According to Vedomosti, the Federal Tariff Service (FTS) might implement the gas tariff intra-year adjustment range. Nevertheless YoY gas tariff growth is to be equal to the planned 15%. The scheme would work as follow: gas tariffs in Russia for industrial users would be adjustable by 3% (either upward or downward) on a quarterly basis, depending on oil product (fuel oil and diesel) prices in Europe with a nine-month lag. The first 3% change might come into force as early as 2Q13. However in 4Q13, a gas tariff adjustment opposite to that of 2Q is to be made in order to fully offset the effect of the 2Q change and keep average gas tariff growth at 15% for the year.
We question the reasoning behind the idea to regulate domestic gas prices on a quarterly basis, although it might signify that the authorities have started to pay more attention to the export netback parity issue. The government had earlier expected that export (less taxes and transport costs) and domestic gas prices would equalise in 2018. According to our estimates, export netback parity (calculated based on the spot gas prices in Europe) is to be reached in 2016, so we assume zero domestic tariff growth starting form 2017. We believe that gradual domestic gas market liberalisation is in line with market expectations. However, implementation of unclear formulas by the FTS adds to regulatory uncertainty in the gas sector. We continue to generally prefer oil (albeit more moderately now) to gas names in Russia. We expect more volatility in the sector coming from the decision on the gas MET formula (March-April) and LNG export rights decision (end of March).
Dmitry Loukashov, Alexander Kirevnin, Ekaterina Rodina, Elena Kopylova, Mikhail Zarkhi
VTB Capital analyst
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