MOSCOW, March 20 (Reuters) - Russia’s Gazprom, threatened with tax hikes that could skim off most of the upside from rises in regulated tariffs, has proposed shifting the burden to consumers via an extra rise in domestic wholesale prices, the Vedomosti daily said on Tuesday.
Gazprom declined to comment on the report, which said it had proposed an additional increase in the price of gas of 26.3 percent from Oct. 1 in addition to a 15 percent increase on June 1 agreed earlier.
The possible hike in gas taxes, aired by senior Finance Ministry officials, comes as the government seeks new revenues to cover a huge increase in spending in the runup to Prime Minister Vladimir Putin’s election as president on March 4.
Federal outlays rose by 45 percent in the first two months of this year, and economists estimate that mid-term commitments made by Putin could push up the oil price at which the budget balances to $150 per barrel from $117 now.
While the government relies on energy levies to cover half of its revenues, the gas sector is lightly taxed in relation to the oil industry in Russia, the world’s largest crude producer.
Shareholders in the state-controlled gas export monopoly have, meanwhile, based their investment case on a view that domestic gas prices will converge towards higher export prices, boosting Gazprom’s top line and profitability.
That assumption has now been shaken, leading shares in Gazprom - Russia’s largest listed company with a market value of $160 billion - to shed 7 percent from their year high on March 15, dragging benchmark stock indexes lower.
“While we fully anticipated that the question of tariffs and taxes would be re-opened in the course of 2012, we expected neither for the debate to emerge before the new government was so much as named nor for the ministries to take such an aggressive position,” said Citi sector analyst Ron Smith.
Smith, in a research note, cut his recommendation on Gazprom shares to ‘neutral’ from buy and cut his target price to $6.50 from $8. His revised target price is just above the level of 186.25 roubles ($6.39) where Gazprom shares traded on Tuesday.
“A further increase in the gas tariff in 2012 seems likely, although we doubt it will be as large as 26 percent. For Gazprom, there is a risk that all the increase will be used for extra capex of questionable usefulness,” Uralsib said in a note.
Vedomosti reported that Gazprom had proposed the increase mainly for industrial customers, excluding politically sensitive households and municipal utilities.
Even an increase for industrial buyers could be a controversial one for Putin, who will be sworn in for his third Kremlin term on May 7 and is expected to name outgoing President Dmitry Medvedev as his prime minister.
Russia’s next government has yet to take shape and analysts say that the cut and thrust of the energy tax debate is symptomatic of the contest for power, influence and posts in the next Russian cabinet now under way.
Energy-intensive industries, especially metals producers, enjoy a competitive advantage in Russia over their foreign peers and their profitability would be squeezed if gas prices are hiked sharply on the home market.
The government must weigh that against a long-standing pledge to raise the domestic price Gazprom charges its industrial customers over time to bring them in line with much higher export netbacks.
The reported Gazprom proposal appears to respond to comments by Finance Ministry officials suggesting that mineral extraction tax on gas could be increased to eat up 80-100 percent of the additional revenue from increased tariffs.
The state this year almost doubled mineral extraction tax for Gazprom to 509 roubles ($17.46) per 1,000 cubic metres from 237 roubles previously.
If Gazprom gets its way on prices, the average tariff rise for the year would total 17 percent. The domestic tariff would amount to around 4,000 roubles ($140) per 1,000 cubic metres, compared a current European price of $400. ($1 = 29.1577 Russian roubles) (Reporting by Vladimir Soldatkin, Melissa Akin and Douglas Busvine)