Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

State OKs $4.5Bln 2002 Gazprom Investment

The Cabinet on Thursday approved Gazprom's 140.8 billion ruble ($4.5 billion) investment program for 2002 a month after the gas monopoly agreed to a reduction in spending.

Although the 140.8 billion rubles was just 5.2 billion rubles less than what the firm had asked for in its revised plan, it was significantly less than the 161 billion rubles Gazprom initially outlined in an investment plan rejected as unrealistic by the government in December.

Analysts said the 5.2 billion ruble shortfall was marginal, while the main factor that would make the investment program a reality would be a further hike in domestic tariffs for gas.

Energy Minister Igor Yusufov indicated Thursday the Cabinet's readiness to discuss further tariff increases, but only if increases were in line with macroeconomic factors.

Although gas tariffs were raised by 20 percent Feb. 15, a further hike would help close the 15 billion ruble ($483 million) hole remaining in Gazprom's freshly approved investment program.

Yusufov also defended Gazprom against accusations by the Tax Police, who earlier this week said the monopoly had failed to pay 30 billion rubles in taxes between 1999 and 2001. The announcement sent Gazprom stock plunging 7.6 percent Tuesday, although the drop was nearly regained Wednesday, with shares growing by 6.5 percent.

Apart from a tariff hike, extra funding could also come from Gazprom shedding some of its non-core assets. The sale of businesses such as Gazprom-Media, the monopoly's media arm, is to be discussed at a board meeting Friday. The board will also discuss a proposed $500 million issue of Eurobonds.

Analysts agreed the approval of the investment program was positive news.

"It certainly is good that Gazprom has a proper investment plan that will finally tackle long-neglected problems such as investment into exploration and development," said Valery Nesterov, an analyst with Troika Dialog brokerage.

The approved plan, although 21 billion rubles less than Gazprom's original, still represents a 50 percent increase on the company's 2001 investment plan.

However, Nesterov said, the firm is still plagued by problems such as cost-ineffective investment, which will take years to resolve.

Gazprom will have to borrow up to $2 billion this year to service its $12 billion foreign debt burden

Vladislav Metnev, oil and gas analyst with Renaissance Capital investment bank, noted that the return to the tariff hike issue indicated a positive change in the government's approach to Gazprom.

The government should not wait any longer to begin tackling tariffs, especially when it comes to a debt-ridden company that is currently forced to sell two-thirds of its output at loss-making domestic prices, he said.

"The longer the government waits to resolve the tariffs issue and restructure the domestic gas market, the harder and more painful it is going to be," he said.

Gazprom and its international partners received approval from the Slovakian government for the $2.7 billion acquisition of a 49 percent stake in the key Russia-Western Europe gas pipe.

The consortium, in which Gazprom has teamed up with Gaz de France and Germany's Ruhrgas, will take charge of the management of SPP, which carries 70 percent of all Russian gas exports to Europe. The consortium was the only bidder.