The state has earned on the power industry reform. RAO UES of Russia paid $100 million more taxes in the first six months of this year than a year earlier, and the IAS effective tax rate on RAO UES profits exceeded 50%, an absolute record among Russian companies.
RAO UES has been much more generous towards the state this year. In the first six months of 2005, the power company paid corporation tax of 16.8 billion roubles on its profit of 33.2 billion roubles, according to its IAS statements published yesterday. This is 3 billion roubles more than in the same period of 2004, although the company's profit before tax was higher (36 billion roubles). The holding company's net profit was 30% lower than a year earlier because of this.
This is a result of the power industry reform, RAO UES explains. "The key reason for decline of net profit was growing spending on payment of interest as a result of obtaining additional credits and loans, as well as increase in the effective corporation tax rate due to non-recognition of deferred tax assets in newly-separated companies as they had no operations in previous periods," the holding company's press release says.
The thing is that more than a half of regional power systems no longer exist in their original form. They have been divided by lines of business into generation, grids, and sales (the biggest number of new companies has been based on RAO's largest subsidiary, Mosenergo, which split into 14 companies). A source close to RAO claims that the division of its subsidiaries has stripped the holding company from its tax base minimisation potential. Practically each subsidiary had losses in previous years which enabled diminishing the financial result for taxation purposes. After the reform, however, these losses remained in the balance sheet of the company which has preserved the brand of the power system, says the interlocutor. As a rule, this is a grid company which accounts for a total of about 30% of the value of assets (Mosenergo where the brand is retained by the generating company is an exception). And all new companies generating most profits had no losses in previous years. "As a result, there was an increase in the tax base which paid $100 million more taxes," the Vedomosti interlocutor concludes.
The tax rate in this situation really grows, confirms Aleksei Kotikov, Legal Department Director with United Consultants FDP. However, he is surprised at how big it is. "Fifty per cent looks like an absolute record for Russia," the expert notes. Taxes are paid according to Russian standards and the corporation tax rate amounts to 24% in compliance with them, reminds Sergei Makshakov, chief of the Business and Tax Accounting Department at RAO UES, while the effective corporation tax rate according to the IAS is different. As soon as next year when the new companies have a history, this effect will be much lower, he believes.
Until very recently, companies, especially oil ones, were trying to outdo each other in seeking to pay as few taxes as possible. Once the tax service demanded that Yukos and its subsidiaries pay an additional $27.5 billion to the budget, however, businesspeople stopped trying to save on taxes. Thus, Sibneft which paid corporation tax at a rate of 10-14% in 2000-2003 increased its payments to 27.5% in 2004 (according to the Russian Accounting Standards or RAS). The rate was 24.7% for LUKoil and 20% for Surgutneftegas.
Aton analyst Dmitry Skriabin believes such generous tax payments are a one-time action on the part of RAO UES. He notes that the holding company had paid more taxes than other companies before too (for example, its rate amounted to 38% in the first half of 2004). However, tax authorities are unlikely to get more than 50% of the holding company's profit again. "This is a reaction to the division of the power systems and payments will be more modest as soon as next fiscal period," he is sure.
The RAO UES group's consolidated revenue in the first six months of 2005 amounted to 391.1 billion roubles, 14% more than in the same period last year. Operational expenditure grew by 16% to 349.7 billion roubles. Profit amounted to 33.2 billion roubles, down by 2.8 billion roubles, and net profit – to 10.7 billion roubles (15.4 billion roubles in the first half of 2004). |
