OREANDA-NEWS. July 23, 2010. The Finance Ministry’s Head of Tax and Tariff Policies Ilya Trunin was quoted by Interfax yesterday as saying that the mineral extraction tax (MET) on natural gas is expected to rise by 61% in 2011 and be indexed by 6% in 2012 and 5.4% in 2013, reported the press-centre of OTKRITIE Financial Corporation.

This proposal is not completely new, in that it is consistent with the statements made by Economics Ministry officials over the past few weeks. Mr. Trunin also said the oil MET rate should be raised by 6.5% in 2012 and 5.4% in 2013.

View: According to an Interfax analyst poll released on 20 July, consensus forecasts assumed a 41% increase in the gas MET rate in 2011, 26% in 2012, and 15% in 2013, hence we see only minor downside risk for 2011 earnings and cash-flow projections of Gazprom and NOVATEK from this news. In fact, as the Ministry of Finance has proposed the gas MET indexation in line with expected inflation after 2011, the impact on consensus DCF-based valuations of Russian gas stocks could be marginally positive for Gazprom and NOVATEK.

This is especially pertinent when comparing the government-projected gas MET increases of 6% and 5.4% in 2012 and 2013 with the average market assumptions of 26% and 15%.  The oil MET proposal also looks rather positive for Russian oil stocks, in our view, since the original proposal of the Ministry of Finance assumed an 11.6% oil MET increase in 2011.