Three private Turkish gas suppliers face restructuring amid Russian long-term contract talks

LONDON (ICIS)–Three Turkish gas companies that account for nearly 12% of the country’s annual demand are thought to have extended an import contract with Russian producer Gazprom.

However, concerns are mounting that flows may be stopped because of legal complications in Turkey and Russia.

Akfel Gaz, Enerco Enerji and Avrasya Gaz, which belong to the Akfel Commodities Turkey group resumed importing Russian gas in the last four days of 2021 and were thought to be off-taking around 20mcm/day.

It was unclear whether flows continued at the start of January 2022 but two market sources told ICIS that Enerco Enerji and Avrasya Gaz may have extended by two years their long-term Russian contracts due to expire at the end of 2021. Under the original contracts Enerco Enerji was expected to import 2.5bcm/year and Avrasya Gaz 0.5bcm/year from Russia.

The companies are now thought to have agreed on a hybrid import price formula including 70% TTF indexation and 30% oil linkage with a nine-month lag.

Akfel Gaz has a long-term import contract for 2.25bcm/year which is due to expire in 2043 may have also switched from 100% oil indexation to the same hybrid formula as its sister companies.

Although the companies have now started to resume off-takes and are likely to make an important contribution to the country’s supply security at a time of record demand, it is unclear whether they can continue to do so after the Turkish government put them up for sale.

SHAREHOLDING STRUCTURE

The importers held combined import contracts for 5.25bcm/year.

The three companies were placed under the administration of state organisation TMSF in 2016 but their shareholding structure has not changed and the private owners still hold a 20% share in Akfel Gaz, while Enerco Enerji and Avrasya Gaz are fully owned by the wider Akfel Commodities Turkey group.

A tender to sell the firms has been scheduled for 19 January, which could change the ownership structure.

An order issued in December 2011 by then Russian prime minister Vladimir Putin specifically mentions that counterparties of Russian state companies, including those residing abroad, would need to disclose their ownership structure and include their ultimate beneficiaries. Following the order, Gazprom may have requested the companies to provide the full shareholding structure, specifying that it should be notified of any changes within three days after they were enacted. A market source close to discussions said changes to the ownership structure could affect Gazprom’s relationship with the companies. Gazprom did not respond to an ICIS request for comment.

LEGAL PROCEEDINGS

Furthermore, Akfel Commodities Singapore, the ultimate owner of the group initiated legal proceedings against the Turkish government in September 2020 for nationalising the companies and the case is still ongoing at the US-based International Centre for Settlement of Investment Disputes (ICSID), which is part of the World Bank.

There are a few other cases against the Turkish government for the nationalisation of the companies which are still pending in domestic courts.

In addition there are questions raised about other shareholders, including Austria’s OMV, which had been buying 1bcm/year from Enerco Enerji under a long-term contract.

OMV did not respond to ICIS questions.

Despite the ongoing proceedings and underlying shareholding complexities, the Turkish government has put the companies up for sale at a knockdown price of TL230m ($17m, €15m). To compare, the three importers were evaluated by an international accountancy firm at $650m (€575m) before they were placed under the TMSF administration in 2016. Since 2016, the importers together with other similar private companies faced an international arbitration with Russia’s Gazprom over a price discount, which they lost.

This meant that Enerco Enerji and Avrasya Gaz could no longer enter the market and off-take volumes until they paid off the award.

TMSF did not respond to questions from ICIS.

CLEARING DEBT

Earlier in November, market sources raised questions over the inability of the importers to get guarantee, noting they had back-to-back deals with end consumers and that under the terms of these contracts, arbitration awards should be underwritten by end consumers.

A financial report of 2018 published by a consumer which holds such a supply contract with one of the importers clearly states that the company had set aside $34m towards the payment of its share of the arbitration award against the importer. It is unclear if the money has been claimed.

It is thought the two companies have now reached an agreement whereby a Turkish state bank offered a credit line to pay off the award, which, in turn, freed them up to start off-taking Russian gas.

The volumes are then sold on to the incumbent BOTAS at a price that is higher than the import price.

BOTAS itself is thought to have extended its long-term contract with Gazprom which expired at the end of last year and is expected to import 5.75bcm/year in 2022, according to capacity booking data published by the regulator EPDK at the end of December 2021.

A trader said the latest arrangements would spell an end to the Turkish private gas sector at a time when state companies including the incumbent BOTAS face heavy burdens related to record currency depreciation and cross-subsidies, which it has to shoulder.

BOTAS did not respond to ICIS questions by publication time.