Gazprom will save producers $900 million

“Gazprom” has agreed with its main suppliers of tubes changing the price formula to large diameter pipes (LDP), said the monopoly and producers on Tuesday. The largest pipe manufacturers in Russia, agreed to change the formula includes TMK Dmitry Pumpyansky, Anatoly Sedykh, OMK, CHTPZ Andrei Komarov and Izhora pipe mill (controlled by the “Severstal” Alexey Mordashov).

So far, the formula took into account mainly commodity indexes (for coal, iron ore and ferroalloys) and the price of steel sheet, but in 2015 due to the devaluation of the ruble pipe manufacturers suggested “Gazprom” to revise the mechanism. Now the formula of the contract every supplier of pipes will take account of its specific costs of raw materials, production and transportation of steel sheet and the manufacture of pipes, said the representative of the PMC. The new methodology provides for the possibility of change of the price according to inflation and currency fluctuations, he added.

Large diameter pipe used in the construction of gas pipelines and are one of the most profitable products Trubnikov. The previous agreement on the price formula for LDP between Gazprom and pipe manufacturers was signed in 2012 after a series of price disputes. Then the talks about pricing lasted about a year and a half with the participation of the Federal Antimonopoly service. Since then, the formula has not changed.

Agreement on the new price formula has been achieved relatively easily, because its adjustment and favorable to “Gazprom”, said a top Manager of one of the pipe companies. The loss of margin from the sale of large diameter pipe would cause the pipe manufacturers to reduce production and postpone modernization of production, and Gazprom would then have had to buy pipes in foreign markets at higher prices. Moreover, a shorter time of revision of prices hedge the risks of “Gazprom” in case of reduction of prices for steel sheet and currency fluctuations. In “Gazprom” have refused to explain their signing of the agreement, saying only that required updating of the formula arose “in connection with changed market conditions”.

The effect of correction formulas in terms of money pipe manufacturers do not presume to evaluate. The new technique will allow to exclude from the process of pricing volatility in the prices of metallurgical raw materials, which last year reached 15%, said the partner of several pipe manufacturers. A source at another pipe company said that in the current market conditions with application of the old formula, the plant workers would lose up to a third of the market value of biodiesel fuel.

According to the Fund of development of pipe industry, in 2015 year in Russia has sold more than 3.3 million tonnes of biodiesel, of which approximately 2.1 million tonnes purchased by Gazprom. The average cost of a ton of biodiesel to 2015 amounted to $1.3 thousand, according to the annual report of Severstal. Based on these data, the pipe damage from the use of the old methods of calculation of price could be about $880 million of total revenue (representatives of pipe manufacturers and Gazprom this figure does not comment).

The new formula will be valid in the period 2016-2018, according to the press service of the Ministry of industry and trade. But the big cash effect of pipe manufacturers from it will not receive, acknowledge the source in pipe companies, as adjusted the calculation of the price of large diameter pipe “Gazprom” informally applies from 2015. It follows from the message of the Ministry of industry and trade: “due to the unstable economic situation in 2015, pipe companies and Gazprom switched to “manual mode” to set the price. Agrees with it and analyst BKS Oleg Petropavlovsky: the effect was last year, for example the profitability of TMK (the only public pipe company) for the nine months of 2015 increased by 2 percentage points to 15%, compared with the same period of the year, he says. The representative “Gazprom” does not comment.