Half of Gazprom’s profit is a fiction

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The financial situation of Gazprom continues to worsen amid falling gas prices, record low production, and steadily increasing costs.

According to the company’s report, in 2016 Gazprom’s cash reserves declined 1.5 times. At the beginning of the year the company had 1.359 trillion rubles on accounts (approx. $24 billion – RRT), by the end of the year the holding only had 896 billion rubles (approx. $16 billion – RRT).

Gazprom had to burn cash because it spends more than it earns. According to the analysts of Sberbank, in the second half of the year the cash flow of Gazprom became negative: incomes were less than spendings by $2.7 billion.

At the end of the year the net cash flow fell by 50%, and capital investments had to be reduced from 1.6 to 1.3 trillion rubles  (from 28.4 to 23 billion dollars – RRT).

At the same time, net profit increased by 20%: to 951 billion rubles ($16.8 billion – RRT), but in fact, this figure is a fiction.

As it was explained by analyst Alexander Kornilov, almost half of the profits of Gazprom (48%) is “paper money”.

In 2016 Gazprom considered as “profit” the fact that its foreign currency debt ($38.3 billion at the end of the year) became smaller if converted to rubles (because of the difference in the exchange rate).

This difference amounted to 456 billion rubles ($8 billion – RRT), and without it net profit would have fallen by 37%.

According to the Central Bank, the income from the sales abroad has fallen by 25%, to $31.2 billion, which became the lowest since 2005.

The extraction did not grew: it was only 0.1% higher than last year, which was a record low in the history of Gazprom.

At the same time, despite the difficult financial situation it was decided that bonuses to the members of the Gazprom board should remain the same: 17 top managers received 4.7 billion rubles for the year ($83 million – RRT).

All in all, Russia now extracts only half of its capacity, while pipelines capacity is 60% greater than demand from abroad. Moreover, if the pipelines that are currently under construction are included, then their total capacity would be 2.5 times greater than the foreign demand.

“What happened to Gazprom just perfectly illustrates a well-known rule that your losses are always someone’s income,” says senior researcher of Brookings Institution Sergey Aleksashenko, recalling that “Putin‘s friends are the monopoly builders of gas pipelines in Russia.”

Source: finanz.ru