UPDATE 3-RWE, Gazprom scrap talks on joint power ventures

Thu Dec 22, 2011 10:24am EST

Related Topics

* RWE says both companies agreed to end talks by year-end

* Says companies could not agree on co-operation framework

* Gazprom says talks may continue, but no more exclusivity

* Shares in RWE up 3.9 percent, Gazprom up 0.6 percent

By Maria Sheahan and Christoph Steitz

FRANKFURT, Dec 22 (Reuters) - RWE AG and Gazprom have terminated talks about joint power production ventures, a setback in the German utility's efforts to seek Russian-funded growth to help make up for its domestic market's exit from nuclear power.

"Although our discussions were conducted in a very constructive manner we were unfortunately not able to agree on a framework for cooperation which would be sustainable for both parties," RWE Chief Executive Juergen Grossmann said in a statement on Thursday.

RWE had an exclusivity deal with Gazprom. Sources close to the matter said that the cooperation partly fell through because Gazprom struck a deal with Danish utility Dong earlier this year to explore opportunities for promoting gas-fired power generation in Europe.

"There seems to be a view of first-come-first-serve here, and differing price expectations (for gas supplies) also did their part in derailing the deal," one source at Gazprom said.

In Moscow, Gazprom CEO Alexei Miller did not rule out further talks with RWE but said the Russian gas export monopoly was looking at other power generation opportunities in Germany.

"We can continue talks, but there is no more exclusivity," Miller told reporters.

Miller signed a 'road map' on power cooperation with Bavarian state premier Horst Seehofer on Wednesday in Munich. He said it was possible that Gazprom could participate in three to five power sector projects in the south German state .

RWE and Gazprom had announced in mid-July that they had started exclusive talks on proposals for joint power plants in Germany, Britain and the Benelux countries, which were restricted to three months initially.

In October, they gave themselves another three months to negotiate.

The cancelled cooperation between RWE and Gazprom could revive hopes for the Nabucco gas pipeline project.

RWE is one of the key companies behind the consortium to build the pipeline that would transport non-Russian gas from central Asia through Turkey into Europe. Cooperation between it and Gazprom could have forced RWE out of the Nabucco consortium.

"If the cooperation had gone ahead, we would have probably left Nabucco and instead switched to import more Russian gas," one source at RWE said.

RWE, GAZPROM SHARES UP

Shares of RWE were up 3.9 percent at 27.27 euros by 1500 GMT, having traded higher all day already. Gazprom shares were up 0.6 percent.

"RWE's shares did not move much , since the failed negotiations over a plant cooperation with Gazprom have no direct impact on the company's business," a trader said.

Germany's decision to exit nuclear power has prompted its largest utilities to look to Russia for investment and as a source of natural gas for low-carbon power production.

The government forced RWE to shut down two nuclear power stations after the Fukushima nuclear disaster in Japan and levied a nuclear fuel tax on power providers, burdening profits.

RWE, laden with debt after spending more than 10 billion euros ($13 billion) on takeovers in the past three years, is selling 11 billion euros worth of assets and raised 2.1 billion euros selling shares.

Also, lower demand due to the economic crisis suppressed power prices from all-time highs reached in the middle of 2008, burdening power companies for years to come as they sell most of their power as many as three years before it is produced.

RWE had wanted any deal with Gazprom to comprise plants fired by hard coal and brown coal as well as the gas-fired plants that would be a natural fit for the Russian company.

Coal-fired plants emit broadly double the carbon dioxide of gas-fired plants. RWE as a coal-biased producer must uphold a costly long position in carbon emissions rights, and a joint venture that included coal would mean that Gazprom would help share the CO2 burden.

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