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. Last Updated: 07/27/2016

Gazprom Warns Duma Over Budget

Gazprom, the most powerful company in Russia, on Friday threw its political weight behind the government, warning the State Duma and regional bosses not to thwart Prime Minister Yevgeny Primakov's economic program.

The natural-gas monopoly issued its blunt warning on the day the government finally sent its draft version of the 1999 budget to the Duma. The government claims the budget is a tough one, including a historic surplus of revenues over expenditures.

The warning from Gazprom was unexpected and probably pre-emptive. The Duma has so far supported the government's legislation. Deputies on Friday overwhelmingly approved on second reading a government bill of priority budget and tax measures for the fourth quarter.

Interfax reported Friday that a top Gazprom official would publish an essay next week in two Gazprom-owned newspapers criticizing the Duma for failing to support Primakov, after approving him as prime minister only three months ago.

The Duma has "opposed the Cabinet's business-like mood by fomenting political passions," Vyacheslav Kuznetsov, a senior adviser to Gazprom head Rem Vyakhirev, wrote in the essay to be published Dec. 15 in the newspapers Trud and Rabochaya Tribuna. "Some deputies have relapsed into separatism," the article says.

Gazprom justified the article, saying it could not stay out of politics because "the danger of a collapse of authority and a new paroxysm of destabilization is approaching threshold levels."

The article is titled "So As Not to Die Alone," a quote from

a song by Russian poet Bulat Okudzhava.

The article will be timed to appear just as the Duma starts to consider the draft budget for 1999, which the government claims will generate a primary surplus equal to 1.7 percent of gross domestic product. A primary surplus means revenues will exceed expenditures, excluding borrowing costs.

Some economists warn however that the budget's spending and revenue predictions are unrealistic and the government may be forced to print billions of rubles to meet a deficit.

The budget also assumes the International Monetary Fund will help Russia line up $7.5 billion in foreign loans and convince creditors to restructure another $8.5 billion in maturing debts.

But the IMF has criticized Russian budget policy. IMF deputy director Stanley Fischer said Thursday that Russia had made a mistake by cutting value-added tax from 20 percent to 15 percent in the 1999 budget.Finance Minister Mikhail Zadornov said Friday he hoped that the budget would convince creditors that Russia was taking "definite measures" to pay its debts.

The Duma has traditionally fought the budget every inch of the way, usually fighting for increasing spending.

But the Communist-dominated lower house has shown considerable good will toward Primakov's government, which is packed with communists and Soviet-era regional bosses.

On Friday, the Duma passed at the crucial second reading a bill on priority budget and tax measures that orders the Central Bank to print 25 billion rubles ($1.27 billion at Friday's official rate) to meet the government's huge deficit for the fourth quarter.

Economists say the printing of money by the Central Bank to finance the deficit has already contributed to high inflation and the decline of the ruble.

Friday's bill also orders the Central Bank to hand over $3 billion from Russia's hard currency reserves to meet foreign debt payments. The Central Bank's reserves reported this week that its reserves had shrunk to $12.1 billion, down from $13 billion on Nov. 20.

The new bill compensates the Central Bank for the cost to its reserves by requiring that exporters sell 75 percent of their hard currency earnings in Russia, rather than the current 50 percent. This allows the Central Bank to replenish its reserves by buying cash with freshly printed rubles on the foreign exchange market.

The measure may also help support the ruble but Central Bank chairman Viktor Gerashchenko told the hearing that banks were using trickery to undermine controls on hard currency speculators.

The bill also doubles or quadruples land taxes and create a system of state regulation of platinum exports.

The Duma only introduced two major amendments to the bill. One slightly softened a hike in excise taxes on tobacco and alcohol, raising the rates by only 20 rather than 25 percent.

The other Communist-inspired amendment insured that the expenses of the Duma would be financed 100 percent and would not be subject to cuts if budget revenues ran short.

Gazprom's support of Primakov marks a change of alliances from its close ties with Primakov's predecessor Viktor Chernomyrdin. Primakov's government has tried to reduce tension with Gazprom over how much tax the gas giant would pay to the Federal budget.

Georgy Boos, new head of the State Tax Service, visited Gazprom the week he was appointed and publicly announced that he would stop attempts to force Gazprom to pay more taxes.

Zadornov said the government, which owns a 40-percent stake in Gazprom, is hoping to receive up to 10 billion rubles from the sale of a 2.5 percent stake next week.