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. Last Updated: 07/27/2016

Putin Puts Off Gas Tax Hike

President Vladimir Putin personally approved a Gazprom proposal to delay raising the tax on gas extraction by writing "I agree" on a letter from the company, Vedomosti reported Wednesday.

Gazprom chairman and First Deputy Prime Minister Dmitry Medvedev said one of the reasons for the delay was a reduction of $2 billion in the company's sales during this year's mild winter, Vedomosti said, citing his letter dated May 22.

Medvedev also anticipated that prices for gas in Europe and the dollar-ruble exchange rate would go down, undermining Gazprom's investment capacity. Gazprom will have to spend heavily to develop new fields and raise output in the next 15 years to 20 years, he wrote.

Medvedev suggested that the government should decide in the first quarter of next year when and by how much it will raise the mineral extraction tax on gas. Putin signed his agreement on June 15, Vedomosti said, adding that it had a copy of the letter.

The Industry and Energy Ministry has backed Gazprom on the tax issue, saying the tax should not jump until 2011, when the government will stop regulating domestic gas prices. The Economic Development and Trade Ministry and the Finance Ministry wanted the tax to rise starting next year.

Gazprom sees the threat of a higher tax as the main reason behind a massive drop in its capitalization earlier this year. It plummeted from $263 billion at the start of the year to $206.6 billion at the end of May, but has since bounced back to $251.2 billion.

Investment bank UBS said it believed a decision on the gas tax was unlikely until after the presidential vote in March. "A personal sanction from Putin brings ultimate clarity to this issue," it said in a research note Wednesday.

UBS predicted that an increase would come in 2010, saying the tax could grow sharply from the current $6 per 1,000 cubic meters of gas to $14.50.

A higher tax remains a threat, Deutsche UFG analysts said. "The fact that the decision has been postponed by several months does not reduce the risk," the bank said in a note.