Kremlin orders Gazprom to halt 2023 dividends amid historic loss

The Russian government issued a decree on Monday instructing state-owned gas giant Gazprom to halt the dividend payout for 2023. The official reason is the company's first loss in decades. The company's shares reacted with sharp declines on the Moscow stock exchange.

Gazprom's shares are falling on the Moscow stock exchange due to the ban issued by Russian authorities, who do not agree to the fuel giant paying out dividends. The decision follows the company’s first annual net loss since 1999, amounting to £5.7 billion, caused by the collapse of gas exports to Europe following Russia's aggression against Ukraine and the escalation of the political conflict.

Gazprom's problems, which until recently was the pride of the Russian economy and a source of substantial profits due to the export of raw materials to Europe, have intensified in recent months. The company found itself in a difficult position after Russia attacks Ukraine, and the sanctions imposed on Moscow led it to break gas supply contracts with clients on the European continent.

According to Reuters, the Russian government publicly released an order late Monday evening (GMT) prohibiting Gazprom from paying dividends to shareholders for last year. This follows the company’s publication of its first annual negative financial result in 24 years, with a net loss of approximately £5.7 billion caused by a drastic drop in gas sales to Europe.

The market reacted unequivocally negatively to the Russian authorities' decision. Gazprom's shares fell by more than 4.3 per cent on Tuesday on the Moscow stock exchange, reaching their lowest rating since October 10 of last year. This is another blow to the stock price, which had already been significantly impacted by mysterious explosions that damaged three Nord Stream gas pipelines connecting Russia with Germany on the Baltic Sea floor.

The official reason for the state-controlled company's cessation of dividend payouts is its enormous investment needs. Gazprom will have to allocate significant financial resources to reorient its gas sales routes after losing European markets.

The main cause of the Russian giant's financial difficulties is the collapse of natural gas exports to Europe, which until 2022 was the key recipient of raw materials from Russia, generating the lion's share of the company's revenues. The Kremlin's aggression against Ukraine and the growing political tensions between Moscow and the West led to a dramatic reduction in the volumes of gas sent to the European continent.

Gazprom's data and calculations by the Reuters agency indicate that in 2022, Russia delivered about 63.7 billion cubic metres of natural gas to Europe via various routes. Last year, this amount dropped by over half - 55.6 percent year on year, to just 28.3 billion cubic metres. This is a chasm compared to the record year of 2018, when the Russian company exported an impressive 201 billion cubic metres of raw material to the EU and other European countries, including Turkey.

The prospect of no dividends for last year is a serious blow to the company itself, its minority shareholders, and the entire Moscow stock exchange. Gazprom losing its status as a "cash cow" and a reliable source of cash is another symptom of the deep problems that the entire Russian economy must face in light of increasing international isolation. There is also no certainty that dividend payouts in future years will not be halted.

Data confirming the fuel giant's troubles became known in May. It turned out that Gazprom had a loss of 629 billion rubles in 2023. This was the company's first loss since 1999.

According to expert Elina Ribakova, the shift in the profile of the Russian economy towards meeting the needs of the war machine is no longer merely cyclical but has become a structural change.

The expert quoted by the Financial Times cites various data illustrating the progressing militarisation of the Russian economy. She indicates that Russia's direct military expenditures have more than tripled to over £82.3 billion (6 percent of GDP) compared to the period before the invasion of Ukraine in 2022. The number of military-industrial enterprises has increased from just under 2,000 to 6,000, and employment in this sector has risen by at least half a million jobs.