Authorities in Russia are pushing through a plan to increase the tax take on the country’s largest gas producer, Gazprom, from 2024 as they focus on supporting the oil industry.

Russian oil producers currently generate revenues for the government by selling their crude internationally at well above the G7-approved price cap of $60 per barrel, and have also restarted the delivery of discounted fuels to domestic customers.

The tax hike plan is being driven through government despite Gazprom revealing mounting issues in its core natural gas business which has been suffering since mid-2022 after the company’s decision to slash gas exports to Europe in retaliation for international sanctions against Russia.

Russia’s Finance Ministry has asked parliament to rubber-stamp a bill to boost direct production taxes on gas and condensate extracted by Gazprom, with the aim of partially forwarding additional revenues to compensate the country’s oil producers for maintaining reduced prices for domestically sold fuels, including petrol and diesel.

During hearings on the draft proposals on Tuesday, members of parliament were presented with a forecast that the bill’s approval will cause Gazprom to take an annual loss of 1 trillion roubles ($10 billion), according to Russian state-run news agency Tass.

Gazprom gas revenues in decline

Gazprom stopped the official publication of its detailed performance metrics soon after Russian invaded Ukraine in February 2022, but company’s latest report under local accounting standards for its core gas producing unit pointed to the sharp decline in revenues.

The report said gas sales revenues plunged almost 50% to below 2.4 trillion roubles between January and September this year, against the same period of 2022.

The company was earlier reported as having shut-in production capacity of over 100 billion cubic metres of gas per annum as a result of losing its European export markets.

Meanwhile, Gazprom’s efforts to arrange alternative gas sales have had limited success, with a contract to deliver 2.8 Bcm of gas per year to Uzbekistan its only new deal.

Another potential customer — Kazakhstan — decided that this winter season it can cope without Russian gas imports.

Despite production shut-ins, Gazprom’s report said gas production costs fell only marginally, year on year, to less than 1.4 trillion roubles, while marketing and management costs fell 9% to 1 trillion roubles.

Gazprom said earlier this year that its gas production dropped 25% to 179 Bcm between January and June this year, compared with the first half of 2022, but has not provided any update on production performance in the third quarter.

Compensations to oil producers

According to Russia’s Finance Ministry, expected additional payments from Gazprom will be used mostly to bankroll compensation paid by the government to the country’s largest oil producers to motivate them to supply discounted fuels to domestic customers.

The government had been cutting compensation payments to producers this year as the budget ran into deficit because of increasing military spending on the war in Ukraine that is estimated to account for over one-third of the total budget spending.

In September, Moscow introduced a sudden ban on oil products exports in an attempt to curtail the steep rise of domestic fuel prices as the government announced the full halt of such compensation payouts to producers in October.

The ban was fully lifted last month after the government promised to reinstate compensation for the domestic supply of discounted fuels.