Moscow (Platts)--26Jun2014/940 am EDT/1340 GMT
Russia's Gazprom may partly finance construction of the Power of Siberia project -- planned new pipelines to export gas to China -- by raising domestic gas prices faster than previously agreed with the government, company officials said Thursday.
Gazprom, which under a governmental ruling last year is to limit price hikes to the rate of inflation until 2017, has now asked to be allowed to raise domestic gas prices 2-4% above inflation from 2015-17, the officials said at a media briefing on the company's financial and economic strategy.
"Defreezing of the domestic prices could become one of the ways for the state to support construction of the Power of Siberia," Andrei Kruglov, head of Gazprom's finance and economics unit, said.
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Last September, the government approved a decision to freeze industrial tariffs for state-owned monopolies -- including Gazprom -- this year at the 2013 level in a bid to support a stagnating economy. In 2015 and 2016, tariffs are to increase at the rate of inflation.
Gazprom's own funds, new tax breaks, and project financing will also be used to fund the project, Kruglov said. He would not comment on a $25 billion pre-payment China is to make to Gazprom for deliveries via Power of Siberia.
Construction on Power of Siberia, which will connect East Siberian gas fields to Russia's Pacific coast and Chinese infrastructure, is set to start in August.
Kruglov reiterated Gazprom had no plan to ask the government for additional capitalization, a move which had been seen as a way to finance the costly project. "As our chairman Alexei Miller said earlier, we believe there is no need [for additional capitalization]," he said.
Gazprom has estimated the total investment in developing gas production and transportation infrastructure necessary to fulfill the pipeline gas supply contract with China at $55 billion.
Under the $400 billion contract Gazprom and China National Petroleum Corp. signed in May, Russia is to send up to 38 billion cubic meters/year to China for 30 years.
First gas supplies to China are scheduled between 2018 and 2020, depending on how quickly the Chinese side builds its own connectors, Gazprom Export CEO Alexander Medvedev said last week.
PRICE HIKES ABOVE INFLATION
Gazprom's proposal envisions raising the 2015 gas tariff by 2% above the inflation rate for 2014, Elena Karpel, Gazprom's head of pricing and economic expertise, said at the briefing.
In 2016 and in 2017, the prices under would 3% and 4%, respectively, above the inflation levels registered in the previous years, she said.
Gazprom's current domestic gas tariffs are "at a critically low level", Kruglov said.
"The gas prices do not fully cover investments in maintenance of the gas infrastructure and keeping the production at the current levels, not to speak about investments in production growth," Karpel said.
On Wednesday, deputy economic development minister Sergei Belyakov said the authority did not support Gazprom's earlier proposal to increase the 2015 domestic gas tariffs 3-4% above inflation.
"We continue to insist that tariffs grow at a level of the last year's inflation rates. 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," Belyakov said in an interview on state-owned TV channel Russia 24.
--Dina Khrennikova, dina.khrennikova@platts.com--Edited by Dan Lalor, daniel.lalor@platts.com