Vedomosti: "Gazprom's Losses from War with Ukraine Come to $1.8 Bn"
By Yelena Ivanitskaya
Gazprom has already lost about $1.8 billion as a result of the conflict with Ukraine. Russian Government officials are pondering measures to help the gas concern, including cuts in export duties.
On January 7, Gazprom suspended gas supplies to Europe via Ukraine. This is its main transit route, accounting for over 70% of gas exports. Prime Minister Vladimir Putin said recently that Gazprom's losses on revenues from European sales had already exceeded $1.2 billion, and in fact, its revenue losses may be even larger - $1.8 billion in the past 12 days, as calculated by Mikhail Korchemkin, Director of East European Gas Analysis. This latter amount is the difference between Gazprom's revenues at the time it suspended supplies via Ukraine and the revenues it could have received by agreeing to the Ukrainian price offer of $235 per 1,000 cubic metres for the first quarter of this year.
Calculation methods
Gazprom is not releasing the exact figures on export cuts. However, there are two other transit routes to Europe - via Belarus and Turkey - and Gazprom boosted gas supplies via these routes. On January 16, the data on Gazprom's production cuts caused by the conflict were made public for the first time since the start of the conflict: the daily figure is 200 million cubic metres, said Boris Posyagin, head of Gazprom's central gas flow dispatching department.
However, even this figure does not help to give a clear picture of the real cuts in gas exports, as there are no data on applications for supplies in crisis conditions, on a fall in Gazprom's gas purchases from other Russian producers, on the amount of fuel taken from the reserves in European gas depots, on the amount of gas pumped into Russian underground gas storages (which is being done, according to Mr Posyagin, though gas is usually lifted from storage facilities, not pumped into them, in winter). In addition, Gazprom has to buy Central Asian gas that formerly went to Ukraine. A Gazprom spokesman confirmed this fact but did not mention the amounts of purchases, the price, or the destination (a representative from Uzbekneftegaz refused to comment and there was no opportunity to contact Turkmengaz).
In reality, Central Asian gas mixes with Russian gas in the pipeline and the bulk of this gas goes to the nearest consumer, which is Russia, says a source close to Gazprom. Most likely, it will be documented as supplies to Europe, which is the only way not to lose money from its purchases, the source tells the Vedomosti business daily. According to Mr Korchemkin, with the average Central Asian price of $340 per 1,000 cubic metres in the first quarter (as mentioned by Prime Minister Vladimir Putin recently), and the European gas price of about $400 per 1,000 cubic metres, Gazprom's daily revenues from gas supplies to Europe amount to about $24 million (including transport costs). Out of this amount, $3 million is paid for 130 million cubic metres of Central Asian gas, which is expensive for Russia, and $21 million for 55 billion cubic metres of cheap Russian gas (see figure). If Russia had consented to the Ukraine-proposed price of $235 per 1,000 cubic metres, it would have lost about $18 million a day only from the difference in the Central Asian and Ukrainian prices. However, even with these losses, Gazprom's daily revenues (from both Europe and Ukraine) would have amounted to about $170 million, which means that Gazprom is losing about $150 million a day now and that its total losses from January 7 to January 18 have already reached $1.8 billion, the expert explains. He adds that gas transit is not likely to be resumed soon. A Gazprom employee confirms that direct supplies to Europe amount to about 180 million cubic metres a day now (compared with last year's figure of 560 million cubic metres), and sales together with gas lifted from underground gas depots exceed 200 million cubic metres.
Measures to help
Even without its losses from the conflict with Ukraine, Gazprom is running a budget deficit in 2009, says a source close to its board of directors. Meanwhile, the plan for the 2009 investment programme amounts to 920 billion roubles. "There is a deficit and we are seeking the means to cover it," Sergei Shmatko, Russia's Energy Minister, told Vedomosti. "We are holding meetings to discuss the problem, so the decision may be made in February, and there is no talk of curtailing the investment programme," the minister said.
Gazprom has already applied for 150 billion roubles in easy-term government loans. Another proposal is to cut gas export duties (which make up 30% of customs value), including through changing the calculation of customs value used as the basis for estimating export duty, the Gazprom source says. According to a Federal Customs Service officer and two officials from the Finance Ministry (the Federal Customs Service turned to the Ministry for its conclusion on the matter), Deputy Prime Minister Igor Sechin instructed the Federal Customs Service in late November to look into this issue. Gazprom proposes that transport costs be excluded from customs value.
The Finance Ministry strongly opposes this measure, one of the Ministry's officials said. They believe Gazprom will try to overrate its transport constituent and even raise it to 90% of its export price (considering that its production cost is about $10 per 1,000 cubic metres). However, the conflict with Ukraine can make the officials change their mind, the Gazprom source says. Should the method for calculating the duty be changed, the concern will be able to save around $4 billion on exports to the non-CIS countries, says Denis Borisov, an analyst with the Solid investment company. Dmitry Peskov, Vladimir Putin's Press Secretary, says that the Government is looking for ways to compensate for Gazprom's losses.
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GAZPROM
OIL AND GAS HOLDING
MAIN SHAREHOLDER - FEDERAL GOVERNMENT (50.002%)
MARKET CAPITALISATION IN THE RTS, $80.5 billion
IFRS FINANCIAL INDICATORS, 1H08
REVENUES, 1,743.2 billion roubles;
NET PROFIT, 609.4 billion roubles.
