Gazprom expresses interest in increasing its closeness to Perm

Published: 2/24/2000

Reports are emerging that Russian gas giant Gazprom wishes to increase its shareholding in the Perm engine companies, from its present levels (Perm Motors (2.6%), Perm Engine Company (0%) and Aviadvigatel (16%)), by buying a controlling stake in the enterprises. This follows reports of a letter being sent from the Gazprom board to Deputy Prime Minster Klebanov in late January, suggesting that the government's holdings in the Perm based engine companies, including Perm Motors, Perm Engine Company, Aviadvigatel and Iskra, should be put into a government holding company, Kompomash and that Gazprom should then take a 25% stake in trust to bring Gazprom closer to the producers. According to reports, Klebanov has issued instructions to the Aerospace Agency and the State Property Ministry to look at the proposal and report in March. Kompomash includes a wide variety of holdings in more than 25 companies. Its involvement in the potential deal is interesting given that the Federal Property Ministry has been seen as a major obstacle to the proposed merger of the elements of the Perm company into a vertically integrated engine producer, connecting Aviadvigatel to the cashflow of the Perm Engine Company (PMZ). The Property Fund believes that such a merger would dilute its interests in the companies Perm Motors (14.5%)and Aviadvigatel (20.4%), as it has no direct holding in PMZ. If the deal goes ahead however, it is difficult to see whether the outcome is improved for the Property Fund. Other holders in the company include Interros (17.6%),US Aviam Holdings LLC (13%,Consolidated Marine Enterprise Group (9%), General Aviation AG (Lichtenstein) (2%) Upravleniye-Permskiye motory (5%) and private individuals (17%). Other reports say that the intention is to issue additional shares in the ventures and dilute the government's interest, with Gazprom as the only buyer. This would, however, require the agreement of other shareholders, or Gazprom, to buy their holdings, including the 26% Interros share of PMZ, although an Interros spokesperson has said they have not been approached. Currently 50% of the work undertaken by PMZ is aviation work, the balance being gas turbine pumping stations based on the PS-90.The major fear, or at least the fear among the Moscow press, is that Gazprom's fundamental motivation will be the development of pumping engines and the aviation side will be abandoned. This would allow Pratt & Whitney to escape from their extensive commitments to the PS-90 programme, particularly the PS-90A2. The latter seems an unlikely scenario given that P&W very recently reasserted their commitment on both aero engines and to Iskra as a producer of land based turbines, through Iskra Energetika which they 50:50 own with Iskra Scientific Association.The development of turbines, whether they be for pumping or propulsion, would still require core development to be undertaken. The plant is also not short of capacity and seems capable of meeting both the Ural-Gazprom 2 demands as well as those of aerospace producers. It remains uncertain exactly which scenario is likely to emerge, given the wide disparity in reports, but if the plants and bureaus are consolidated into one enterprise as a result of these moves, it can only serve to create a more coherent corporate structure and a more rational use of the resources available. The possibility of the Federal Property Fund accepting massive dilution, however, we perceive as being an unlikely outcome. Associated articles: www.concise.org 26th May 1999; 9th August 1999; 8th February 2000

Article ID: 1471