ABU DHABI - The OMV Stake.

IPIC holds a 19.56% stake in OMV, the largest energy and industrial group in Austria which has been privatised. OMV's upstream division produces oil abroad and plans to have additional E&P ventures in several countries. It produces oil and gas in Austria. It has growing divisions for oil refining and products trade, and for gas trades. About 40% of Russian gas exports in Europe are carried by OMV pipelines. After expansions are completed, OMV pipelines will become the transit point for 60% of Italy's and 47% of France's gas imports.

IPIC's purchase into OMV was implemented in two phases. On May 19, 1994, IPIC bought 13% of the shares from the Austrian state holding company OIAG. The remaining shares came from a rights issue to increase the company's nominal capital by June 20 of that year.

IPIC paid $450m for the investment, which was labelled as a "strategic alliance", with OMV well placed at both the upstream and downstream ends of the European energy business.

The deal was finalised during a visit to Abu Dhabi by OMV's CEO Richard Schenz, when he also discussed possible joint ventures in Central Europe with IPIC. As a result of the deal, OIAG's stake in OMV dropped from 72% to 52.4%. This was subsequently reduced to 49.9%. Under Austrian law, OIAG had to cut its equity in OMV to 25% plus one share by end-1996.

OIAG then planned to sell up to 13% through a secondary share offering by end-1995. That left room for IPIC to raise its equity to 32.6% and OMV encouraged it to do so. But IPIC declined, because it was not happy with the attitude of OMV's management. In May 1996, OIAG sold more than 4m shares representing 15% of OMV's share capital, with 40% of them offered to local investors and 60% to foreign investors. The sale brought OIAG's holding in OMV down to 34.9%. OIAG made another share offering in 1998.

Two IPIC executives, Walid Al Muhairi and Khalifa Al Kindi, joined OMV's board of supervisors soon after the equity purchase in 1994. Initial indications were that they would exercise more influence than OMV had expected. But it turned out that the scope for influence by IPIC was limited because the company's supervisory board had less to do with decision making than the management board, where IPIC was not allowed to be represented.

Earlier in 1994, OMV had rejected another potential partner, Bayernwerke of Germany, as it had feared the giant would interfere in its management process. It had approached IPIC in early 1994 on the assumption that the Abu Dhabians would be "sleeping partners". At any rate, IPIC has minimised its risk exposure in the deal. Clauses in the purchase agreement allow it to withdraw from OMV at any time until 2010, and get its money back in full, if the Austrian government's share drops below 30.1%. In this way, IPIC has had indirect control over future changes to the firm's shareholding.

IPIC's relations with the Austrian side were strained in 1995 after Abu Dhabi's proposal for an additional board member was brushed off by the OMV management and by OIAG. For its part, ADNOC was disappointed that it could not work out a crude oil supply deal with OMV, as had been promised by the Austrian company.

The Abu Dhabians had thought from the outset that the share acquisition by IPIC would be followed by a term contract, with ADNOC to supply crude oil to OMV's 210,000 b/d refinery at Schwechat, just outside Vienna (on the road between the Austrian capital and its international airport), and to its Burghausen refinery (70,000 b/d) in southern Germany.

Instead, OMV offered to swap crude oils with ADNOC, which the latter turned down because it was not in the business of trading in oils other than those of Abu Dhabi. Relations were strained further in late 1995 after OMV's chemicals and plastics division, PCD Polymere, dropped out of the bidding for partnership in ADNOC's petrochemical project at Ruwais.

The deal with IPIC also envisaged technical co-operation and possible involvement in international E&P projects. It was then suggested that Abu Dhabi could focus on OMV's gas business, which accounted for 13-14% of total OMV sales, with the emirate being a major exporter of LNG. In recent years company officials suggested that, with the Yugoslav civil war now over, a proposed LNG terminal on Krk island in the Adriatic could be partly supplied with LNG by the Abu Dhabi Gas Liquefaction Co. (see Gas Market Trends).

In October 1999 IPIC's directors on OMV's board of supervisors were upset by political manoeuvring as Schenz began back-stage tactics to secure a renewal of his employment contract beyond July 2000. He also wanted to determine the make up of the management board. As the government still owned the largest equity in OMV, 35%, it had the power to determine the succession. IPIC threatened to pull out if politics interfered with competency considerations, as was the case in the choice of directors in 1996 and in 1997. The problem was resolved subsequently.