Rates of debt growth among Russian consumers decline but issue of non-payments still pending

RELEASE

The Gazprom Board of Directors took notice of the information about the progress with implementing immediate measures for strengthening the payment discipline in the area of natural gas supply to the domestic market.

It was pointed out that the Company fulfilled its obligations to the Russian consumers in full, securing reliable gas supply and annually increasing the level of regional gasification. At the same time, the unsatisfactory payment discipline of Russian consumers remains a pending issue.

In spite that the growth rates of the overdue debt are slowing down (from January to November 2013 – 24.5 per cent, in the similar period of 2014 – 7.9 per cent), it continues going up and, according to the recent data, on December 1, 2014 it totaled RUB 124.9 billion. 48.5 per cent of this debt is owed by the North Caucasus Federal District.

The growth in non-payments has become the main reason for Gazprom to cut down the funds allocated to the Gasification Program next year. In 2014 RUB 28.8 billion was earmarked for the Program, while the 2015 budget envisages RUB 27.6 billion. The minimal investments, that is RUB 5 million, was allotted to the Arkhangelsk, Bryansk, Kemerovo, Nizhny Novgorod, Novgorod, Orenburg, Penza, Tver and Yaroslavl Regions as well as the Republics of Adygea, Ingushetia and North Ossetia-Alania due to the violation of the payment discipline.

Heat supplying companies and population remain the main debtors – as of December 1, 2014 they accounted for 29.7 and 43.6 per cent respectively of the whole overdue debt in Russia.

Deliberate bankruptcy of heat supplying companies is among the main reasons of their debt accumulation. Regional authorities need to work out clear requirements for choosing heat supply operators. In particular, an operator’s net assets as well as the availability of qualified and certified personnel should be taken into account.

Another important reason for the debt formation among heat suppliers is due to managing companies acting as intermediaries between the population and heat suppliers. The utility service payment system for the population is such that heat supplying companies receive money from managing companies with a substantial delay or do not receive it at all, since managing companies settle their accounts under short-term agreements first and only after that – with heat and resource suppliers. Therefore, it is necessary to tighten control over unfair managing companies as well as to prevent the unlawful diversion of funds received from the population and non-profit organizations.

The level of payment defaults at heat supplying companies also depends on the discrepancy of heat supply rates and costs on production of services, high deterioration of boiler houses and utility systems, the use of obsolete equipment and a number of other factors.

Gazprom Group’s companies are taking measures aimed at raising the payment discipline among the consumers, including the prevention of deliberate bankruptcy among thermal companies. Legal proceedings are initiated in judicial bodies regarding the illegal activities of thermal companies’ top management.

In some regions large-scale activities were carried out with the assistance of law enforcement authorities to disconnect the citizens who illegally hooked into gas grids.

Intense efforts related to issuance of proposals on updating the existing legislation in the gas payment area are underway. By now, the State Duma adopted in the first reading a bill to amend such documents as the Criminal Code, the Housing Code, the Code of Administrative Offences, and a number of sectoral laws. Amendments aimed at introduction of subsidiary liability among the owners of heat generation equipment and the necessity to provide additional financial guarantees (in particular, banking and municipal ones) of payment are to be considered in the second reading. The bill stipulates enhancement of consumers’ responsibility for violation of contracts in regard to non-payment of supplied energy.

The Board of Directors tasked the Management Committee to continue its work targeted at enhancing the payment discipline, repayment of debt for the supplied gas, as well as interaction with government bodies to streamline the Russian legislation in this area.

The Board of Directors also approved the Long-Term Development Program of Gazprom.

Background

Gazprom is the largest gas supplier on the Russian market.

Nowadays Russian gas market comprises regulated and deregulated sectors. Gazprom is almost a sole supplier in the regulated sector. Among all types of fuel, the Government regulates only prices for natural gas produced and supplied to Russian consumers by Gazprom Group.

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