Russian-Ukrainian Gas Conflict: Financial
Effects of the Russian Side
The state gains in tax collection, but loses more as
shareholder of Gazprom
Media reports and
political statements of both sides still lack economic analysis of the
Russian-Ukrainian gas dispute.
According to official
publications, management of Gazprom is aware of consequences of gas price
increase for Ukraine. At a briefing on June 7, 2005, Mr. A.Ryazanov, Deputy
Chairman of Executive Board of Gazprom, said that the price and the tariff
rate were very profitable for Gazprom and there was a good
partnership and mutual understanding with Ukraine. The original agreement
assumed the price of $80/mcm and transit tariff of $1.75/mcm per 100 km.
Later Gazprom and Ukraine negotiated a cut of both the price and the tariff.
Mr. Ryazanov said that a shift to European price for Ukraine would mean an
increase of transit cost of Gazprom, so calculations of costs and benefits
were required. The price increase was required because politicians could
blame Gazprom for using dumping price of gas. The Russian state would gain
because of a higher export duty.
Source in Russian:
Briefing of June 7, 2005
Note that on June 10, 2005, when the transit
deal with Ukraine was considered very profitable for Gazprom, the
spot price of
Russian Urals was $50.28 per barrel. On November 28, 2005, when Gazprom made
a statement about increasing the gas price for Ukraine from $50 to $160/mcm,
the price of Mediterranean
Russian Urals was $49.65.
Our earlier publications
give estimations of losses of Gazprom from the Ukrainian price raise. Table
1 gives our preliminary evaluation of the growth of tax collection from
Gazprom in case of the Ukrainian gas price of $200/mcm. The table compares
it with the case of sales at the cost of Russian gas delivered to Ukrainian
Change of Tax Collection from Gazprom, $ billion
Case of $200/mcm
Additional export duties
Additional profit tax
The case of $200/mcm assumes that
Gazprom pays about 0.7 of
tariff" for the use of underground storage facilities of Ukraine. Formally,
Gazprom is not using the facilities now under the special low-cost transit
Under this case, the state
gets additional income with the net present value of $4.1 billion (using
discount rate of 10%).
However, the growth of
export duties and increase of costs of transit and storage reduce the net
present value of cash flow of Gazprom by $9.4 billion. The state as the
major shareholder would lose $4.7 billion.
This is not the worst-case
scenario of the raise of gas price for Ukraine. The situation for Gazprom
can be worsened by introducing the following steps.
payment at European rate for the storage of 7 bcm of Gazprom gas currently stored in
Ukrainian underground storage facilities;
chain reaction of increases of price of gas imported from Central Asia and
other moves of Ukraine that negatively affect the capitalization of Gazprom.
These negative effects may
not be noticed while the European gas price is growing. However, we believe
the Russian state sends a signal that the goal of Gazprom is not the profit
maximization, but rather tax maximization and fulfillment of political goals
of the current presidential administration.
There is one positive
effect of the "gas war". RosUkrEnergo, that transfers part of Gazprom
profits to Switzerland, is likely to be liquidated.
Previous publications on
Russian-Ukrainian gas dispute:
Russian-Ukrainian Gas Conflict: Financial Effects of the
history of Soviet and Russian gas pipeline policy
the math of Ukrainian transit tariff