(MENAFN- AFP) Russia's gas giant Gazprom on Wednesday reported net profits in 2014 plunged sevenfold over the previous year, weighed down by fallout from the Ukraine crisis and the shrinking value of the ruble.
Gazprom -- which was the most profitable company in the world just a few years ago -- reported 159 billion rubles in net profits last year ($3 billion, 2.8 billion euros), according to its annual report published Wednesday.
That compared with earnings of 1.14 trillion rubles ($21.8 billion, 20 billion euros at the current exchange rate) in 2013.
Analysts with Morgan Stanley said that the results, if adjusted for impairments beyond the company's control, were "better than expected."
Gazprom explained the 86 percent decline in profits on two main factors: the decreased value of the ruble, and its frictions with Ukrainian gas operator Naftogaz.
The company said its expenses went up by 926 billion rubles ($17.7 billion) because of an "increase in expenses on foreign exchange differences" as the ruble depreciated against the US dollar and the euro.
It was also forced to write off a whopping 34 billion rubles ($650 million) arising from its conflict with Naftogaz, which spiralled after the ouster of Ukraine's Kremlin-backed former president Viktor Yanukovych.
Moscow sharply hiked gas prices for Ukraine after the new pro-Western government came to power in Kiev following mass demonstrations. That increase sparked protests from Ukraine, which refused to pay debts demanded by Gazprom.
As a result, Russia cut gas deliveries to Ukraine last June, and did not resume them until the end of the year. Overall sales to the countries of the former Soviet Union dropped by two percent.
Sales to Europe -- Gazprom's main customer -- grew by four percent, however, lifting total sales by 6.4 percent to 5.59 trillion rubles ($106.3 billion). Sales in Russia also increased by three percent.
- Volumes drop -
The growing figures however are attributed to the price of gas, which on average was higher than in 2013 before falling late in the year. The volume of gas sold actually fell across the board.
Gazprom sold eight percent less gas to Europe, 19 percent less in the former Soviet Union and four percent less in Russia due in part to climatic factors which will continue to be in play in the current year.
Gazprom is likely to face a tough 2015, with the price of gas dropping significantly in its existing contracts due to the fall of global oil prices.
The company also faces an investigation by the European Commission, which last week charged it with abusing its dominant market position in Europe.
Europe has been looking to diversify its sources of gas, a drive hastened also by the standoff with Moscow over the conflict in eastern Ukraine where the West blames the Kremlin for supporting the pro-Russian separatists.
In the long term, Gazprom is likely to face competition from privately-owned Novatek but also potentially state oil giant Rosneft, which is reportedly preparing to launch a gas arm, led by a former Gazprom executive.
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