Gazprom faces tax grab
The Kremlin is pursuing another way to extract money from Gazprom, after failed efforts to force a dividend rise
The Kremlin wants to increase the mineral extraction tax (MET) paid by export monopoly Gazprom, as it looks to quietly abandon a decree obliging state-controlled companies to pay higher dividends. The decree has been observed mainly in the breach.
Russia's State Duma legislature in July passed a law adjusting the MET rate paid by Gazprom. From 1 September, a coefficient used to calculate the MET on gas for Gazprom will be raised—to 2.055 from 1.402—for the remainder of the year.
Ilya Trunin, deputy finance minister, said this temporary increase in MET would partly compensate for the 72bn-rouble ($1.13bn) shortfall in the state budget from Gazprom's failure to raise its dividend payout in accordance with the decree. In April last year, the Kremlin ruled that state-controlled companies must hand over half of their earnings in dividends, in a renewed bid to squeeze cash out of state-controlled behemoths like Gazprom.
Of the company's shares, 50.23% are owned by the Russian state or state-controlled companies, 25.2% are held as American Depositary Receipts and 24.57% are in the hands of other legal entities and individuals, according to Gazprom.
However, the decree has had little impact. Both Gazprom and state oil firm Rosneft managed to wiggle out of their obligations by securing a controversial waiver.
Gazprom chief executive Alexei Miller and his management have long used Gazprom's capital expenditure programme as an argument not to comply with the decree. They say there's no need to change the pay-out level dramatically until about 2020 when Gazprom passes its "peak phase" of spending.
Miller has said he expects Gazprom's current total dividend payment of 190bn roubles to remain steady. That's about 20% of profits, under International Financial Reporting Standards (IFRS), so well below the threshold required by the government decree.
Risk to finances
But analysts fear that the MET hike imposed for the rest of this year could have a negative impact on Gazprom, if extended into 2019. The government last increased Gazprom's MET at the end of 2017, when a 27% raise translated into $700m, or 3% of the company's earnings. Its gas MET formula was then supposed to gradually decline to the 2015 level by 2020.
"Gazprom has already been adversely affected by increased taxes," Gazprombank analyst Evgenia Dyshlyuk wrote in a report. "At the end of 2015, faced with the need to finance the federal budget deficit, the Russian government, as an ad hoc measure, imposed a roughly 300bn-rouble tax hike on the oil and gas sector for 2016, of which 100bn roubles fell to Gazprom, via increased gas MET."
The new amendments, which need to be approved by President Vladimir Putin and the Federal Council, come as the Kremlin tries to face down protests against its controversial plan to raise the pension age. Like raising dividend payments, the move is aimed at bolstering the cash-strapped federal budget.
Despite Gazprom's assertions that it needs to bolster its financial resources, the company's profits have gone through the roof recently. Income jumped to the highest in three years in Q1 2018, as natural gas sales to Europe surged against a background of higher gas prices. Net income climbed to 372bn roubles from 333bn a year earlier, with revenue reaching a record.
Meanwhile, resistance to the dividend decree seems to be spreading. The Chamber of Auditors, which is now headed by the influential former finance minister Alexey Kudrin, estimates that dividend payments to the federal budget will drop by 34%.
Among the state companies planning to pay out only 25% of IFRS net profit are the oil producer Zarubezhneft and Sheremetyevo Airport. Airline Aeroflot, the lender VTB and Russian Railways have not yet provided their outlooks.