“Gazprom” has warned about the risk of lower revenues because of new taxes

“Effects of a substantial increase in the tax burden, if it takes place, will be negative not only for companies (“Gazprom”. — ) but for the entire oil and gas sector, adversely affecting its investment attractiveness”, — said Wednesday, August 31, on the call with investors, head of financial-economic Department of “Gazprom” Alexander Ivannikov (quoted by TASS).

For example, the lack of stability is causing “serious concern” Wintershall, the German partner “Gazprom” joint venture “Achimgaz involved in the development of the Urengoy field, said a top Manager.

According to Ivannikova, the company excludes the revenue decline in 2017 due to the increase in the tax burden on it: “If the decision will still be made, it will reduce the financial results of the company <…> that would require adjustments to the budget <…> including reducing the investment and increasing borrowing. (Quoted by “Interfax”.)

Last week, August 25, the newspaper Vedomosti reported, citing three Federal officials that the Finance Ministry has drafted an additional package of tax exemptions for oil in 2017, which, in particular, suggest raising the tax on mineral extraction (met) for gas that will lead to further withdrawal from Gazprom 170 billion (150 billion rubles from oil companies). At the end of last year, the government decided to change the formula of the severance tax on gas to increase fees from Gazprom 100 billion rubles in 2016. But then it was stated that this will be a one-time measure.

“Official information on this subject is absent”, — said on Wednesday Ivannikov. But he said: “We do not exclude the possibility of extending the increased rate of the tax by 2017”. Top Manager also noted that the company will hold discussions on this matter with relevant agencies. “Now early to speak about specific proposals and figures, as is the work on the draft Federal budget”, — said the representative of the Ministry of Finance. Final proposals will be submitted along with the budget, he added. The representative of the energy Ministry declined to comment.

“Raising taxes is a major risk for shares of Russian oil and gas companies, and this risk seems to materialities approaching the end of the year, hence the discussion of the budget for next year”, — stated in the report of investment company “Aton”. “Gazprom” will have every reason to resist the high dividend payout next year as the additional taxes even more “undermine” him, and so unstable free cash flow (FCF) due to low gas prices in Europe and intensive capital investment, experts say.

However, the dividend for 2016, most likely, will not be lower than the previous year, said on Wednesday Ivannikov. But to speak about a sharp increase in emoluments in the current environment, “must not”, said a top Manager. For 2015 the shareholders of “Gazprom” decided to pay dividends from calculation of 7.89 rubles. per share, or about 187 billion rubles in total (about 24% of profit under IFRS, or about 50% of the adjusted net profit under RAS). This is 9.6% higher than it was at the end of 2014. Revenue from gas sales in 2015 increased 15% to 3,427 trillion rubles.

But the existing base producing assets allow “Gazprom” to reduce the level of production, and hence revenue in the case of tax increases, says the analyst of “Opening the Capital” Artem Konchin. Reduction of capex in this case is more likely to be directed at reducing investment in gas transportation, where there is clearly potential for savings, he adds.