Gazprom Facing Hurdles in Russia's Gasification Process

Russia's regional administrations' failure to perform their obligations to prepare consumers for receiving gas and a growing consumer debt for gas delivered that remains a drag on the rate of gasification in Russia. This was highlighted at the Press Conference held at the Gazprom headquarters today.

The Press Conference featured Kirill Seleznev, Member of the Company's Management Committee, Department Head, and Director General of Gazprom Mezhregiongaz.

It was noted at the Press Conference that the Company considered the Russian market a priority. In 2015, Gazprom Group sold 221.2 billion cubic meters of natural gas in the domestic market (according to the International Financial Reporting Standards), which made up half of its overall gas sales. The 5.5 per cent decline from 2014 was mainly driven by abnormally warm weather throughout 2015. Gazprom Group's revenue from gas sales in the Russian market amounted to RUB 805.6 billion (a 1.8 per cent decrease compared to 2014).

As in previous years, the Company fulfilled all of its obligations with regard to the gasification of Russian regions in 2015. Between 2005 and 2015, Gazprom invested some RUB 270.2 billion into the socially important gasification program. Over that period, the Company constructed 1,889 gas pipelines totaling over 27,000 kilometers in length and created the conditions for the gasification of 4,269 boiler houses and over 740,000 households and apartments. In 2015, 87 gas pipelines with a total length of some 1,275 kilometers were built. As a result, Russia's average gas penetration level surged by 12.9 per cent, reaching 66.2 per cent by early 2016.

It is on the account of delayed implementation of the signed work plans by the regional authorities that natural gas has not yet reached about 138,800 households and apartments, as well as over 1,000 boiler houses. In 2015, only 9 out of the 34 regions where Gazprom built inter-settlement pipelines had their authorities fulfill their obligations in a timely manner.

Another pressing issue is the consumer debt for gas delivered. 2015 saw the outstanding debt payable to Gazprom by all consumer groups increase by 20 per cent to RUB 152.1 billion. Over the first quarter of 2016, the debt added 24.4 per cent, rising to RUB 189.3 billion.

Gazprom has had to cut its investments into the gasification of certain regions with a poor financial discipline and unfulfilled obligations regarding the preparation of consumers to receive gas.

The Press Conference also touched upon other aspects of the Company's operational and marketing activities in different Russian regions.