Press reports that MOL has signed a contract on the construction of a government mandated strategic gas reserve. Mol is expected to set up a joint venture with MSZKSZ (state-owned Strategic Gas Reserve Company), to build the reserve. MOL holds 62% in the JV while MSZKSZ and E.ON owns the rest according to a stock exchange statement. According to plans gas would be bought from Turkmenistan and be stored in one of MOL’s exhausted gas field in SE Hungary.
Our view: As the legislation Hungary approved last spring requires the construction of a 1.2bn cubic meter strategic gas reserve by 2010 the state announced the tender on it last autumn.
In November, MOL was declared the winner of a tender ahead of E.ON but it is widely expected that MOL will let E.ON join this business with a minority stake. The JV would collect annual revenue of HUF 12.7bn from fees for operating the reserve, Hungarian press speculates. While investment costs of the project are relatively low, the JV should finance the holding of the 1.2bn gas, which currently worth some HUF 70bn. Thus, we consider the deal as only slightly favorable for MOL: operating costs and taxes would only leave few billion forint profits for the JV. This sum is minor when compared to our expectation on MOL’s annual net profit of HUF 253bn.