The Success Formula for Gazprom.

Since the beginning of July 2014 a new system of the calculation of the severance tax on gas came into force in Russia. Now it is calculated using a formula that takes many factors into account, such as, for example, the pricing environment in the markets. In case of Gazprom the sales price on the domestic market and the price of gas exports are taken into account. The share of the supply for the export and the domestic market is also taken into account. Also the ratio of the gas produced to gas condensate is included into the calculation. The tax breaks for complex fields, as well as for those that are largely developed are implied too.

The rejection of the fixed rates of tax on gas in favor of formulas, by which the tax rate will depend on the conditions of the production and distribution of raw materials prices, is positive for all the companies in the sector as the severance tax rate will fall for them. The corresponding gas tax for Gazprom is calculated under the new formula, reducing by about 15-20% by 2016 compared with previous forecasts. Such a reduction of the tax burden is favourable for Gazprom's performance. At the same time the difference between the MET on gas for the independent producers remains below the same tax rate for Gazprom, and this difference is significant, about 30-40%.