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. Last Updated: 07/27/2016

Novatek Snags Supply Deal From Gazprom

Novatek has asked its shareholders to approve a 177.3 billion ruble ($6 billion) domestic gas supply deal with power trader Inter RAO.

If the deal is signed, Gazprom, one of Novatek’s main shareholders, would see its gas purchases from Inter RAO reduced to nothing, said two sources at Inter RAO.

According to a ballot mailed to Novatek shareholders, the company’s board has recommended that its shareholders approve a deal to supply power trader Inter RAO and its regional generation company OGK-1 with about 65 billion cubic meters of gas from 2010 to 2015.

Gazprom has current contracts to supply Inter RAO, which owns power stations across the former Soviet Union, and OGK-1 with natural gas from 2007 to 2012.

The Inter RAO sources said the company and its OGK-1 unit would not terminate the contracts with Gazprom if they sign with Novatek but would reduce their gas purchases to zero.

Novatek, in which Gazprom owns 19.4 percent, will hold an extraordinary shareholders’ meeting Nov. 24, while Inter RAO stakeholders will discuss the contracts Dec. 7.

Gazprom, which has seen its domestic and European gas sales plummet because of the economic downturn, said the contracts, signed under take-or-pay provisions, which fix a minimum amount of gas that companies must buy annually, should be honored.

Inter RAO, chaired by Deputy Prime Minister Igor Sechin, says Novatek proposed more attractive contracts than Gazprom.

“Conditions of payment for Novatek’s gas supply are also more attractive, while fines for less [than contracted] or excessive gas off-takes are materially lowered,” Inter RAO said.

An OGK-1 spokesman said his company has been in talks with Gazprom and other companies on gas supplies since August, and that Novatek set forward more favorable proposals.

The deal may give a huge boost to gas production at Novatek, which last year extracted more than 30 billion cubic meters of gas.

The contract is for Novatek to supply Inter RAO with up to 7.9 bcm and OGK-1 with up to 56.99 bcm of gas for five years.

Gazprom supplies the domestic market with more than a half of its gas output. Last year its sales in Russia fell 6.5 percent to 287 bcm from the year before.

The company has said it has been incurring losses from sales in Russia, where state-regulated gas prices are substantially lower than in Europe, but should reach parity with export prices in a few years by growing gradually each year.