NOVATEK is looking for ways to secure project financing for the Arctic LNG-2 plant at a time when most of the Russian banks involved in it are under new US and EU sanctions. The head of NOVATEK, Leonid Mikhelson, according to Kommersant, asked the management of VEB.RF to transfer its share in project financing – € 400 million – to Gazprombank. The company fears that VEB.RF falling under US sanctions will make it difficult to raise funds for the project as a whole.
The head of NOVATEK, Leonid Mikhelson, approached the head of VEB.RF, Igor Shuvalov, with a proposal to transfer the bank’s share in the project financing of Arctic LNG-2. We are talking about a loan of up to €400 million, which Mr. Mikhelson asked to assign in favor of Gazprombank no later than March 23, according to Kommersant sources familiar with the situation. According to them, such a transfer was provided for by the loan documentation in the event of an expansion of sanctions.
VEB.RF was included in the SDN-list of the US Treasury — American persons are prohibited from any interaction with the bank, and violators face secondary sanctions. VEB.RF also came under EU and UK sanctions. Gazprombank, which acts as a settlement agent between Gazprom and European gas buyers, is only under relatively mild sectoral sanctions introduced in 2014.
According to Mr. Mikhelson, as the interlocutors of Kommersant explain, the sanctions against VEB.RF create risks of including the Arctic LNG-2 project itself, its shareholders and creditors on the SDN-list, as well as stopping the selection of the remaining loan funds and the occurrence of a default of the project .
NOVATEK is in the process of building the Arctic LNG-2 with a capacity of 19.8 million tons per year and a cost of $21 billion. The volume of external project financing in the form of loans for 15 years should be €9.5 billion, the rest will be provided by shareholders. NOVATEK owns 60% in Arctic LNG-2. The remaining shareholders – French TotalEnergies, Chinese CNPC and CNOOC, as well as a consortium of Japanese Mitsui and JOGMEC – each have 10%.
The pool of Russian banks, consisting of VEB.RF, Sberbank, Gazprombank and its subsidiary Bank GPB International SA, as well as Otkritie, is to provide up to €4.5 billion in external financing. The remaining funds must be provided by Chinese, Japanese and European creditors.
According to Kommersant’s sources, €6.54 billion of the total amount of external financing at the beginning of March has already been selected, the remaining €2.96 billion is planned to be selected before the third quarter. From foreign creditors, only the suspension of financing by Italian banks is known so far. According to Reuters, we are talking about $ 561 million, which was supposed to provide the state bank Cassa Depositi e Prestiti (CDP) and the Russian branch of the bank Intesa Sanpaolo, the guarantee for them was given by the export credit agency SACE. Sources told Reuters that the loan had not yet been issued.
NOVATEK, Gazprombank, VEB.RF did not respond to Kommersant’s inquiries about whether the share had already been assigned. It is not clear whether a similar assignment of the shares of Otkritie (also included in the SDN-list) and Sberbank (not included in the SDN-list, but a ban on opening correspondent accounts with US banks) will be required. Otkritie and Sberbank did not comment.
Questions remain on equity financing as well. At the end of 2021, Arctic LNG-2 was 57% funded. At the same time, TotalEnergies announced that it was stopping investments in Arctic LNG-2, since the sanctions adopted by the EU on March 15 prohibit new investments in energy projects in the Russian Federation, and on March 24, the head of the company, Patrick Pouyanne, who was quoted by Bloomberg, noted that “perhaps the project will require capital,” and Arctic LNG 2 shareholders, including TotalEnergies, may need to renegotiate their commitments.
Patrick Puyannehead of TotalEnergies, March 23:
“I know how to replace Russian oil and diesel fuel, but gas … I don’t know how to do it. If I decide to stop importing Russian gas, I don’t know what to replace it with… Without Russian gas, part of the European economy will collapse.”
The head of the Chinese CNOOC, Wang Dongjin, said on March 30 that the company is still assessing its risks. “It’s too early to make a decision, because the situation in relations between Russia and Ukraine is constantly changing, there are too many uncertainties,” he explained (cited by Platts).
The Nikkei, citing sources, said Mitsui & Co. and JOGMEC also stopped investments in Arctic LNG 2. The companies have not officially commented on this. On April 1, Japanese Economy, Trade and Industry Minister Koichi Hagiuda said that Japanese companies have no intention of withdrawing from Arctic LNG-2 yet, specifying that they “would like to respond appropriately after carefully studying how it is (sanctions.— “b”) will affect Arctic LNG-2.”
