Gazprom Paints Unclear Picture of Europe Demand for Gas

Июня 03, 2011

Russia’s natural gas giant OAO Gazprom has sent conflicting messages about demand in Europe. Its deputy head Alexander Ananenkov said Thursday demand for Russian gas on the continent is currently on the rise and the company needs to increase output and investments to meet it.

However, Gazprom’s another deputy head Valeri Golubev said a week ago the company is facing a significant drop of sales in Europe.
This seemingly blurred vision may be explained with Gazprom’s attempt to protect its coffers from the Russia’s finance ministry, which wants to double extraction taxes the company pays to 150 billion rubles ($5.4 billion) from 2012 to balance the government budget.
Gazprom officials said the company may bring more to the budget through exports and taxes on its profit when sales go up. However, to meet growing demand and expand in Europe, the company needs to increase production and open new gas fields, which means higher investment, the company said.
Gazprom estimates that to increase gas production from 508 billion cubic meters in 2010 to 570 bcm in 2014 it would have to increase its capital expenditure by 45% in 2011 to 1.18 trillion rubles and keep it at this or higher level for two additional years. But these increases are planned under the assumption that the mineral extraction tax will not be raised more than 5-6% in 2012, much less than the finance ministry has proposed.
Deputy Prime Minister and Finance Minister Alexei Kudrin said that the tax burden on the gas sector, mainly on Gazprom, would increase by approximately 150 billion rubles in 2012, about 170 billion rubles in 2013, and 185 billion rubles in 2014.
Although the government has said that a decision will be made shortly, the battle for Gazprom’s taxes is far from over. Gazprom’s deputy head Alexander Medvedev said Thursday the company has found a way to satisfy the government’s expectations of increased budget revenue without any negative impact on its own investment program. He didn’t provide any details, but said that the government should not slain “the goose that lays the golden eggs.”
So far, the government and oil producers have been saying Gazprom is paying less in taxes than others. Russia’s government has tried before to get more taxes from the gas behemoth, and failed—in 1998, the year when Russia defaulted on its debt.

"The Wall Street Journal"