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Russia Expects Western Sanctions To Cut Dividends By Nearly $18B

Dividends from Russian state-run energy companies Gazprom and Rosneftegaz to the Moscow government are expected to plunge by nearly $18 billion in 2016 because of U.S. and EU sanctions imposed after the seizure and annexation of the Ukrainian region of Crimea.

Bloomberg News reports that it obtained a Russian Finance Ministry document forecasting dividends for 2016 of $4.4 billion, or 152.1 billion rubles, down from a previously forecast $22 billion, or 761 billion rubles.

The dividend forecast dropped because the Finance Ministry at first intended to calculate the figures based on International Financial Reporting Standards (IFRS). But Bloomberg reports that at one point, the ministry switched to Russian rules, which calculate the earnings differently.

Because some dividends were calculated by one standard and others by a different standard, the 2016 forecast of Gazprom’s value fell by 32 percent from a previous estimate, and Rosneftegaz’s expected value dropped fully 95 percent from a previous forecast.

This sort of mixed calculation is likely to alienate investors, Vladimir Bragin, head of research at Alfa Capital Partners Ltd. in Moscow, told Bloomberg. “With state companies, shareholders should understand that the state isn’t the best owner in terms of maximizing value,” he said. “Dividends based on Russian accounting standards mean that companies will pay less than what they would have paid based on IFRS.”

The Finance Ministry estimates are consistent with other forecasts of Russia’s financial health. The country’s economy is experiencing its slowest growth since a recession in 2009, as the sanctions over the Russia-Ukraine crisis have prompted investors to stake their money in other countries.

Related Article: In Russia’s Crosshairs, Ukraine Revives LNG Plans

Russia’s central bank reports that because of the sanctions, the country’s gross domestic product grew only 0.9 percent in the first quarter of 2014 compared with the same period a year earlier, and GDP may rise by only 0.4 percent overall in 2014.

Another estimate, issued April 8 by the World Bank, said Russia’s GDP shrank from 3.4 percent in 2012 to 1.3 percent in 2013, and that it expects the GDP will shrink further by the end of 2014 to 1.1 percent. Russia’s GDP probably will grow slightly in 2015 to 1.3 percent, the World Bank said, but only if Russia and Ukraine resolve their differences by then.

And the International Monetary Fund reported June 30 that the sanctions have frozen the growth of Russia’s economy, discouraged investment in the country and eventually could lead to Moscow’s economic isolation. It said risks would remain even if the Russia-Ukraine confrontation doesn’t escalate.

The IMF said prolonged economic uncertainty could lead to weaker consumption and investment in Russia, as well as greater pressure on the value of the ruble. And it stressed that part of the problem is that Moscow’s insistence on self-reliance could hamper its integration with the world economy.

By Andy Tully of Oilprice.com


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