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. Last Updated: 07/27/2016

Taxes, Inflation Blamed for 25% Fall in Gazprom Profit

Gazprom said profit fell 25 percent in the second quarter as inflation and taxes drove up costs.

Net income dropped to 103 billion rubles ($4.2 billion), from 136 billion rubles a year earlier, the company said on its web site Wednesday. Operating expenditures increased 18 percent, to 390 billion rubles, as spending on wages, repairs, materials, electricity and purchased oil and gas rose. Gazprom's effective tax rate advanced to 31 percent, UBS Moscow gas analyst Dmitry Lukashov said Wednesday. Sales rose 5.1 percent to 532 billion rubles.

"Gazprom has disappointed in terms of cost control," Deutsche Bank analysts Pavel Kushnir and Olga Danilenko said in a note to investors. Spending on staff fell only 2 percent compared with the first quarter, against declines of 9 to 18 percent during the same interval in previous years, the analysts wrote.

Total long-term borrowings rose 37 percent in the first half to 1.1 trillion rubles as of June 30, more than any other Russian company. The figure was 806 billion rubles as of Dec. 31.

Sales in the second quarter advanced because of higher prices in Russia and former Soviet republics including Ukraine and Belarus. Demand in those markets and Europe was little changed.

Gazprom on Tuesday received approval from the government to raise domestic prices as much as 25 percent next year. Exports have been more lucrative for Gazprom, the world's largest gas producer, which supplies a quarter of Europe's gas.

"The 25 percent tariff decision trumps everything else," Beadle said.

Gazprom plans to export a record 157.7 billion cubic meters to Europe next year, after lowering its estimate for European exports this year by 2 percent. The price may reach $354 per 1,000 cubic meters in 2008, chief executive Alexei Miller said last week, one-third more than the forecast for this year.