MARCH 31, 2016
RUSSIA EQUITY STRATEGY
2Q16 EQUITY STRATEGY
Equity strategy quarterly
2016 State Duma elections — an important event
for the markets
When discussing the prospects for the Russian economy in 2016-17, one should
always keep in mind an extremely important event through year end — Russia’s
parliamentary elections. Why do they matter? There are two main reasons: this year
we are looking for a hike in oil and gas taxation and the 2017 budget process may be
difficult, as even the 2016 budget is not yet finalized. As elections to the State Duma
this year occur in September, this establishes an important timeframe for decisionmaking, as budget approval and changes to taxation must first be approved by the
Duma. A decision on oil and gas taxation may have a direct impact on O&G
companies’ earnings and debt metrics, so the timing and essence of the decision will
have direct implications for the markets.
Alexander Nazarov
+7 (495) 980 43 81
[email protected]
Final taxation decisions and start of budget process unlikely before
4Q16
We are not political analysts and do not pretend to know the impact of particular election
results. What we can see, however, is that the Duma elections will likely be a starting
point for important budgetary decisions. The outgoing Duma apparently has little interest
in raising taxation pressure, either on individuals or companies, ahead of the elections.
Moreover, the 2016 budget has yet to be finalized. The Economy Ministry is currently
elaborating scenarios envisioning oil at $35/bbl and $40/bbl, from which the new base
scenario for budget adjustment (average Urals price of $31.7/bbl, average RUB/USD
rate of 75.3 YTD) will be determined. The budget will then be re-approved by the
government and parliament. This ongoing assessment of the macroeconomic
environment opens a window of opportunity for an oil price rebound (which we expect by
year end), which would resolve at least some of the budget’s problems and potentially
delay a tax hike.
2016 State Duma election timeline
ELECTIONS TO THE STATE DUMA
SEPTEMBER 18,
2016
2 WEEKS
2 WEEKS
POSSIBLE TRANSITION PERIOD
Source: Gazprombank estimates
Constitution — at least a 30-day break
According to Ch. 99 of Russia’s Main Law, the Duma first meets on the 30th day after its
election, although the President may call for an earlier start, which in fact occurred
following the previous elections in 2011.
Previous Duma — one month break for elections
The previous Duma concluded its activity on November 23, 2011, and it considered draft
laws until its very last meeting. The election of the current, sixth Duma was held on
December 4, 2011, and its first meeting took place on December 21, 2011, just 17 days
Research Department
1
Copyright © 2003-2016.
Gazprombank (Joint Stock Company)
MARCH 31, 2016
RUSSIA EQUITY STRATEGY
after the election. So effectively, this implies that there will likely be one-month period
during which no new laws can be introduced.
September may be an interval month this year
In 2016, the Duma elections are scheduled for September 18, which likely means that
the last meeting of the outgoing parliament will be held during the final week of
September. The first meeting of the incoming, seventh Duma will likely be scheduled for
the beginning of October. So, in our view, any decisions on a tax hike are highly unlikely
to be made before October. For the budget process, this will not pose a significant
problem, as according to the preliminary plan the 2017-19 draft budget should be
submitted to the parliament on September 21.
2
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