Gazprom’s net profits down sevenfold in ’14 on conflict in Ukraine
Russia’s gas giant Gazprom on Wednesday reported net profits in 2014 plunged sevenfold over the previous year, weighed down by fallout from the Ukraine crisis and shrinking value of the ruble.
The company — which was the most profitable in the world just a few years ago — reported 159 billion rubles in net profits last year (US$3 billion, 2.8 billion euros), according to Gazprom’s annual report published Wednesday.
That compared to 1.14 trillion rubles (US$21.8 billion, 20 billion euros at the current exchange rate) in 2013.
Gazprom explained the 86 percent drop on two main factors: the decreased value of the ruble, and its frictions with Ukrainian gas operator Naftogaz.
The company said its expenses went up by 926 billion rubles (US$17.7 billion) because of an “increase in foreign exchange differences expenses due to appreciation of U.S. dollar and Euro against Ruble.”
It was also forced to write off a whopping 34 billion rubles (US$650 million) arising from its conflict with Naftogaz, which spiralled after the ouster of Ukraine’s Kremlin-backed former president Viktor Yanukovych.
Moscow sharply hiked gas prices for Ukraine after the arrival of new pro-Western authorities to power in Kiev following mass demonstrations. That increase sparked pro- tests from Ukraine, which refused to pay debts demanded by Gazprom.
As a result, Russia cut gas deliveries to Ukraine last June, and did not resume them until the end of the year.
Sales to Europe — Gazprom’s main customer — grew by four percent, however, lifting overall sales by 6.4 percent to 5.59 trillion rubles (US$106.3 billion).
Gazprom is likely to face a tough 2015, with the price of gas dropping significantly in its existing contracts due to the fall of global oil prices.
The company also faces an investigation by the European Commission, which last week charged it with abusing its dominant market position in Europe.