Berlin Russia’s state leadership is turning its course by 180 degrees and is now getting billions from the Gazprom group for its budget: After the Gazprom group surprisingly prevented dividend payments at the general meeting of the state-controlled gas group at the end of June, record dividends are now to come for the first half of the year .
The world’s largest gas producer is now to pay out the equivalent of 20 billion euros and thus half of its record-breaking net profit in the form of dividends. Gazprom has never paid interim dividends. The profit had skyrocketed because of the gas price, which had risen to previously unimagined heights.
The Gazprom board of directors proposed the payout late Tuesday evening and called an extraordinary general meeting for the end of September. The head of the board is Alexei Miller, a close confidant of Russian President Vladimir Putin for many years. The state owns a good 50 percent of Gazprom’s shares – it would receive the equivalent of more than ten billion euros directly from Gazprom with a sensational dividend yield of around 25 percent.
The bottom line was a result of 2.5 trillion rubles (equivalent to 41.6 billion euros) in the first half of the year, as the company announced on Tuesday. In 2021 as a whole, Gazprom made a profit of 2.1 trillion rubles (about 27.5 billion euros).
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Problem with tax revenue – now China should help
After Western sanctions were imposed and a good half of Russia’s currency reserves abroad were frozen, the gaps in the state budget are increasing, despite record export earnings. The state is finding it increasingly difficult to collect all major taxes, and foreign companies withdrawn from Russia are no longer reliable taxpayers.
According to estimates by the Russian Ministry of Finance, the state budget will run a significant deficit until at least 2025. This year alone, state spending will exceed revenue by 1.7 trillion rubles (equivalent to 28.3 billion euros), and the same will be true in the following years, with a downward trend.
The Treasury plans to fill the hole almost entirely with ruble-denominated borrowing, which is expected to increase from 1 trillion rubles next year, to 1.4 trillion in 2024 and to 2.4 trillion in 2025. Western investors, who before the war held a fifth of all federal bonds and half of Treasury Department foreign currency bonds, can no longer subscribe to them: Western sanctions have banned the purchase of Russian government bonds.
>> Read also: Gazprom is covering up its dependence on Europe
Now, after six years of failed attempts, the Moscow Ministry of Finance is trying to sell bonds denominated in the Chinese currency yuan renmimbi to the Chinese and thus bring money to Russia.
Dramatic budget situation – tax increase for Gazprom
A decision by the Russian pseudo-Parliament Duma also shows how dramatic the budgetary situation is, contrary to all statements by Putin that Russia is prospering economically Total unpaid dividends for the full year 2021. In the midst of the war with Ukraine over Gazprom, the Russian government is quickly siphoning off billions for the budget.
Gazprom Vice Famil Sadigow justified the board’s decision to pay a dividend with the “strong financial results and the considerable liquidity reserve in the balance sheet”. Gazprom intends to “adhere to the current dividend policy in the future and pay out at least 50 percent of adjusted net profit”.
Hope for foreign Gazprom shareholders – but not for Gazprom’s course in China
Whether the foreign shareholders, who are currently unable to trade their share certificates because of the sanctions, will also benefit from the rain of billions is an open question. Maxim Orlovsky, managing director of the investment bank Renaissance Capital, indicated that the Central Bank of Russia will complete the procedure for the automatic conversion of depositary receipts into shares before the dividend is paid out. On August 26, the regulator announced on its website that 1.5 months remain to change the place of accounting for Russian securities held abroad. Foreign shareholders did not buy Gazprom shares, but rather ADRs deposited by US banks. Because of the sanctions, however, US institutions are in the process of ending the custody of ADRs. 16.2 percent of Gazprom shares have been converted into ADR depository receipts.
The dividend decision is viewed in two ways: Orlowskij expects Gazprom’s windfall to give the entire Russian economy a boost, a “strong support” for the entire market: The decision stimulates the Moscow stock exchange and is purchasing power for the country, where private consumption has fallen particularly sharply is.
Gazprom is under a lot of pressure, says Sergej Kaufmann, an analyst at Finam Financial Group in Moscow: “Without dividends, without exports to Europe and without starting large deliveries to China, Gazprom is unfortunately no longer an interesting story” for an investor. Gazprom does not have time to reorient to China, but its exports to Europe have already fallen sharply.
Because the state is now siphoning off the group’s financial reserves in the form of dividends, the group lacks the money to build pipelines to China or plants to liquefy natural gas (LNG) for export. “Building the pipelines to Asia and the LNG plant could cost a total of $100 billion to $150 billion if contractors are found. And if it has to be quick, it gets even more expensive. Accordingly, the money that Gazprom earned in 2021 and will earn this year can be used here,” said Eduard Charin, head of the Alfa Capital Management shares department. Now most of the money goes into the state coffers.
Nord Stream 1 closed from today – and no gas for France
As of Wednesday, natural gas will no longer flow through the Nord Stream 1 Baltic Sea pipeline, Gazprom announced. This was justified with allegedly necessary maintenance work. However, Gazprom has enough turbines on site to operate the pipeline and six turbines are already being serviced in Canada by Siemens Energy and are ready for delivery to Russia, according to German business circles. Moscow is currently not allowing the return transport, thus maintaining the myth of “technical problems” in the Baltic Sea gas pipeline.
At the same time, Gazprom announced in Moscow that it would no longer be supplying natural gas to the French utility Engie from this Thursday: “Gazprom will suspend gas supplies to the French energy company Engie from September 1 because the deliveries for July have not been paid for.” This was announced by the Russian company on its Telegram channel.
Engie had previously purchased around 150 million cubic meters of natural gas per month from Gazprom. So far, Russian gas has covered around 17 percent of France’s needs. Engie is currently negotiating with the Algerian Sonatrach to increase energy imports from the former colony.
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