Gazprom debt burden to speed up gas crisis end

By Dmitry Zhdannikov - Analysis

MOSCOW (Reuters) - Russia cannot afford to keep its gas taps for Europe turned off for too long as it needs to protect its budget revenues and its gas monopoly Gazprom needs to service its $60 billion debt.

Gas exports account for about a tenth of Russia's GDP, but these have been halted for nearly a week in a dispute with neighboring Ukraine, the transit route for 80 percent of the gas Russia sells to Europe.

Analysts say Gazprom, a pillar of the Russian economy, is losing more than $100 million a day because of the transit cut-off.

The loss of revenue comes at a bad time both for Russia, facing plummeting oil prices and the prospect of a recession, and for Gazprom, saddled with debt and likely to find gas prices falling by half by mid-2009 as they track crude.

"Gazprom faces demand destruction, falling prices, and huge challenges to finance its ambitious investments and manage its debt burden," said Douglas Busvine, an analyst at policy research firm Medley Global Advisors.

"Both it and the Russian state can ill afford the revenue hit that a prolonged loss of export revenues would cause."

FRAGILE ECONOMY

Russian gas supplies to Europe via Ukraine have been halted due to a pricing row between Moscow and Kiev.

The disruption has left some countries in Europe shivering in winter temperatures, but it has also hurt a fragile Russian economy.

Driven down by the weak oil price, Russia's currency has lost nearly 3 percent in the first two trading days of 2008, building on a fall of 17 percent in 2008.

In the meantime, the $40 price for a barrel of oil is well short of the minimum $60 Russia needs to balance its budget in 2009, threatening the lavish spending that has helped cement the Kremlin's grip on power.

With revenues of 1.74 trillion roubles ($56.99 billion) in the first half of 2009, Gazprom was responsible for 9 percent of Russia's GDP and its export shipments to Europe contributed around 15 percent to Russia's overall export revenues.

But Gazprom is also Russia's most indebted company with 20 outstanding Eurobond issues and an obligation to buy a stake in its oil producer Gazprom Neft from Italy's ENI for $4.5 billion before April.

LOSSES WIDEN

Prime Minister Vladimir Putin said on Sunday Gazprom had lost $800 million because of the dispute and Renaissance Capital brokerage said the figure was rising by $127-$141 million every day.