once a year. Gazprom will set prices itself for international transshipment and storage in underground storage facilities, and Kyrgyzstan guarantees that it will not meddle in these issues.
The profit tax rate for the company will be 10% for 25 years.
Kyrgyzstan will also guarantee protection for Gazprom's investment from expropriation and nationalization, and unfettered transfer of payments abroad in relation to the Russian company's investments. Deputes will be subject to resolution in ad hoc arbitration in Stockholm.
The agreement includes an explicit nod to the European Union's Third Energy Package, which the EU is diligently trying to export beyond its borders, by guaranteeing Gazprom the right to combine various types of business in the gas sector within vertically integrated companies, including gas production, transportation by pipeline and distribution to consumers.
