WATCHING THE WORLD TWINS SUFFER AFTER 'VELVET DIVORCE'

The split of Czechoslovakia into two republics at the end of last year went so smoothly it became known as the velvet divorce.

But divorce always hurts someone, if not the main parties.

Transgas is a major gas pipeline running from Velke Kapusany at the Ukraine border to Hora St. Kateriny and Waidhaus on the German border. Before the divorce, it was operated by a single company, part of the state gas concern.

When the federation split into the Czech Republic and Slovakia, Transgas was split between two companies, Ceske Plynarensky Podnik (CPP) and Slovak Plynarensky Podnik (SPP), both divisions of new state companies.

As a unit, Transgas had ambitious plans under the government's privatization program. It originally was slated for selloff under the second wave of privatizations, due later this year. The divorce has halted that.

RUSSIAN EXPORTS

"Transgas is the largest single energy carrier in Europe, importing 5% of total primary energy needs or 25% of gas burned by continental gas importers," said Graham Weale, energy group manager at WEFA Ltd., London.

About 2 tcf/year of gas is exported from Russia through Transgas, mainly to Germany, France, and Italy. Smaller customers are Austria, Switzerland, Croatia, Czech Republic, and Slovakia.

The gas earned Russia $5 billion in 1992. Transporting the gas earned Transgas about $600 million, $500 million of which was profit. The Transgas pipeline also is a kingpin on which a greater Central European gas system could eventually be based, Weale said.

Besides the fact that customers now have two transit contacts instead of one, with the possibility of synchronization problems, and the loss of flexibility of two systems compared with one, a bigger problem looms.

IMBALANCE

"The Slovak part of the system carries much more gas than its Czech counterpart and therefore earns twice as much cash," Weale said. "However, the key entrepreneurial leaders originally responsible for the entire Transgas system are now concentrated in CPP.

"This separation of dynamic leadership from the financial resources will seriously limit the potential for expansion. It will delay realization of the Transgas management dream to become the Ruhrgas of Central Europe."

Another problem facing CPP and SPP in the runup to privatization is that they are the most profitable sectors of the state gas industry.

"The governments must decide whether and to what extent the Trangas companies should subsidize the national gas companies," said Weale. "They also must decide whether Transgas or the national companies should pay for the costs of import gas supply diversification. Until these points are settled there is no basis for privatizing the Transgas companies."