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monopoly Gazprom also points out that Rosneft with foreign partners plans to export all of the gas extracted at Sakhalin-1, while terminating domestic contracts as of 2021, "which brings into question the long-term source of gas for the Khabarovsk region". Gazprom is reluctant to "subsidise" a competitor at domestic prices, while giving the latter the opportunity to export its Sakhalin gas, an unnamed source in Gazprom told RBC. Gazprom has its own project Sakhalin-2 on the island, and previously Rosneft refused to sell gas from its Sakhalin-1 for Sakhalin-2 needs. Rosneft's VNHK with 12mn tonnes of annual oil refining capacity and RUB500bn (€8.2bn) is planned for launch in 2020, with ChemChina holding 40% in the project.
Gazprom is lowering wages for its board members for first time in several years , the state-controlled natural gas producer said on February 14. Based on 2016 results, the total size of Gazprom board members' wages is to decline by 9.4% to RUB2.5bn (€41mn), the company reported without explaining the decision. The Gazprom board consists of 17 people, which makes the average payment to a board member RUB144mn a year or RUB12mn (€197,000) a month. Still to be released, Gazprom's 2016 figures are expected to drop more significantly than the board members' wages. Earlier, Bloomberg predicted that the company's Ebitda will decline by 28% to RUB1.4 trillion.
Russia's second-largest gas producer Novatek posted IFRS net profit of RUB54bn ($0.93bn) in the fourth quarter of 2016, up from RUB14bn seen for the same quarter of 2015. The independent company's revenues in October-December rose by 9.3% year-on-year to RUB144bn ($2.49bn), which was attributed to strong growth in output (19% y/y gain) and better price environment. Novatek's Ebitda went up by 12% y/y to RUB63bn in the reporting quarter. For 2016 overall, Novatek's free cash flow (FCF) amounted to $2.17bn versus $1.47bn in 2015, according to the February 22 estimates of Gazprombank. At the same time, the company's leverage declined with net debt/Ebitda ratio down to 0.9x as of end of 2016 versus 2.1x in the previous year. Gazprombank notes that Novatek's strong bottom line in the fourth quarter implies a substantial increase in the interim dividends for the second half of 2016.
Russia's largest oil company, the Kremlin-controlled Rosneft, will finalise the acquisition of 98% in India's Essar Oil for almost $13bn by March 15, Reuters reported on February 20, citing unnamed sources close to the deal. In line with previous reports , the sources said the Trafigura oil trader and United Capital Partners of Ilya Sherbovich will participate in the deal, which was previously questioned by analysts and rating agencies. In March 2016, Moody's Investors Service warned that a potential $2-3bn acquisition of a non-controlling 49% stake in Essar Oil refinery operator is credit negative for Rosneft , as it has the potential to increase the company's leverage, while the benefits of the acquisition remain unclear. Now as much as 98% in Essar will be sold to the consortium headed by Rosneft, with the company acquiring 49% and Trafigura and UCP buying another 49%, in a deal worth a total $12.9bn including Essar's debt. According to Reuters' sources, the deal was delayed by complications in restructuring Essar's debt, with the approval of Indian creditor banks being required for the company to change hands. Reportedly one of the banks that needs to approve the deal is the State Bank of India, the country's largest state retail lender. Meanwhile, Russia's state-controlled VTB Bank, which reportedly bridge-financed last year's still murky 19.5% privatisation of Rosneft , is also participating in the Essar Oil acquisition. Emerging as Rosneft's go-to bank in major deals, VTB granted Essar $3.9bn for debt restructuring, and might also
103 RUSSIA Country Report February 2017 www.intellinews.com