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. Last Updated: 07/27/2016

Gazprom Wants New Price Hikes

Gazprom on Friday said it would need to cut costs and ask the government to raise its domestic prices again in 2003 to meet investment and production targets next year.

Andrei Kruglov, Gazprom's corporate finance head, said the firm would ask the state to raise domestic prices by 30 percent in 2003 after a 35 percent hike in 2002, and will cut production and shipping costs by 10 billion rubles ($317.5 million).

The measures would allow the world's largest gas producer to keep its investments next year stable at 130 billion to 150 billion rubles, he said. Otherwise the firm will have to slightly revise its production plans.

"Under our optimistic plan we hope to produce 530 billion to 540 billion cubic meters of gas in 2003, while under a conservative plan we can produce only 520 bcm," he said.

Gazprom says it loses up to $1.5 billion annually on domestic sales and is only surviving due to lucrative exports to Western and Eastern Europe. However the state, which is a major shareholder in Gazprom, has limited domestic price hikes in order to keep inflation under control, and for fear of bankrupting weak industries and fueling social tensions ahead of parliamentary polls next year.

Kruglov's comments reflected an early shot in the annual tussle over prices between the government and the company, the single biggest contributor to the federal budget, accounting for around a fifth of all state tax receipts.

The government wants Gazprom to cut its spending instead of asking for price hikes and has told it to present its annual spending plans for approval. Gazprom's financial plan for 2003 is to be submitted to the government before Aug. 1.

Kruglov said Gazprom's most important investment projects in 2003 were the completion of the Yamal-Europe gas pipeline and the prestigious Blue Stream gas link to Turkey under the Black Sea.

The firm will also need money to continue developing the giant Arctic Zapolyarnoye field, pay its share for the acquisition of Slovak gas pipeline monopoly SPP and its share in a project to build a huge gas link in China.