Ukraine war affects Russian energy giant Gazprom’s profits; net profit down by 41.4% in 2022

Gazprom, the Russian energy behemoth, has experienced a significant decline in its net profit. On Tuesday the company said that its profits have fallen by 41 per cent in the aftermath of the Ukraine conflict. This is primarily due to a tax hike. The company’s financial report for 2022 reveals a profit of 1.2 trillion rubles ($15 billion), a substantial decrease from the 2.1 trillion rubles recorded in the previous year.

As per a statement by the company, due to the drop in profit, the board has recommended the withholding of dividend payouts.

What is behind the profit drop?

The company in a statement carried by Russian news agencies, revealed that the increase in tax payments during the second half of the year had a direct impact on profit margins. 

“Profit margins were impacted by an increase in tax payments in the second half of the year,” it said.

Gazprom’s operations have been severely affected by Western sanctions, which have targeted the state-owned enterprise led by Alexei Miller, a close associate of President Vladimir Putin. 

As a result, European imports of pipeline natural gas from Russia plunged by 55 per cent in 2022, according to the Gas Exporting Country Forum’s report released this month.

How did Gazprom deal with the sanctions?

To counterbalance the limitations imposed by the European market, except for liquefied natural gas purchases, Gazprom as per the news agency AFP has strategically sought to pivot towards Asia. In this, China, in particular, has emerged as a crucial economic partner for Russia, especially since the West implemented unprecedented sanctions following Moscow’s military intervention in Ukraine.

Gazprom announced in March that it had achieved a record in daily gas volumes supplied to China via the Power of Siberia pipeline. Furthermore, the total deliveries through the pipeline reached an all-time high of 15.5 billion cubic meters in the previous year. 

However, redirecting gas exports to new markets necessitates the construction of expensive infrastructure, a process that takes considerable time. As per the report, Gazprom anticipates commencing the construction of the ‘Power of Siberia 2’ pipeline in 2024. Gazprom which happens to own the largest gas reserves in the world, employs approximately half a million employees and thus remains a significant driving force behind Russia’s economic growth.

(With inputs from agencies)

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