Question of the day: will the Russians be forced to pay for Gazprom's losses?

Yekaterina Maksimova, Natalia Seybil

State Duma deputy from Khanty-Mansi Autonomous Okrug, United Russia, chairman of the Duma Energy Committee Pavel Zavalny proposed to raise gas tariffs for domestic consumers. The message of the parliamentarians is simple: having lost the premium European market, Gazprom has also lost most of its income. Losses can only be compensated within the country.

Pavel Zavalny believes that a change in gas pricing for all consumers, except for the population and housing and communal services, would be relevant. It was not possible to get through to the parliamentarian to clarify his opinion on the parameters and terms of a possible increase.

But it was precisely this scenario that Aleksey Belogoriev, Deputy Director for Energy at the Institute of Energy and Finance, warned the readers of Novye Izvestia back in the summer of 2022. In a long interview, Belogoriev then directly said that Gazprom would cease to be that “cash cow”, a super-rich company that we are used to.

“There will be no such margin, the usual excess profit. It will be just such a state-owned company with moderate profitability. Moreover, the main source of profit will come from the domestic market. Another thing is that a sharp decline in export earnings will sooner or later lead to the fact that the Russian government will somehow liberalize prices for commercial consumers in Russia. And that means higher prices to keep gas companies' revenues up. The main risk here is for consumers in Russia, because under such conditions, lobbying for an increase in gas prices is increasing”, - Belogoryev announced such a forecast six months ago.

And who are the judges?

Let us briefly recall from whose lips the call was made to support Gazprom with the ruble by raising tariffs.

Deputy of the State Duma of the Russian Federation Pavel Zavalny comes from the "Tyumen Matryoshka" - the main oil and gas vein of Russia. Prior to becoming a State Duma deputy (he is a deputy for three convocations in a row), Mr. Zavalny led a 100% subsidiary of Gazprom - Tyumentransgaz LLC (now Gazprom Transgaz Yugorsk LLC). And this is the world's largest gas transmission company of Gazprom PJSC. At the same time, this is one of the richest subsidiaries of the gas giant (according to Spark, in 2021, the company's revenue exceeded 246 billion rubles, net profit was 7.4 billion rubles).

The ex-Gazprom worker himself, and now a parliamentarian Zavalny, judging by his income statement, is one of the richest deputies of the State Duma. So, in 2020, a United Russia deputy declared an income in the amount of 31.7 million rubles. The lawmaker owns two land plots with a total area of more than 1.6 thousand square meters, a residential building (706 square meters and two apartments). For 2021, Zavalny showed an income in the amount of 38.6 million rubles. The declaration of the deputy for 2022, as well as the reports of his colleagues, the Russians may not see.

"Power of Siberia" will not help

The discussion of the Duma Energy Committee on raising gas tariffs can be called a PR blunder. The parliamentarians' proposal coincided with a visit to Russia by Chinese leader Xi Jinping. One of the topics of talks between Comrade Xi and President Putin concerned the construction of the new Power of Siberia-2 gas pipeline. And at the end of the meeting, an important and optimistic statement was made.

“Practically all the parameters of this agreement have been agreed upon. This is 50 billion cubic meters of gas of reliable stable supplies from Russia,” Russian President Putin said and assured that gas supplies to China would increase every year. By 2030, the total volume of deliveries will be at least 98 billion cubic meters. Plus 100 million tons of liquefied natural gas.

Prior to the start of the SMO, Russia exported more than 200 billion gas. And almost all volumes of pipeline gas went to the Europeans. So, according to the results of 2021, Russia imported about 170 billion cubic meters to all European countries (i.e., to the EU, Turkey and the Balkan countries). m of pipeline gas. Taking into account everything that happened last year, including the Nord Stream blown up, this year's deliveries are likely to be about 50 billion cubic meters. That is, Russia has lost about 120 billion cubic meters. m of export to Europe.

The prospect of increasing deliveries to China to almost 100 billion cubic meters in seven years, of course, does not compensate for the European market lost to the gas corporation. And through the existing pipeline "Power of Siberia", follows from the data of the Ministry of Energy, 15.4 billion cubic meters of gas flows into the Celestial Empire (export growth in 2022 + 48%). And, judging by the statistics of the General Administration of Customs of the People's Republic of China, China paid $3.98 billion for this volume.

Is it a lot or a little, Professor Igor Lipsits, Doctor of Economic Sciences, calculated in his TG channel. “With the help of ingenuity and a calculator, we get the average annual gas price for China at $258 per thousand cubic meters. Let me remind you that the average annual price of gas on the EU exchanges during this period was $1,365”, - said Professor Igor Lipsits.

In 2014, when some parameters of the contract between Gazprom and the Chinese national oil and gas corporation CNPC were announced (supplying 1.032 trillion cubic meters of gas to China over 30 years, the total value of the contract is over $400 billion, the cost of the Power of Siberia gas transportation system is 55 billion dollars - note Ed.) Valery Nesterov, an economist at Sberbank CIB, studied the economics of the project. According to him, the construction of the "Power of Siberia" will pay off if the price of gas on the border with China is 360-400 dollars per thousand cubic meters.

Novye Izvestia got through to the ex-analyst of Sberbank CIB Valery Nesterov, and after almost eight years he confirmed the relevance of those calculations. He emphasized the importance of this project, which, like any other infrastructure project, is expensive and pays off for a long time, and noted that Russia, of course, does not sell gas without profit. But the rate of return in the Chinese direction is much lower.

Gazprom is getting poorer fast

At the end of 2022, Gazprom (according to RAS) reported a drop in profit by 72% (to 742.2 billion rubles against 2.093 trillion rubles in 2021). The gas giant’s revenue for the unimpressive and unusual past year (when stock prices for gas went “crazy” and Nord Stream was not blown up) amounted to 8.0 trillion rubles, which is 25% more than the same indicator in 2021.

And if we return to 2021, which is prosperous for Gazprom, then the gas giant sold 274 billion cubic meters of gas to domestic consumers. The supplier exported 227.9 billion cubic meters to non-CIS countries. And as muksun_fm recalls, then Gazprom earned a little more than a trillion rubles on the domestic market, and more than 4 trillion rubles on the external market. Simply put, with almost equal volumes, Gazprom received only almost a fifth of its revenue from the domestic market.

Doctor of Economic Sciences Vladimir Voloshin believes that PJSC Gazprom will not be able to fully compensate for such losses, even if tariffs are raised by a voluntary decision. “In some part, they compensate”, - Voloshin noted. He also added that national and corporate interests rarely coincide. “The selfishness of business prevails over national interests. Decisions are sometimes made in the interests of big business”, - Voloshin said.

Untimely and dangerous

Natalya Churkina, an analyst at the Institute for Comprehensive Strategic Studies, believes that proposals for any increase in energy tariffs are now extremely untimely. And when the cost of energy for business rises, as always, ordinary citizens will have to pay.

“First of all, of course, the annual inflation rate remains at the double-digit level anyway. At the same time, an increase in gas tariffs only for businesses without an increase for the population and the housing and communal services sector does not mean that there will be no impact on consumer prices. The increased costs for companies will eventually become a burden for consumers. In addition, an increase in gas tariffs for businesses will further increase the turbulence of the economic environment and further slow down attempts to return to economic growth. In the extremely difficult external sanctions conditions for Russian business today, it is necessary to give maximum stability in the domestic economic conditions”, - Natalya Churkina assessed the initiative of the Duma members.

Vladimir Likhachev, Deputy Director of the HSE Institute for Sustainable Development Center for Sustainable Development, emphasizes that this issue requires serious discussion. In particular, we need a deep assessment of how the increase in gas tariffs will affect various sectors of the Russian economy.

As Likhachev notes, the increased price of blue fuel, for example, "will hit agriculture quite hard." “As for other industries - metallurgy, energy - everything depends on the size of the increase. I am against raising prices for industry, because then there is a whole chain of increases”, - says Vladimir Likhachev.

He believes that the Central Bank and the Ministry of Finance, which are trying to curb inflation, will object to the theses of the State Duma deputies.

“Don't take these same taxes from Gazprom (the Ministry of Finance proposed a significant increase in the mineral extraction tax for Gazprom,” – editor’s note). We will take money from Gazprom, then Gazprom will raise prices on the domestic market for industry, taxes on industry will fall. It seems strange to me. This issue requires serious discussion”, - Likhachev said. He agrees with the opinion of Natalia Churkina: it is not worth raising gas tariffs at the moment.