Ukraine row punctures profits at Gazprom

Third quarter profits plunged 61 percent at Russian gas giant Gazprom, the company said Thursday, hit by the suspension of deliveries to Ukraine, and with the outlook darkened by slumping global energy prices. The group's profits between July and September reached 105.7 billion rubles ($1.5 billion). Revenues held up better, sliding just 6 percent year-on-year to 1.13 trillion rubles ($16.5 billion).
Analysts had been expecting the group's profits to drop significantly due to the price dispute with Ukraine, one element of the wider confrontation between Kiev and Moscow that has seen Russia annex one part of the Ukraine and a separatist movement break out in another. Gazprom cut discounts to Ukraine after pro-Western authorities came to power in Kiev a year ago, which Kiev refused to accept. As Kiev's debts built up, Gazprom cut gas supplies in June, and only switched them back on in autumn at reduced volumes that Ukraine's state company Naftogaz has to pay for in advance.
Moscow is often accused of using gas prices as a political tool, and previous disputes with Kiev have led to two cuts in supplies to European countries in the past decade. But analysts at Russian bank VTB Capital indicated the third quarter results may actually look better than Gazprom's recent activity merits thanks to exceptional items that can't be relied on in future. It said it expected the final quarter of 2014 "...to be far worse for the company, given the crude and gas price drops, coupled with the 43 percent rouble depreciation and absence of positive one-offs such as Ukrainian bad debt reversal," VTB analysts wrote in a note.
In the first nine months of 2014, Gazprom's net profits fell by 35 percent to 556.2 billion rubles ($8.14 billion). Its revenues reached 4 trillion rubles ($58 billion), up 6 percent from the same period a year ago. The profits were hit by factors including an increase in impairment provisions made over Naftogaz debts, the group said in a statement. Gas sales fell 2 percent year-on-year between January and September to 2.084 trillion rubles ($30.5 billion), with those to Europe remaining fairly stable.