Page 141 - RusRPTOct20

Gazprom's standalone (i.e. gas business) investment programme might be lowered 14% from RUB1,105bn ($16bn) to RUB955bn ($13bn). This decision is part of Gazprom's practice to review its investment programme in the second half of the year. It also formalises the company's earlier guidance that it would cut the investment programme in 2020 relative to the initial plan (see Gazprom – 2Q20 IFRS, slightly exceeded expectations​ of 1 September). We remind investors that the company earlier guided its revised Group consolidated capex at RUB1.3 trillion (lowered some 20% from approximately RUB1.6tn). As the reduction is in line with the company's earlier statements and our forecast, we treat the news as neutral.
Russian gas companies to intensify gasification programme. ​MinEnergy is to test a programme of social gasification in the Moscow, Chelyabinsk, Kurgan and Tyumen regions, Vedomosti reports. The programme envisages that the connection of end retail consumers' residences to the gas transportation system will not be financed by the consumers themselves. Existing legislation needs to be amended, which is targeted by 1 October, per the newspaper. The current gasification level in Russia is estimated at 70%, and the government targets raising it to 83% by 2035. This might require some RUB2 trillion of investment and take 10 years to complete, according to Vedomosti’s sources, while Gazprom’s gasification budget over the comparable period amounts to RUB0.70-0.75tn. The additional financing source has yet to be determined. Gas consumption by population stands at 11% of the total consumption, on Gazprom’s data, or 53bcm/a, Sberbank estimates. The targeted increase in the gasification level from 70% to 83% might expand the market by 10bcm, which adds just 2% to the overall domestic gas demand. This is not material for Gazprom and Novatek. At the same time, the additional gasification spending might entail an increase in Gazprom’s capex. The sources of financing of the gasification programme and social gasification in particular have not yet been determined, which creates uncertainty for Gazprom. The company’s management mentioned that the sources for the programme’s financing –, which are to reimburse a potential hike in capex for Gazprom – now being considered include higher gas tariffs, MET reduction and bonds with interest rate compensation. Earlier, it was reported that Gazprom’s gasification spending in 2020-2030 is to be RUB526bn, which represents a significant growth compared to historical gasification spending (see our Morning Comment of 25 August).
● Rosneft
Government revisits​ ​Rosneft​’s Eastern Petrochemical Complex (VNHK). The government is again discussing a series of tax breaks to back Rosneft’s VNHK project, Vedomosti. Analysts doubt it will be built. Rosneft has been studying this potential project for at least 10 years, but never committed to it due to low projected returns. The advantages of the VNHK project to the government would be the creation of 100k jobs and the stabilization of the fuel
141 ​RUSSIA Country Report​ October 2020 ​ ​www.intellinews.com