Today, Gazprom’s Management Committee considered it expedient to submit a final binding bid to acquire (independently or within a Consortium with the Dutch company Marco Industries BV) a 51% stake of the Romanian gas distribution company Distrigaz Sud SA.

Gazprom’s relevant departments were commissioned to produce all necessary documents on the deal being targeted.

Buying into a Romanian gas distribution company is in line with Gazprom’s export strategy pursuing the objective of Russian gas deliveries to end-use consumers in Europe.

This issue is pending approval by Gazprom’s Board of Directors.

Reference:

The Government of Romania made a public announcement on the privatization of Romanian companies on 5 December 2003, offering potential investors to acquire 51% of shares in each of the 2 companies: Distrigaz Sud SA or Distrigaz Nord SA. A 30% stake is to be bought out from the Romanian Government and the rest, by paying for an additional share issue.

Competitive Tenders on the privatization of Distrigaz Sud SA or Distrigaz Nord SA will be held in 3 rounds. To participate in the 1st prequalification round, contending businesses should notify the Tender Arrangers of their interest in the transaction. In the 2nd round contestants are supposed to submit a preliminary non-binding proposition (without indicating the amount of finance to be invested). The 3rd round encompasses negotiations with the seller and submission of a final binding bid to buy into one of the 2 companies.

On 14 January 2004, Gazprom expressed its interest to take part in the Tenders.

On 22 January, Gazprom’s Management Committee approved the Company’s involvement in the Tenders and resolved that in case the deal proved to be economically viable, the issue will be re-submitted for the Management Committee and Board of Directors’ consideration.

On 15 March, Gazprom made preliminary non-binding propositions to buy into Romanian businesses.

Based on the comparison of Distrigaz Sud SA or Distrigaz Nord SA’s strategic potential and economic parameters as well as on the analysis of the competitive market environment, Gazprom gave priority to taking part in the privatization of Distrigaz Sud SA. NIIgazeconomika provided a feasibility study of the expediency to get involved in the transaction and the ABM AMRO Bank served as financial adviser for the deal and assessed the value of the Distrigaz Sud SA’s stake being put up for an auction.

Distrigaz Sud SA, a 100% state-run company, is the largest Romanian gas distribution business (5.8 bcm of gas distributed in 2003). Distrigaz Sud SA’s share in the Romanian gas distribution and supply sectors accounts for 31% and 30%, respectively. As of year-end 2003, the company directly serviced some 820 thousand customers. Distrigaz Sud SA includes 11 gas distribution outlets delivering gas to 20 regions of southern Romania, including Bucharest. The length of the business-owned gas pipelines totals 13.6 thousand km.

In accordance with the deal terms and conditions, a final binding bid must be submitted before 15 July 2004.

Romania’s annual natural gas consumption averages 17 bcm, including 5 bcm are imported from Russia.

Romania’s geographical location plays a strategic role in transit of Russian gas to the Balkans and Turkey. The Romanian gas transmission system includes 11 thousand km of gas mains and is linked to the Ukrainian GTS. Gas is shipped via Romanian gas pipelines by the national gas transmission company Transgaz. The Romanian GTS allows this country to annually import some 14 bcm of gas and transit 28 bcm to Bulgaria, Macedonia, Turkey and Greece.

Given the progress in the Romanian economic situation (the country’s rating has recently been raised by S&P and Moody’s to the BB and B1 notches, respectively) and the forthcoming accession of Romania to the European Union, energy consumption is forecasted to boost, thus, making this region particularly attractive for investments.

Taking into account natural gas consumption growth and gas production decline in Romania, Gazprom could become a strategic partner of the Romanian Government in developing this country’s economy and ensuring its energy security.

Marco Industries BV is member to the Marco Group international group of investment and industrial companies operating in the metallurgy, energy and utility sectors. The Marco Group has extensive experience of managing Romanian companies.

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