Gazprom Secures Victory in Dispute with Russian Customs Service over Export Duties

Another Customs Dispute

The Russian government's intention to form a customs union with Belarus and Kazakhstan is not off to a good start in 2010. Not only did Russia and Belarus engage in a nearly month-long stand-off in January over the terms of Russian crude oil supplies to Belarusian refineries, but uncertainty over customs regulations at the start of this month caused a temporary disruption in the flow of Russian crude to refineries in Kazakhstan as well. In this latest incident, however, Russia's Federal Customs Service (FCS) has found itself engaged in a dispute with one of the country's own companies, Gazprom, and this time around, the FCS has come out on the wrong end of the dispute.

Gazprom said in its fourth-quarter report on its Web site that the company had emerged victorious in what had been a nearly year-long battle with the FCS, dating back to an FCS order that went into effect on 1 April 2009, requiring the gas giant to make full advance payment on its customs duties on gas exports. Gazprom complained that full advance payments of customs duties forced it to seek an additional 15–20 billion roubles (US$495–660 million) in funds on a monthly basis, adding to the company's already hefty borrowing needs and contributing to an operational cashflow problem. What is more, from September 2009 the FCS began fining Gazprom for missing deadlines for payment of the full advance duties.

Previously, Gazprom had paid its customs duties on gas exports to Europe half in advance, with the other half of duties paid on delivery of the gas supplies. The FCS relented in November, allowing Gazprom to return to the previous practice of making advance duty payments of 50% in the 1 January to 31 July 2010 period, but with Gazprom continuing to lobby the government to protest the FCS order, the FCS issued a new order earlier this month bowing to Gazprom's pressure. As such, Gazprom is free to return to its earlier practice of paying customs duties as 50% advance and 50% on delivery. Furthermore, Gazprom said that the government found that the FCS fines against it for overdue payment of customs fees were unlawful.

Outlook and Implications

Gazprom also said that it had won a major concession from the FCS in getting it to lift a requirement that the gas giant complete its gas export formalities in Russia, giving the company added flexibility in supplying its European customers. The Russian gas giant said that the requirement to complete customs formalities in Russia had the effect of blocking Gazprom from being able to take gas out of underground storage in Europe, since it could no longer "export" this gas as Russian but would have to pay customs duties on it in Europe as well. Gazprom said that this requirement would have cost Gazprom around 120 million euro (US$164.3 million).