Daily analyst comments

On June 17, deputy finance minister Sergei Shatalov released data that sheds light on the planned hike in the mineral extraction tax (MET) on natural gas in 2010. The minister announced plans to raise RUB 50 billion in additional state budget revenue through a hike in the tax rate. Given that Russia extracts around 610 bcm of gas on average a year, and that we regard this level of production as realistic in 2010, the tax rate should increase by RUB 82 from the current RUB 147 per tcm, or by almost 56%.

For Gazprom, Russia’s largest gas producer, even such a sharp spike in the tax rate should not be too painful, given that its MET payments currently stand for only about 3.6% of total expenditures. The share will rise to 5.5% if the Finance Ministry succeeds in pushing its initiative through. However, even in that case, the gas monopoly’s financial standing should not suffer.

The Russian Finance Ministry has always favored an aggressive taxation policy, defending the interests of the state budget. However, this time around, the voiced initiative may run into serious opposition as it is agreed with the other agencies involved, primarily the Russian Energy Ministry, as was often the case in the past. According to our estimates, the likelihood that the Finance Ministry will fail to boost the tax by the targeted 56% is high. In addition, the ministry may have to deal with Gazprom as a formidable opponent to its plan.

The deputy minister’s statement may have a marginally negative impact on quotations for Gazprom and NOVATEK as Russia’s prime gas producers. However, a hike in the MET has long been anticipated on the market, and should not affect the fundamental value of gas companies, at least until the details of the bill on tax increase are made public.