Novatek Biggest Micex Decliner on Tax Concerns: Moscow Mover

OAO Novatek fell most in two months on concern its natural-gas extraction tax payments will surge under proposals from the Finance Ministry.

Novatek fell 4.1 percent to 354.89 rubles by the close in Moscow, the most since July 23. The stock dropped as much as 4.5 percent and was the biggest decliner on the Micex Index.

Russia’s Finance Ministry proposed linking the gas extraction tax to domestic prices for the fuel, while sticking with rates near those it sought in May. The final decision on the tax will be made by the government and parliament, said Aliya Samigullina, a spokeswoman for Deputy Prime Minister Arkady Dvorkovich, who pledged lower increases than those sought by the ministry.

“The Finance Ministry’s new proposal implies an even greater increase in the gas tax for both Gazprom and Novatek than in the initial proposal,” UBS AG analysts led by Maxim Moshkov wrote in an e-mailed report.

The ministry revisited its plans, which would have doubled Gazprom’s rate and raised the levy for independents fourfold, under opposition from producers. The government aims to cut a deficit to 0.1 percent of gross domestic product by 2015 from as much as 1.5 percent next year. Oil and gas contribute half of budget revenue.

Aggressive Taxation

“If the government is going after the extraction taxes, it means it’s going to be more aggressive on taxation overall,” Bruce Bower, a partner at Moscow-based hedge fund Verno Capital, which manages about $200 million. “The first read was that it’s not good for gas companies, bad for both Gazprom and independent gas producers.”

The Finance Ministry’s proposals may raise the levy on so-called independent producers, which include Novatek and the oil companies, to even more than that paid by OAO Gazprom, the state-run pipeline and export monopoly. Independents’ rate may jump to 1,080 rubles per 1,000 cubic meters of gas in 2015 from 251 rubles now, more than the 1,035 rubles Gazprom may pay, compared with 509 rubles now, the UBS analysts said.

Novatek Chief Executive Officer Leonid Mikhelson said the ministry’s May proposals were “shocking,” while Gazprom lobbied for a local price link.

The Finance Ministry plans to recapture about 80 percent of the extra revenue natural-gas producers earn as the state increases regulated domestic prices, including by canceling some tax breaks, Finance Minister Anton Siluanov said on May 30 in Moscow.

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