The Company’s long-term strategic planning relies on a system of strategic target indicators (STI) coming in the shape of well-balanced targets that span the entire range of operations and define the quantitative dimension of strategic goal setting.
The Long-Term Development Program of PJSC Gazprom is developed annually in accordance with the Company’s Planning ProceduresApproved by resolution of the Management Committee of the Company No. 34 dated June 26, 2006 based on the STIs and incorporating the Guidelines on Long-Term Development Programs for Strategic Open Joint Stock Companies and Federal State Unitary Enterprises, and Open Joint Stock Companies in which the Aggregate Share of the Russian Federation Exceeds 50%Instruction of the Government of the Russian Federation No. ISh-P13-2583 dated April 15, 2014. Once pre-approved by the Management Committee, the Program is submitted for approval to the PJSC Gazprom Board of Directors.
Strategic planning helps outline general development paths and management decisions that are set out in more detail at the stage of medium- and short-term planning. It plays a key role, inter alia, in the budgeting and development of the Investment Program of PJSC Gazprom for the upcoming year and next three years.
For more details on strategic planning system see pages 76–79 of the PJSC Gazprom Annual Report 2019
The Gazprom Group is a global vertically integrated energy company focused on geological exploration and production of gas, gas condensate and oil; transportation and underground storage of gas; hydrocarbon feedstock processing; gas and petrochemistry; sales of gas, gas condensate, oil, and refined hydrocarbon products, as well as generation and marketing of heat and electric power. The parent company of the Group is PJSC Gazprom.
For the schemes of business processes within the Gazprom Group’s gas, oil and electric power businesses see pages 36–37 of the PJSC Gazprom Annual Report 2019
PJSC Gazprom’s form of incorporation is private property with the stateowned stake. The Russian Federation controls the majority stake in the Company directly and indirectly (over 50%).
In 2019, there were changes in the share capital structure with the sale of quasi-treasury shares (2.93% and 3.59% of the authorized capital) through the Moscow Exchange using the stock exchange transaction technology. These transactions were based on, among other things, investor propositions and recommendations of the Bank of Russia’s Corporate Governance Code.
Information on the Gazprom Group’s geography of operations is provided on pages 95–98 of the Gazprom in Figures 2015–2019 Factbook
As of the end of 2019, PJSC Gazprom granted 345 companies the right to use its trademarks in the Russian Federation, and concluded 122 license and 243 sub-license agreements for the use of its trademarks in the Russian Federation and 46 foreign countries.
Gazprom is one of the world leaders in natural gas reserves and production, holding a significant share of the Russian market in liquid hydrocarbons production and processing. Gazprom is a leader on the Russian electricity and heat market in terms of installed electric and thermal capacity and the country’s largest heat generation company.
(1) Share of PJSC Gazprom’s gas supplies under contracts of Gazprom Export LLC in consumption of gas in Europe (other than FSU states).
(1) Including the share in production of organizations in which Gazprom has investments classified as joint operations.
In 2019, Gazprom brought into operation major strategic projects and reached important agreements, including the following achievements.
- Gas supplies to China commenced via the Power of Siberia gas pipeline.
- The TurkStream gas pipeline was put into operation.
- The Chayandinskoye field was put into operation.
- A transit contract with Ukraine was signed.
- An offshore terminal and the Marshal Vasilevskiy floating storage and regasification unit were provided to supply gas to the Kaliningrad Region.
- Power Unit No. 2 of the Grozny TPP was brought into operation; the unit is the final facility within the program under capacity supply agreements.
The key milestone of 2019 was the launch of the Power of Siberia gas trunkline. Russia started its first-ever pipeline supplies of natural gas to China: gas from the Chayandinskoye field (Yakutia gas production center) is now fed into China’s gas transmission system (GTS). With Power of Siberia brought into operation, Gazprom can now widen cooperation with Russian companies, create new jobs, and provide gas to the regions covered by the gas trunkline. Power of Siberia was built using solely pipes of Russian manufacture. The project was carried out with a particular focus on maintaining a high level of process and environmental safety. The solutions included minimally manned technologies, comprehensive process automation, and the use of renewable energy sources.
In 2019, Gazprom also brought into operation top-priority facilities at the oil rim of the Chayandinskoye field. At the Kovyktinskoye field (Irkutsk gas production center), development drilling began. The Company continued the construction of the Amur Gas Processing Plant (GPP), one of the world’s largest facilities of this kind, and the expansion of the Sakhalin — Khabarovsk — Vladivostok gas pipeline between the cities of Komsomolsk-on-Amur and Khabarovsk.
With the addition of the TurkStream deep-water gas pipeline in 2019, the capacity of Russia—Turkey gas transmission systems expanded, paving the way for the Russian gas to reach not only Turkey, but also, in transit, Southern and South-Eastern Europe.
Full-scale development began at the Kharasaveyskoye field (Yamal gas production center) in 2019. A unique fishbone multilateral well with eight sidetracks was builtProject of JSC Messoyakhaneftegaz, a joint venture between PJSC Gazprom Neft and PJSC NK Rosneft at the Vostochno-Messoyakhskoye field in the Tazovsky District of the Yamal-Nenets Autonomous Area. Gazprom continued expanding the Northern Gas Transmission Corridor by building compressor capacities at the Bovanenkovo — Ukhta 2 gas pipeline. Preparations were underway at the Ukhta — Torzhok 2 gas pipeline to put a new compressor shop into operation. The Bovanenkovo — Ukhta 3 and Ukhta — Torzhok 3 gas pipelines were being designed. The Nord Stream 2 gas pipeline construction project reached the final stage. As of the end of December 2019, in total 94% of the pipeline (in all sections) was laid in the Baltic Sea. The creation of an integrated gas processing and liquefaction complex near Ust-Luga began.
In order to enhance the Kaliningrad Region’s energy security with due consideration of the region’s geographical setting, Gazprom implemented an alternative gas supply project to provide liquefied natural gas (LNG) deliveries by sea. An offshore terminal and the Marshal Vasilevskiy floating storage and regasification unit can now be used for the purpose of gas supplies to the Kaliningrad Region.
Most of Gazprom’s capital expenditures under the Investment Program are earmarked for its gas business. Gas investment peaked in 2019 as the three strategic projects — Power of Siberia, Nord Stream 2, and TurkStream — were underway at the same time.
PJSC Gazprom’s investment program for 2020 approved by resolution of the Board of Directors No. 3362 dated December 24, 2019 provides for RUB 1,104.7 billion of capital expenditures.
- Urengoyskoye (Achimov deposits);
- Development of gas transportation facilities of the UGSS in the North-Western Region, Gryazovets — Slavyanskaya compressor station (CS) segment;
- Power of Siberia (the Kovykta —Chayanda segment);
- Sakhalin — Khabarovsk — Vladivostok (expansion);
- Nord Stream 2;
- Bovanenkovo — Ukhta 2 (CS);
- Power of Siberia (expansion: loopings of the second string and the CS);
- Ukhta — Torzhok 2 (CS);
- Bovanenkovo — Ukhta 3;
- Ukhta — Torzhok 3.
- LNG production, storage and shipment terminal in the vicinity of the Portovaya CS;
- Amur GPP;
- Integrated gas processing and liquefaction complex near Ust-Luga.
|PJSC Gazprom’s market capitalisation at year end, RUB trillion||3.7||3.1||3.6||6.1|
|Sales revenue, RUB million||6,111,051||6,546,143||8,224,177||7,659,623|
|Profit on sales, RUB million||725,580||871,405||1,930,030||1,119,857|
|Profit for the year under IFRS, RUB million||997,104||766,879||1,528,996||1,269,517|
|Profit for the year attributable to PJSC Gazprom’s shareholders, RUB million||951,637||714,302||1,456,270||1,202,887|
|Discounted EBITDA(1), RUB million||1,323,258||1,467,692||2,599,284||1,859,679|
In 2019, PJSC Gazprom became Russia’s largest company by market capitalisation on the back of a significant re-rating of the Company’s shares. The Company was valued at RUB 6.1 trillion at the end of December 2019, which is a 67.4% gain on the 2018 result. PJSC Gazprom’s securities saw much higher trading volumes on the London Stock Exchange and the Moscow Exchange with a rise of 2.5 times and over 3 times respectively.
Sales revenue decreased by 7% in 2019 and landed at RUB 7,659.6 billion, which was mainly caused by lower revenue from gas sales to non-FSU countriesCorresponds to “Revenue from gas sales to Europe and other countries” in the IFRS consolidated financial statements. The Gazprom Group’s profit for the year under IFRS was 17.0% lower than in 2018 and amounted to RUB 1,269.5 billion.
One of the milestones of 2019 was the approval of PJSC Gazprom’s new Dividend PolicyApproved by resolution of the PJSC Gazprom Board of Directors No. 3363 dated December 24, 2019. Based on the 2019 results, the Company will pay out a total of RUB 360.8 billion in dividends (RUB 15.24 per share), or 30% of the net profit under IFRS attributable to the shareholders of PJSC Gazprom. The target level of dividend payout is at least 50% of the adjusted net profit under IFRS in 2021.
Dialogue with an expert
Famil Sadygov, Deputy Chairman of the Management Committee of PJSC Gazprom
How does Gazprom’s new Dividend Policy incorporate the interests of different stakeholders, and how does it contribute to the Company’s own development?
The purpose of the new Dividend Policy is to align the interests of the Company, government and minority shareholders.
One of the principal objectives of the updates to the Dividend Policy was to establish a fair and transparent dividend calculation mechanism based on the Gazprom Group’s net profit under IFRS adjusted for non-monetary items. The dividends calculated on the basis of these adjustments more accurately reflect the Gazprom Group’s cash flow.
What are the current and expected effects of the new Dividend Policy?
The Policy is intended to boost shareholder returns and enhance Gazprom’s investment case and market capitalisation. The dividend payout is expected to reach 50% of the adjusted net profit under IFRS in 2021. It is mostly thanks to these changes that in 2019 we saw our share price go up by 87% in US dollar terms.
Did you consult any of the stakeholders in the process of working out the new calculation methodology and drafting the Policy in general? If yes, did they voice any suggestions or concerns?
The Policy was drafted with input from PJSC Gazprom’s corporate brokers that had a clear understanding of the market’s expectations regarding the new document. In addition, we incorporated the results of direct communication between Gazprom’s management and investors into the Dividend Policy. We also consulted the Ministry of Finance of the Russian Federation.
How are you going to finance dividend payout?
One of Gazprom’s financial policy priorities is still going to be the payment of dividends from positive free cash flow. The Company plans to maintain a comfortable debt level, with the net debtNet debt inclusive of bank deposits / EBITDA ratio standing at 1-2. That being said, we may take on additional short-term debt for specific purposes, such as payment of dividends to our shareholders.
One of the priorities embedded in the Gazprom Group’s development strategy is to enhance the efficiency of the Group’s operations, which is achieved through a variety of means that include effective and consistently optimized tax administration.
Gazprom is among Russia’s largest taxpayers. In 2019, the Group’s tax payments totalled RUB 3,077.150 billion, 62.8% of which were the mineral extraction tax and customs duties.
The Company has in place the Tax Strategy of PJSC GazpromApproved by resolution of the PJSC Gazprom Management Committee No. 48 dated December 7, 2017 that sets out long-term tax goals and targets. The Tax Strategy is aimed at implementing the corporate strategy and is geared towards cementing PJSC Gazprom’s status as a global energy leader. A special authorized Department of PJSC Gazprom is responsible for carrying out the Tax Strategy.
PJSC Gazprom implements a single tax policy and ensures uniformity in the application of the tax legislation by the Gazprom Group entities.
How does the Gazprom Group adopt cutting-edge IT solutions in the sphere of taxation?
A key initiative in this area is the creation of a Data Mart system as part of the Gazprom Group’s transition to tax monitoring. The first subsidiary to join the tax monitoring regime was Gazprom Export LLC. Tax authorities were provided with remote access to the company’s accounting and tax data, tax registers, scanned copies of source documents, and information on the internal control system.
In the future, almost all of the companies included into the Gazprom Group consolidated group of taxpayers will use the system.
PJSC Gazprom’s Management Committee approved the PJSC Gazprom tax policy framework for 2020 and for the planning period of 2021–2022Approved by resolution of the PJSC Gazprom Management Committee No. 2 dated January 23, 2020.
PJSC Gazprom’s plans regarding the tax policy for the following three years include:
- Digitalisation in the sphere of taxation. PJSC Gazprom actively cooperates with the Federal Taxation Service of Russia in this area. In 2020–2022, the Company plans to continue with a set of initiatives designed to expand the application of up-to-the-minute digital technologies in the taxation procedures of PJSC Gazprom, from accounting, tax statistics collection and consolidation, and tax forecasting to tax risk management processes and interaction with tax authorities as part of tax control.
- International taxation. One of the Tax Policy’s targets is to ensure that the Gazprom Group is able to adapt to the changes in Russian and international tax legislation on profit distribution introduced by the BEPS Action Plan and to provide ways of mitigating the Group’s tax risks.
- Ensuring the Gazprom Group’s compliance with the tax laws on transfer pricing when preparing reporting documents on the Group’s international entities, as well as the compliance with the Russian laws on tax control over the pricing of transactions between interdependent parties.
- Shaping a favourable tax regime for the Gazprom Group.