Gazprom increases 2010 investment plan

Nov 25, 2009 01:00 AM

Gazprom modestly increased its investment spending for next year to $ 27.9 bn, even as it risks losing half as much this year and next year in a dispute over extra customs duties.
The spending is 5.4 % more than the world's largest gas producer is investing this year, further evidence of its hopes for a market recovery. But the optimistic spending plans may run into trouble if the Federal Customs Service wins in an ongoing, multibillion-dollar dispute, although Gazprom is cautious about describing the threat.

"We believe it would be more accurate to speak about the emergence of a risk for Gazprom's earnings to fall seriously, which could influence the company's financial position," a company spokeswoman said.
This made the outlook for the company seem disturbing, despite assurances by board chairman and First Deputy Prime Minister Viktor Zubkov. He said in a Gazprom statement that the company would "undoubtedly" meet its investment targets in 2010. The statement announced the approval ofthe spending by the board.

Gazprom complained earlier this month -- in the financial report for the third quarter -- that the customs service changed the rules that it applies to gas exports, effective from April. It began asking Gazprom to state the exact volume and price of its outbound shipments before they cross the border.
Gazprom said it was technically unfeasible and declined to alter its practice, which was to file the statements after signing off-take papers with the customers abroad.

As a result, customs officials began charging higher duties based on Gazprom's preliminary export statements, which carry export estimates normally exceeding the actual volume and price. The Federal Customs Service, which has the task of filling the federal budget, refused to accept the more accurate final export statements that the company supplied later.
"Such actions by the customs service divert considerable financial resources from Gazprom's business," the company said in the report.

The Federal Customs Service also demanded earlier this year that Gazprom pay the export duty in advance for every month. Previously, the company paid the duty after delivery.
Gazprom may lose a total of RUB 386.1 bn ($ 13.4 bn) this year and next year because of these changes. Most of the losses would come from Gazprom's inability to recover value-added tax of more than RUB 200 bn next year on the gas exported this year, after the customs service rejected its final export statements, the report said.

The rest would include the difference between the higher duties from the customs service and what Gazprom would normally pay according to its final export statements. As another portion of the losses, Gazprom would also pay penalties because it continued to pay the duties it considered fair.
Gazprom, which is suing Central Energy Customs, has asked the government to intervene. Zubkov called a government meeting earlier this month to discuss the issue, the Gazprom spokeswoman said. Energy Minister Sergei Shmatko said earlier that more government meetings would follow to find a solution before the end of the year.

Investors have been encouraged to place their bets on Gazprom in the dispute. UralSib gas analysts said they doubted the losses would materialize because their consequences would not affect just the gas company.
"A reduction in its 2010 investment program would have a negative impact on the Russian economy," analysts Viktor Mishnyakov and Mikhail Zanozin said in a research note.

Gazprom plans to spend RUB 663.6 bn, the majority of the RUB 802.4 bn in its investment budget for next year, on capital expenses, the statement said. The rest will go toward long-term investments, such as the purchase of another stake in Belarusian pipeline operator Beltransgaz.
Gazprom had to trim its investment earlier this year to adapt to falling sales amid the economic downturn.

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