OREANDA-NEWS. March 26, 2015. The Gazprom Board of Directors took notice of the information about the Company’s financial strategy, including the funding of the capital investment program.

It was pointed out that Gazprom’s continuous monitoring of the global market state ensured the full accordance of the Company’s financial strategy with the real-life situation.

A major component of Gazprom’s strategy is shaping up a conservative budget capable of managing the financial market risks. In particular, the Gazprom budget accounts for the risks of reducing the volumes of gas offtake by contractors or not receiving their payments for the established supplies. At the year-end Gazprom will ensure that a budget surplus is in place, as it happened before.

Gazprom’s strategy also allows for fully financing all the major investment projects within the fixed timeline, even if the market environment shows a negative trend. In this case, in order to avoid an unreasonable increase in capital costs, when forming its investment program Gazprom adheres to the principle of financing capital investments at its own cost, not through borrowed funds. In recent years Gazprom’s capital investments have been totally covered by the operational cash flow.

In addition, when shaping up its investment program, Gazprom ranks its investment projects by their significance and feasibility. The major part of the investment program is represented by the priority projects aimed at reaching Gazprom’s strategic objectives as well as projects important to successfully pass the winter peak load period. Such an approach enables Gazprom to concentrate its financial resources on the paramount projects to the fullest extent possible as well as provides for the smooth execution of the investment program.

Considering the current economic situation, the Company’s budget allows for the funds to implement the import substitution program.

At all the stages of the investment projects execution – from analyzing the investment requirements to actual contract implementation – Gazprom thoroughly controls all types of costs.

In addition, Gazprom improves the Group’s centralized liquidity management system. For instance, the work is underway for establishing a single treasury of Gazprom that will tighten the control over Group’s internal financial flows and boost the efficiency of using intra-Group funds.

The Gazprom Group debt is maintained at a supportable level. The Company pursues a weighted approach to choosing the sources of finance and employs the loan funds with maximum efficiency. Gazprom has shaped up an optimum debt structure: the debts payable in or above five years make up about one third of it and the share of fixed-rate debts exceeds 95 per cent. Thus, the risk of tax rate increase on Gazprom’s loan funds is minor.

Currently the Company is engaged in enhancing the sources of debt financing. In particular, the possibilities are being worked out for denominating Eurobonds in Asian currencies as well as for receiving loan funds from a number of Chinese banks, among other things applying the project financing mechanism. Depending on the further development of the market environment, it is possible that the volume of loan funds in the Russian market will grow as well.

Adhering to its current strategy, Gazprom maintains a steady financial standing, has a broad access to the sources of finance and a considerable liquidity reserve. It allows Gazprom to fully meet its obligations to the Russian budget and contractors and reach its strategic objectives regardless of the global economic scenario.

Background

The Investment Program, Budget and Cost Reduction Program comply with the criteria approved by the Board of Directors in December 2014.

Pursuant to the Investment Program for 2015 approved in December 2014, the total amount of investments will make up RUB 840.35 billion. At the same time, the amount of capital investments will account for RUB 733.13 billion, of which RUB 733.09 billion and RUB 0.033 billion will be allocated for capital construction and acquisition of non-current assets accordingly. The amount of long-term financial investments will total RUB 107.22 billion.

According to the approved Budget for 2015, gains from operating and investment activities will total RUB 5.887 trillion, while the amount of payments in all activities – RUB 5.978 trillion. The external financial borrowings will stand at RUB 90 billion. The Budget surplus (taking into account intragroup borrowings and beginning balances on Gazprom’s accounts as of early 2015) will account for RUB 0.5 billion.