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Russia May Increase Gas Rates 15% Next Year, Benefiting Gazprom

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Aug. 24 (Bloomberg) -- Russia may raise domestic natural-gas tariffs by 15 percent, a higher rate than for transportation and oil pipeline monopolies, said Deputy Economy Minister Stanislav Voskresensky.

Increases in the regulated prices were discussed at a meeting led by First Deputy Prime Minister Igor Shuvalov last week and decisions aren’t yet final, Voskresensky said today by phone. Prime Minister Vladimir Putin in May suggested capping utility-rate increases for 2012 at the level of inflation.

Russia is increasing gas rates by 15 percent a year to reach netback parity, so sales at home are as profitable as export shipments. OAO Gazprom, the world’s biggest gas producer, has said it needs to increase rates to help avoid losses on gas sales at home, where demand is rising.

“This is very positive for Gazprom and Novatek,” Ron Smith and Kenan Najafov, analysts at Citigroup Inc. in Moscow, said in an e-mailed note today. “If implemented as reported, this increase will be a strong indication that the government indeed intends to keep domestic gas prices on the growth path to netback parity.”

An “inflation-only” increase might hurt earnings for Russia’s two biggest gas producers, the analysts said. Gazprom is bound by regulated domestic tariffs, and OAO Novatek and other producers’ prices reflect Gazprom’s. The Economy Ministry forecasts inflation at the level of 5 to 6 percent next year.

“We believe that investment programs of monopolies should at least remain at previous levels, and companies should keep working at raising efficiency,” Voskresensky said.

Gazprom, which also holds a monopoly on gas exports, may see its mineral extraction tax doubling next year, with further increases to follow as the government seeks to boost budget revenue, the Finance Ministry proposed earlier this year.

Shuvalov has asked the government to work on its tariff proposals, a government spokesman said, asking not to be identified in line with state policy.

To contact the reporters on this story: Alena Chechel in Moscow at achechel@bloomberg.net; Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; Will Kennedy at wkennedy3@bloomberg.net

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