Gazprom gets even with independents

By bne IntelliNews May 3, 2012

Graham Stack in Kyiv -

The Russian government announced on May 2 that it has finally pushed through a decision on hiking taxes for the gas sector. The move hit share prices hard, but could signal a massive shift in the structure of the Russian gas sector towards liberalisation.

The new mineral extraction taxes (MET) announced by Deputy Finance Minister Sergei Shatalov will see the levies on independents raised by as much as four times to see them pay the same as Gazprom, for which the state giant has been pushing for some time.

The move is part of a drive towards liberalising the gas export market, with the current difference in tax rates due to the fact that Gazprom holds a monopoly on selling Russian gas abroad, whereas other producers are limited to selling their output domestically, at tariffs regulated well below global market prices. The government has been putting off significant domestic tariff rises as it has battled the crisis since 2008, but with the economy appearing back on track, it is expected to raise the price Russian consumers pay by as much as 15% this year.

Under the new regime, Gazprom faces a twofold increase in the level of MET it pays by 2015, to RUB1,062 ($36) per 1,000 cubic meters. However, Novatek and other independents will be paying nearly the same - RUB1,049 - which is around four times more than their current bill.

The announcement sparked a collapse in Novatek's share price, dropping almost 10% in Moscow and 9% in London. Gazprom's share price dipped by 1% and 2.24% respectively.

The news comes at the same time as production figures for March show that Gazprom's gas extraction decreased 5% on the year in March, whereas Novatek's production had increased by 19%. "We have not seen such a dreadful April for the gas giant in the past ten years, other than the crisis year of 2009. Moreover, the last days indicate a decline of over 8% year on year," write analysts at Troika Dialog.

Novatek - co-owned by founder Leonid Mikhelson and Gennady Timchenko, an associate of president elect Vladimir Putin and owner of shadowy oil trader Guvnor - has been seen to live a charmed life in recent years, constantly expanding domestic market share at the expense of Gazprom. The new tax proposals however risk throwing a spanner into Novatek's works short term, as well as potentially prompting oil producers planning to start producing gas to reconsider.

However, analysts suspect that the tax hike may herald further domestic tariff increases to 2015, on top of the anticipated rise this year, to bring them up to netback parity - which would allow Gazprom to earn the same on domestic sales as it does on exports. That should then allow liberalisation of the export regime, which is the official government goal, but the date by which it is to be attained has been postponed many times.

"As a result of such tariff growth, we estimate that gas prices in Russia will almost reach netback by the end of 2015," suggest VTB Capital analysts. "We also believe that this taxation would result in significant reshaping of the entire gas sector, which would be positive for Gazprom in the long term."

The move may also eventually work out well for independent producers such as Novatek then, despite the heavier taxation, since it could lead to the removal of Gazprom's export monopoly.

"The main argument for different MET rates has been Gazprom's access to the export market, while MET rate convergence, in our view, could open up export market access," write Alfa Bank analysts. "We see convergence of the MET as an important prerequisite for independents to gain export rights."

Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more

Notice: Undefined index: subject_id in /var/www/html/application/controllers/IndexController.php on line 335
Dismiss