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. Last Updated: 07/27/2016

Gazprom Will Pay Taxes With Food

In another sign of the government's crumbling commitment to collect cash, the Kremlin has agreed to let Gazprom pay its multimillion dollar tax bills with food, and Gazprom in turn is set to accept more than $1 billion in food and other goods from Belarus and Ukraine for gas supplies.

The Kremlin and Gazprom settled on the bizarre gas-for-food, food-for-taxes barter chain as a winter of food shortages looms in Russia f where food imports were devastated by the crashes of the ruble and of the banking system, and a poor harvest has diminished domestic food stocks.

The size of the deal is staggering: The state and Gazprom have agreed to accept food payments approaching the scale of a typical loan tranche from the International Monetary Fund.

The agreements reflect the government's growing lenience toward the national gas monopoly as it struggles to collect cash during a period of financial crisis.

The previous government team of Sergei Kiriyenko and crusading tax chief Boris Fyodorov had pushed Gazprom to pay its taxes fully and in cash. But new Prime Minister Yevgeny Primakov and his new tax chief, Grigory Boos, have been far more relaxed. Last week, the Primakov government agreed to accept 40 percent of Gazprom's 13.2 billion ruble ($790 million at Saturday's official rate) tax bill through the end of 1998 in gas and other goods.

"This crisis has, predictably, forced us to examine and think about that which we earlier would have brushed aside," Vladimir Popov, the tax service's head of collection from major taxpayers, said in remarks reported Friday by the newspaper Segodnya. "If we want to have a real budget in the coming year ? we must honestly admit how much [Gazprom] can pay in cash, guaranteeing regular payment."

A Gazprom spokesman could not specify what kind of food Belarus and Ukraine would deliver, but said the goods would be transferred to the government as tax payment.

"Of course, like most normal people, we would prefer to receive cash payments. But very many who receive our gas cannot pay us with cash," he said.

If the government was sympathetic to Gazprom's cash-collection plight, economists were not.

"This is very bad news," said Alexander Gourbareb, an economist at CAIB investment bank. "It's been clear since Primakov was appointed and formed his government that this government is not going to stick to sound financial policy."The agreement signed with the Belarussian government last week allows Minsk to pay for $550 million worth of gas by year's end with a garage sale's worth of stuff, including $250 million in food and other goods; $200 million in government securities; and $100 million in cash, Gazprom said in a statement.

About $200 million in food will be shipped to the Russian government further on as payment for Gazprom's taxes, the statement said. It was not clear how Gazprom would use the remaining $50 million in food and other goods.

An as- yet unsigned deal with Ukraine, meanwhile, would allow the nation to pay for $1 billion worth of past gas deliveries with food, Ukraine's first deputy prime minister, Anatoly Holubchenko, was quoted by news agencies as saying this week.

Food-for-gas-for-tax swaps aren't limited to Ukraine and Belarus. A Polish trading company said Friday it had extended a complex agreement to ship food to the Moscow city government in exchange for gas from Gazprom through the year 2000. The food deliveries appear to cover Gazprom's tax payment to the city, where its headquarters are located.

The deal has existed for four years, according to Jan Antosik, financial director at the trading company Bartimpex in Warsaw. Bartimpex pays cash to Gazprom's trading arm, Gazexport, in exchange for gas. Gazexport then transfers this cash to the Russian trading house Exima, which transfers the cash back to Bartimpex in exchange for food. Exima then ships the food to Moscow.

"There was an agreement between Gazprom and the government of Moscow that a certain quantity of gas in 1999 and 2000 will be sent to buy food for Moscow," Antosik said in remarks reported by Reuters.

Gazprom's spokesman said he couldn't confirm whether such an agreement existed but said it was possible.

Oil and gas analysts noted that Gazprom has always accepted barter payments from former Soviet republics and other customers. Ukraine has traditionally received three-quarters of its gas for free in exchange for allowing Gazprom to ship its gas across Ukraine to Europe.

With the onset of financial turmoil at home and throughout the Commonwealth of Independent States, Gazprom's cash collection dropped to only 12 percent of total receipts in the first nine months of the year, down from an average of 15 percent last year, according to one oil analyst who asked not to be named.

He said Gazprom would be foolish not to deal in barter payments so long as the government is willing to play along.

"I never like it when Gazprom takes barter, but if these deliveries truly offset their government liabilities, then it's a positive development for the company," he said.