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. Last Updated: 07/27/2016

Sparks Fly in Krasnoyarsk Over Norilsk's Money

One-factory towns are not uncommon, but a one-company territory the size of Argentina is -- and when that company cuts revenue forecasts, budget wars ensue.

Two months into the fiscal year, the vast Krasnoyarsk territory in Western Siberia is struggling to make ends meet because the taxpayer that accounts for two-thirds of its revenues, metals giant Norilsk Nickel, is expecting to pay just a fraction of what it did last year in taxes.

Only on Monday did Krasnoyarsk Governor Alexander Lebed's administration submit to the regional legislative assembly its 2002 budget, which forecasts consolidated revenues of 34 billion rubles ($1.1 billion) and a hefty deficit.

Krasnoyarsk, with about 5 million inhabitants on 2.4 million square kilometers, has been trying to wean itself from metals giant Norilsk Nickel, slowly reducing the company's share of tax revenue by an average of 2 percent a year, Lebed's spokesman Gennady Klimik said by telephone Monday.

Norilsk paid 68 percent of the region's 22 billion ruble revenues in 2001. But world metals prices have dived, shrinking the company's forecast and thus its expected profit -- and its tax bill. And with a new tax code that shifts value-added tax to the federal budget and slashes the corporate profits tax rate, the region is scrambling to plug holes and meet salary hikes.

"Norilsk's forecasted payments are only enough to cover the budget of the city of Norilsk," said Alexander Sarayev, the deputy governor in charge of the budget.

Norilsk city administrator Sergei Shmakov said Monday the city is highly concerned over Lebed's recent announcement that his administration is seeking to cut the city's budget to 2 billion rubles, and city deputies have vowed to put up a fight.



Lebed has gone on the offensive, blaming Norilsk's lowered profit target for the delay and 2001 budget woes. After two years of surpluses, the territory had a 7 billion ruble deficit in the consolidated budget last year, Lebed's spokesman said.

Deputy Prime Minister and Finance Minister Alexei Kudrin blasted Lebed on television Sunday for not coming to an agreement with local legislators over the budget.

The federal government is lending money to the territory to pay salaries until the budget passes. Kudrin said that he would meet with Lebed, regional legislators and members of the presidential administration to look into the matter.

Norilsk Nickel paid 75 percent less to the budget last year, local media reported Lebed as saying recently.

"[Norilsk] appears to have been optimizing its taxes, shifting its profit center out of the region," Lebed's spokesman said.

A Norilsk spokesman said the company is "aware of its duties as a budget-forming company" and has not shifted its profit centers. He said the company is suffering from low metals prices.

Valery Semyonov, a manager at Norilsk Nickel's arctic affiliate, which accounts for between 70 percent and 80 percent of the company's consolidated profits, said last week that profits had dropped 45 percent, Interfax reported. In 2000, Norilsk Nickel's consolidated profits according to Russian accounting standards were 61 billion rubles ($2 billion).

Further complicating the situation is the peculiar status of the city of Norilsk, a small enclave legally subordinate to the territory but located in the Taimyr autonomous district that pays taxes to both.

The two regions have been renegotiating their interbudgetary agreement. The agreement was signed by the two governors in December and has been ratified by Taimyr's legislative body.

It is up for review by Krasnoyarsk's lawmakers within the next two weeks. The agreement splits the regional portion of Norilsk Nickel's mineral resources tax payments 60:40 in favor of Taimyr.

Last year, a former Norilsk general director, Alexander Khloponin, was elected governor of the Taimyr autonomous district.

"Khloponin ... wants to move his company to the Taimyr district, which would also make life difficult for Lebed," said Nikita Tyukov of the Center for Political Information. "Norilsk could also benefit," he said. "Many large structures have been trying to reregister in smaller areas than say Moscow or Krasnoyarsk, in places where they can get tax breaks."

As the economy slows, the fight between regions and the federal government for tax revenues is only likely to heat up, said Yevgeny Gavrilenko, deputy director of the Bureau of Economic Analysis.

"During times of high metals prices, the territory can enjoy large budgets and margins, but those times gone and it's not clear if we'll see them in next two years," said Slava Smolianinov, a metals analyst at NIKoil.