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Russian Citizens May Help Pay For Pipeline To China

Russia’s 30-year, $400 billion gas deal with China can’t get started until Russia develops more gas fields and both countries build pipelines on their territories, and Russian citizens may have to help foot the bill.

Russian President Vladimir Putin said shortly after the deal was struck that Gazprom, Russia’s state-owned gas company, would need tens of billions of dollars to build what’s known as the Power of Siberia project, hinting that the source of financing could be the country’s gold and foreign exchange reserves.

That idea was rejected by Russia’s finance minister, Anton Siluanov, who said June 18 that Gazprom has all the financing it needs from Chinese banks. “For the time being, there are resources in order to build,” he said. “Therefore there is no basis to say that Gazprom, a powerful company, is in need now.”

Maybe not, but the estimated $55 million that Gazprom will need to get the China deal off the ground is substantial enough that it is considering tapping its own domestic customers for at least some of the necessary cash, according to Platts.

In September 2013, Moscow sought to shore up the country’s stagnant economy by freezing industrial tariffs for state-owned monopolies, including Gazprom, at 2013 levels through 2014. In 2015 and 2016, these tariffs cannot rise above the country’s rate of inflation.

But on June 26, Andrei Kruglov, who runs Gazprom’s finance and economics division, said the gas giant may accelerate the rise in prices to help finance the project. He and other company officials told a Moscow news conference that Gazprom has sought permission to raise gas prices in Russia by between 2 percent and 4 percent above inflation from 2015 to 2017.

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They said funding also will come from Gazprom’s own financial reserves, as well as expected new tax breaks and conventional financing, such as the Chinese loans.

Like Siluanov, Kruglov also dismissed reports that Gazprom planned to seek additional capitalization from Russian government reserves. “As our chairman Alexei Miller said earlier, we believe there is no need,” he said.

It’s not clear, though, whether the government will approve any plans to accelerate price increases for Gazprom’s domestic customers. On June 25, Sergei Belyakov, Russia’s deputy minister for economic development, said his agency didn’t support Gazprom’s previous proposal to raise 2015 gas tariffs by between 3 percent and 4 percent above inflation.

“We continue to insist that tariffs grow at a level of the last year's inflation rates,” Belyakov said on Russia 24, a state-owned television network. “The decision cannot be overruled, first of all because we do not want to create an impression that the government is being inconsistent, and secondly because the burden on economy should not increase.”

By Andy Tully of Oilprice.com



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