Interfax: YEAR IN REVIEW: Gazprom Export achievements, penalties

MOSCOW. Dec 30 (Interfax) – The only good Gazprom (MOEX: GAZP) production news this year was on the export front, which is the profit margin generator. Against a backdrop of weakening competitors, Russian gas deliveries increased. The record holder Gazprom Export, instead of reaping rewards, got tax claims and equivalent to its annual revenue and exile to St. Petersburg.

BETTER

Gas exports in 2013 ran to a record 161.5 billion cubic meters (bcm), according to the exporter’s initial figures, after 138.8 bcm in 2012. The average export price this year “somewhat exceeded $380” per thousand cubic meters, where it was $402 in 2012.

The mighty Gazprom itself saw production slip to 480.5 bcm this year from 487 bcm last year, according to Interfax calculations based on Fuel and Energy Dispatch Center (CDU TEK) data.

Liquefied natural gas (LNG) from the kind Qataris has recently been a symbol of the energy independence of all those that disputed Gazprom pricing. Now they avoid the European market for the Asian-Pacific region, where they pay a lot more for gas.

Production in the UK and Norway was down, and Algerian and Libyan deliveries decreased. The drop in deliveries of African gas to Spain, Italy, and France created in the south of Europe a sector where gas trades at deluxe prices of $500-$600 per thousand cubic meters.

And although the European market continues to be squeezed under the pressure of almost free coal from the United States, Gazprom was able to increase its presence there.

A cold winter last year that saw lots of gas being withdrawn from storage played into Russia’s hands. Stored supplies were not returned to the normal level by the beginning of the new heating season. Europe will meet the New Year with rain and without snow, but with empty pockets, and this will be reflected in Gazprom’s prices and export deliveries, which will significantly exceed last year’s levels.

Exports this year went so well that some importers, which in recent years paid Gazprom advances or fines under the ‘take-or-pay’ rule, did take this gas paid for in advance this year.

It might simply be said that kind and strong Gazprom had waited for its moment.

Fitting harmoniously into this news puzzle was the report that the European Commission had approved Gazprom’s absorption of the Wingas group. Wingas accounts for more than 10% of Gazprom exports. astora, one of the biggest gas-storage operators in Europe, is also becoming part of the company. Amid weakening production capacity in Europe and the near environs, the significance of storage for covering peak demand is growing critically.

WHIP

Court hearings on 4.132 billion rubles in tax claims against Gazprom Export spanned the entire year.

In the scheme of export deliveries to Germany by Itera (MOEX: ITER) of gas via Gazprombank’s (MOEX: GZPR) well-known offshore firm Tancredo, tax administrators observed a significant deviation from market price. And although Tancredo accrued profit, the court ordered Gazprom to pay.

In record time, almost as in the Yukos scenario, appellate courts studied more than seventy tomes of casework and backed the tax administrators’ decision. It took legal force, meaning that the company has already parted ways with money. The taxpayer, of course, has the right to appeal the decision at higher courts, but after the write-off of billions from its accounts.

The amount of the tax claims is better compared, not to Gazprom Export profits, but to sales revenue. It is not a seller, but receives commission from a for a huge export flow. And sales revenue is quite modest: 4.9 billion rubles in 2010 and 7.2 billion rubles in 2011.

EXILE

The long-promised and hard-to-explain from the point of view of normal business logic of Gazprom Export’s move to St. Petersburg has been completed.

The official reason for the move was the idea of setting up in the city a gas hub for Nord Stream, which was proposed back in 2008. However, not a word was said about the development of these plans since then. Spot trading not for export, even within the country was mired in a bureaucratic bog: even the new government can re-launch it. The final nail in the coffin for this idea was pounded in by St. Petersburg Governor Georgy Poltavchenko. Last week, he handed the exchange building, where there should have been installed Russian oil and gas hubs, to the Hermitage for the placement of a museum of Russian guards and heraldry.

Comments, evading a reply and denial of the fact of the Gazprom group’s sluggish move to Russia’s ‘northern capital’ paints a picture of a large, irreversible process captained by forces outside company management.

Other of the group’s coworkers look helplessly on at Gazprom Export’s destiny, as the building of the Lakhta Center skyscraper continues. Gazprom management is already talking about the parent company’s move as a fait accompli.

So, the company’s personnel now faces the decision whether to follow management’s whim and move to St. Petersburg or look for other work in Moscow. When the time comes to move, there will be too many Gazprom workers on the Moscow labor market who do not want to go. The move to St. Petersburg has already cost Gazprom Export about a fifth of its workforce – people who have left the company.

OFFICE-APARTMENT QUESTION

Gazprom Export has begun turning the Palazzo Rossi hotel on Ostrovskaya Square near Bolshoi Gostiny Dvor into its new offices. It will also house the Museum of Hockey Glory, a pool, and a spa. But it proved impossible to wait for the lengthy remodeling to end. It was probably necessary to fulfill orders that cannot be challenged, from somebody on high.

Two offices were taken urgently – on Fontanka and Labor Square – to house temporarily employees leaving Moscow. In their haste they decided to make people laugh once again: it was explained that the building on Labor Square, where management and the front office were to be placed, had such old and weak wiring that nothing but the dim lighting was possible. How could an air conditioning system and office equipment be powered! The building’s owner forbade the installation of autonomous generators. Not a problem; the staff took other office space, on Professor Popov Street.

Gazprom Export has not entirely left Moscow. Offices were set up for several ‘lucky ones.’ The Moscow offices are headed by the company’s deputy general director for communication issues, Ilya Kochvrin.

The company gave the space vacated in the office on Strastboy Boilvar in Moscow to the Kontinental Hockey League, which Gazprom export’s general director, Alexander Medvedev, so likes to get involved with.

The myth of less expensive housing in St. Petersburg was immediately trashed as soon as employees attempted to find apartments in the city. They proved more expensive than their counterparts in Moscow. It is good that that the company pays a certain amount of rent for the first few years (or housing purchase). But the amount was not enough for some.

The registration and relocation of Moscow companies to St. Petersburg began as the desire to flesh out the ‘northern capital’s’ budget. But the budget will see almost nothing from the relocation of Gazprom Export, as the Gazprom subsidiary makes minimal profit. Then the subject was the rejuvenation of the city’s business life. As a result, St. Petersburg’s narrow streets saw an influx of from 500 to 1,000 extra automobiles.

So far, only St. Petersburg rentiers are making money on the company’s move – the owners of some apartments who happily live on rent payments.