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Russia: Gazprom Deal Puts Tax Revenues On Target

By Floriana Fossato and Ron Synovitz

Prague, 30 July 1998 (RFE/RL) -- The Russian government, struggling to find ways out of its worst financial crisis in years, announced a tax payment deal today with Gazprom that would put the country's revenues on target for July with International Monetary Fund (IMF) loan requirements.

Fuel and Energy Minister Sergei Generalov said Gazprom, Russia's biggest tax payer, has pledged to pay at least 3.1 billion rubles (about $500 million) in taxes for July by Monday. Gazprom is the world's largest gas producer and should contribute about 25 percent of Russia's tax revenues.

Deputy Prime Minister Victor Khristenko said today that Russia now expects to meet its July revenue target. If Gazprom carries through with the payment, Russia would collect a total of $1.89 billion in taxes this month -- about $100 million more than in June.

The development is seen as good news for Russia's declining financial markets. The Kremlin has been searching for ways to restore the confidence of investors. Prime Minister Sergei Kiriyenko met earlier today with representatives of some 30 banks and investment companies in a bid to boost the markets.

Kremlin officials say Kiriyenko gave investors a direct account of government finances to convince them that the Kremlin's anti-crisis program will increase revenues and cut spending. That, together with the IMF-led bailout package, should reduce the government's dependence on expensive short-term borrowing and help prevent a ruble devaluation.

The recent downward trend in the Russian stock and bond markets has been described by most analysts as "irrational" and "panic-stricken."

An announcement ten days ago of the IMF-led $22.6 billion bailout package failed to boost the markets for more than six days. This week, the Russian Trading System fell back to its level of early June as investors expressed doubts that Kiriyenko's cabinet could collect taxes and implement its spending cuts.

RFE/RL's correspondent in Moscow quotes Generalov as saying that Kiriyenko and Gazprom chief Rem Vyakhirev agreed yesterday that the company will pay at least 2.5 billion rubles (about $400 million) in taxes monthly, starting from July.

Generalov said Gazprom will also pay some 600 million rubles per month (about $100 million), as part of a program designed to settle its tax arrears. He also said the government, in turn, will pay Gazprom 600 million rubles ($100 million) per month for gas supplies to state institutions.

During a meeting earlier this month, Kiriyenko and Vyakhirev agreed to set up a joint commission to restructure their mutual debts. Gazprom had complained that it cannot pay its tax bills because most of its debtors are state institutions --including military facilities, schools and hospitals-- that haven't paid at all for gas deliveries.

Generalov said Kiriyenko and Vyakhirev would sign a deal on Monday on restructuring the debts.

Generalov's comments appear to contradict earlier statements by Kiriyenko. On July 3, the prime minister threatened to seize Gazprom's luxury assets if the firm does not fully pay its taxes on time. Kiriyenko also threatened to revoke a trust agreement under which Vyakhirev manages 35 percent of the state's shares in Gazprom.

After that standoff, the government said Gazprom agreed to a protocol stipulating that it would pay 4 billion rubles (about $650 million) each month in taxes.

Bloomberg Business News today quoted Generalov as saying that the monthly 4 billion ruble payment is a rough estimate. He said: "The amount is less in the summer. In winter, gas consumption will go up and so will the amount of taxes due."

Generalov did not say if Gazprom had paid its June tax bill, also originally estimated at $4 billion rubles. The standoff in early July was caused by Gazprom's failure to pay its June taxes. Generalov said Gazprom is now making payments for July and has until Monday to pay those debts.

Earlier this month, newly appointed Tax Service chief Boris Fedorov said the order to seize Gazprom's luxury assets would not be canceled, but merely delayed until Monday.

Generalov today said Kiriyenko ordered Fedorov and regional tax authorities to resume seizures of Gazprom assets only if the firm does not make its promised payments by Monday.

During a government meeting this morning, Vyakhirev complained that tax officials were already putting pressure on the company. He didn't elaborate. But Itar-Tass reports that Vyakhirev told the meeting that Tax Service directives are "difficult to understand." He reportedly said "either we get ready for the winter, or we continue the circus we had" in early July.

Vyakhirev also reportedly threatened that Gazprom employees would "simply walk away (from company property) so that the tax police can seize all they want."

Engaging in a new, possibly lengthy crackdown on Gazprom could trigger negative consequences for the Kremlin. Financial analysts in Moscow say extracting at least some dues from the country's biggest tax debtor could calm investors and send a powerful signal to other tax delinquents that the Kremlin is serious about tax collection.

Generalov today also announced that the government will not allow three oil companies to have access to export pipelines because of their failure to pay tax debts this month. Those companies are Russia's biggest oil producer Lukoil, Sidanco and Onaco.