Gazprom’s Management Committee considered and approved today proposals on increasing real (excluding inflation) regulated wholesale gas prices by 16% in 2005 and 22.6% in 2006.

The Management Committee commissioned Gazprom’s core-business departments to submit to the RF Federal Energy Commission and Economic Development and Trade Ministry proposals (substantiation applies) on changing wholesale gas prices (tariffs) starting from 1 January 2005, as well as on introducing seasonal and expanding zonal gas pricing differentiation.

The proposals approved today by the Management Committee are in line with Russia’s Energy Strategy for the period up to 2020. The Strategy envisages that in order to achieve the required growth of investments made into the gas industry, gas pricing should be raised to USD 40-41 per 1000 cubic meters by 2006 and to USD 59-64 per 1000 cubic meters (according to preliminary forecasts) by 2010 (excluding VAT and charges for gas transmission via gas distribution networks and for supply and sales services).

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Under the RF Government’s resolution, gas pricing for 2004 was raised by 20%. The average wholesale gas price (with implication for the gas sales system applied by zones and to eligible consumer categories) is expected to amount to RUR 825.5 per 1000 cubic meters this year. It is for the 1st time in the past years that Gazprom will receive net profits from selling gas on the internal market, which are expected in the amount of some RUR 1.7 billion (0.15% from the 2004 targeted income).

Current regulated gas prices, however, neither offset the scope of investments made into gas production, processing, transmission and storage, nor ensure optimization of the proportion between gas pricing and prices for other types of boiler fuel.

Thus, for instance, gas deliveries to Russian consumers are expected to yield only about 1.4% of profits targeted in the investment volumes to be made on the internal market in 2004. The rest is to be offset by depreciation (52%) and profits from gas export.

As far as the macroeconomic consequences, the forecasted gas pricing growth for 2005 won’t substantially incite the increase in the industrial output cost that may average 1.1%. The consumers’ expenses on pipeline gas (central heating applies) will rise to some RUR 4 per capita a month.

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