Czech pipeline company seeks to boost reverse flow, mulls strategic investments

Main Czech gas pipeline company NET4GAS has been given a solid reference from credit rating companies but final decisions on what the government sees as key strategic infrastructure projects are still under consideration.

The Czech Republic’s main gas pipeline owner and operator NET4GAS on Wednesday announced confirmation of its credit ratings from two of the world’s leading agencies. Standard & Poor’s and Fitch confirmed the BBB plus evaluation with the extra silver lining that there is a stable and positive outlook.

“Both credit rating reports reflect that NET4GAS has sufficient financial strength to meet its future obligations and is ready for the smooth implementation of its planned long-term investments into the gas transmission system in the Czech Republic,” was the extra comment from the company which owns the main gas transport infrastructure in the country.

The announcement has some added significance given the context of past strained relations between the gas company and the Czech energy regulator ERU and Ministry of Industry and Trade. The energy regulator in particular last year voiced concerns that the investment consortium that took over NET4GAS from previous owner RWE had left it with worrying low capital to cover its operations. Those worries were initially echoed by the ministry.

Essentially, ERU accused the new Canadian-German investment partnership of Borealis Infrastructure and Allianz Capital Partners that bought out RWE in the Spring of 2013 of running down the pipeline company’s capital reserves to help it pay off the substantial bank loans taken out to cover the acquisition of the pipeline company. The regulator highlighted a 90 percent cut in reserves and warned that this could put the company, and deliveries of gas, in danger if it hit troubles.

On the infrastructure side of things, NET4GAS has submitted its 10-year infrastructure plan stretching to 2025, it is an annual exercise which allows both the regulator in first place, but also ministries and other interested parties to evaluate whether the pipeline network is developing in accordance with energy security and other expectations.

The Czech government has been banging on for years about its desire for a new gas pipeline, STORK II, between the country and Poland to be constructed. NET4GAS though has been reluctant to give a final investment decision and that is still pending. The basic problem is that what are strategic investments for governments do not always make commercial sense to the companies that will be tasked with backing them.

Some encouragement for the Czech-Polish project came this month with the offer of just short of 63 million euros in European Union funds for construction and that it now being factored in. Closely linked with the Morava pipeline which should strengthen the current weak Czech gas distribution network to Northern Moravia, STORK II has a broader European significance as part of the so-called North-South gas corridor eventually linking Poland and Croatia and diversifying and strengthening gas supply possibilities en route.

Other strategic gas projects, such as a two-way gas interconnection between the Czech Republic and Austria, are also waiting for a final investment decision from the pipeline company. A survey of market enthusiasm for the project has been carried out with NET4GAS and its Austrian counterpart now digesting the results.

NET4GAS, in close connection with its Slovak counterpart Eustream, is moving now though to boost so called reverse flow gas flows. Technical changes adding around 12 million cubic metres a day of reverse flow capacity are planned for the main Czech pipeline to be completed in 2016. The investments reflect the increased importance of such reverse flows given the situation in Ukraine and ongoing concern about the reliability of more conventional East-West gas shipments from Russia.