Gazprom profits have fallen by a quarter after a decline in gas sales to Europe and an increase in energy costs from Central Asia. Russia’s state-controlled gas monopoly reported second-quarter net profits of 102.87 billion roubles (£2.06 billion), down 25 per cent on the same period last year. The sum was well below market expectations of 129.5 billion roubles.

Gazprom blamed sluggish sales in Europe, where a warm winter depressed demand, and a jump in operating costs as the company began paying 50 per cent more for gas purchases from Turkmenistan. Gazprom controls almost all of Turkmenistan’s gas exports, which it resells in Russia and other republics of the former Soviet Union. Price increases in those countries helped to boost revenues by 5.3 per cent to 532.37 billion roubles.

Despite the poor result, the company’s shares rose 3 per cent as the market responded to expectations of higher prices in Europe and former Soviet states next year. Gazprom agreed a deal last week that increases the price of gas for Ukraine by 40 per cent to almost $180 (£89) for 1,000 cubic metres.

However, Yulia Tymoshenko, who is expected to become prime minister of Ukraine, said yesterday that she would challenge the deal. That would pave the way for a possible repeat of the confrontation with Gazprom that led to supplies being cut off briefly in January 2006. She described the process of negotiating a gas price through an intermediary company, RosUkrEnergo, as “absolutely brainless”. She said: “Immediately following the formation of a new professional democratic government, we shall have a chance to start new constructive talks with our Russian counterparts.”

Prices in Russia are rising, too, after the Federal Tariff Service approved a 25 per cent increase for 2008. Gazprom’s dominance of the market was also strengthened after the Government classified 32 gasfields with reserves of 5.2 trillion cubic metres as strategically important, putting the company in prime position to develop them. “While we expect Gazprom’s margins to deteriorate slightly in the future, higher gas prices should compensate for growing costs next year,” Yevgeniya Dyshlyuk, of the bank Uralsib, said.

Gazprom’s profit margin in the first half of 2007 slipped to 31 per cent, compared with 37 per cent in 2006, as higher operating costs bit into revenues. Higher salaries and pension obligations at the Russia’s largest company drove staff costs up by a quarter to 53 billion roubles, and other expenses increased 58 per cent to 49 billion roubles.

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