The credit rating assigned to the Tomsk Region (hereinafter – the Tomsk Region, the Region) is based on high transparency of inter-budget relations, increasing level of debt load in relation to its operating balance coupled with low risk of debt refinancing, limited flexibility of budget expenditures together with fairly low indicators of regional economy development as compared to the country average, as well as on level of liquidity that allows for timely fulfillment of expenditure obligations.

The Tomsk Region is located in the Siberian Federal District; it borders six regions of Russia. 0.7% of the Russian population live in the Region; it accounts for 0.7% of the total gross regional product (GRP) of Russia. A significant part of the Region lacks population due to the large area of wetlands (almost a third of the territory) and forests. Tomsk is a major educational center; hence, the Tomsk region in terms of the number of students per 10 thousand inhabitants ranks third among Russian regions after Moscow and St. Petersburg.

Key rating assessment factors

Oil and gas production coming from mature fields determines the dynamics of the social and economic development of the Region. Despite the fact that oil and gas production accounts for only 30% of the regional GRP, while the share of hydrocarbons produced by the Region in the total volume of Russian production is rather low, other sectors of the regional economy are unable to neutralize the dynamics of economic indicators. Therefore, regional GRP and the volume of investments are sensitive to negative trends in the oil and gas industry underpinned by the OPEC+ agreement.

Production level freeze coupled with introduction of a considerable number of new fields in other Russian regions lead to an accelerated decline in production from mature fields.  As the OPEC+ agreement has been extended until the end of 2018, its effect may retain. However, the Region’s administration is currently working on incentives for oil and gas producers in order to stop the outflow of investments to regions with less depleted fields.  Dependence of economic indicators on oil and gas production is heightened by the synergies between oil and gas industry and other sectors, especially with real estate transactions, lease and services sector, as well as transportation and communications. Wage level in the Region corresponds to the country average, but average per capita income lags behind the national average by 20% as a result of low share of hidden income and high share of social payments. Due to the large number of students in the Region, who are classified as unemployed in case of job search, regional unemployment figures may by overestimated. 

Mandatory expenses of the Region’s budget are high, while control over the revenue side of the budget is weak. The share of own revenues1 of the Region’s budget equals 82% of the revenues excluding subventions of 2015-2018 (plan).  In 2017, the Region did not manage to achieve even a third of planned level of revenues from corporate income tax, the structure of own revenues changed: the share personal income tax (PIT) outweighed that of income tax. The administration of the Tomsk Region associates the non-performance of corporate income tax target with the presence of consolidated groups of taxpayers in the Region, which hampers planning tax revenues, as well as with the return of income tax overpayment to a taxpayer outside a consolidated group of taxpayers.

1 Own revenues = tax and non-tax revenues.

Tax base for corporate income tax for 9 months of 2017 fell by a quarter compared to the same period in 2016 (data for the full year is currently not available).

The Region is not a substantial beneficiary of neither income tax in oil and gas production sector nor taxation of the products with higher added value (crude oil refining). By ACRA’s estimate, the largest share of tax revenues of the Region comes from oil and gas production.  Formally, dependence on this sector is relatively low (19-25%), but even such level of dependence negatively affects the implementation of the budget plan. Tax revenues from the allied sector, i.e. crude oil refining, were negative in 2017. 

Share of mandatory spending of the budget is consistently high – 75% in 2015-2018 (plan) – which is partially attributed to the need of maintaining wages in public sector on a relatively high level.  Due to high mandatory expenses of the budget, the Region’s operating balance averages 19% of the regular revenues in 2015-2018, which is assessed by ACRA as low.

Share of capital expenditures of the regional budget is within 8-11% in the analyzed period. 

High debt load is partially mitigated by diversified portfolio in terms of maturity and  debt instruments. Debt to operating balance ratio of the Region exceeded 2x in 2015-2016, while as of the end of 2017 it reached 3,52x, which corresponds to a high level of risk.  Debt to own revenues ratio of the Tomsk Region equaled 56% as of the end of 2016, however due to the non-receipt of the planned amount of tax revenues, the figure increased to 69%.  By our estimates, if the Region manages to achieve the current target volume of tax revenues, it will be able to maintain the debt to own revenues ratio at the level stipulated by the agreements with the Ministry of Finance for 2018.  Further ability of the Region to fulfill the agreements will be largely determined by the dynamics of income tax revenues. The debt repayment schedule assumes an annual repayment not exceeding 23% of the current debt, which indicates a low risk of refinancing. The Region may follow this repayment schedule by using all available instruments for debt management, including refinanced budget credits and bonds for the population.

High liquidity level. The Tomsk Region has sufficient liquidity to timely perform its expense obligations including interest payments. In order to finance projected cash gaps, the Region’s administration actively uses short-term loans provided by the Federal Treasury Department as well as revolving credit lines, so the intra-year turnover of raising and repaying debt considerably exceeds total liabilities, and the Region does not place funds on deposits. The strategy of the Region’s administration in terms of formation of financial reserves assumes funneling funds received in excess of expected revenues (including within the framework of the action plan aimed at increasing tax and non-tax revenues) in creation of a "liquidity cushion.”

Key assumptions

  • Performance of tax revenue targets in 2018;
  • Adherence to a responsible budget policy, aimed at realistic planning of own revenues;
  • Successful implementation of measures aimed at curtailing investment outflow to regions with less depleted fields.  

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Increase in tax base pertaining to income tax in case of applying a subsidized mineral extraction tax (MET) rate for mature fields;
  • Achievement of a stable operational balance to regular income ratio of no less than 20%;
  • Monetization of the Region’s scientific potential accompanied by an increase in its tax revenues as well as social and economic indicators;
  • Decline of reliance on external sources of liquidity.

A negative rating action may be prompted by:

  • Change in the Region’s debt book maturity profile in favor of short-term debt instruments;
  • Decrease of tax revenues in 2018-2020 by more than 7% of the planned level.
  • Non-fulfillment of the action plan aimed at increasing tax and non-tax revenues in 2018, associated with deterioration of the Region's own liquidity.

Issue ratings

Credit rating rationale. In ACRA’s opinion, the below bonds issued by the Tomsk Region are senior unsecured debt instruments, and their credit rating is equal to the rating assigned to the Tomsk Region.

Key issue properties

1)   RegS / ISIN: RU34048TMS0/ RU000A0JUCZ6

Issue volume / outstanding

RUB 5 bln / RUB 2.5 bln

Final placement date / Repayment date

April 2, 2015 / December 18, 2018

 

2)   RegS / ISIN: RU34055TMS0/ RU000A0JW1K9

Issue volume / outstanding

RUB 7 bln / RUB 7 bln

Final placement date / Repayment date

September 26, 2016 / June 19, 2023

 

3)   RegS / ISIN: RU34062TMS0/ RU000A0ZYMJ7

Issue volume / outstanding

RUB 7 bln / RUB 0.1 mln

Final placement date / Repayment date

December 28, 2017 / December 19, 2024

Rating history

None.

Regulatory disclosure

The credit ratings have been assigned to Tomsk Region and to bonds issued by the Tomsk Region (RU000A0JUCZ6, RU000A0JW1K9, RU000A0ZYMJ7) under the national scale for the Russian Federation based on the Methodology for Credit Rating Assignment to Regional and Municipal Authorities of the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities. In the process of credit rating assignment to the above issues, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also used.

ACRA assigns credit ratings to the Tomsk Region and to issues of government securities of the Tomsk Region (RU000A0JUCZ6, RU000A0JW1K9, RU000A0ZYMJ7) for the first time.

The credit rating of the Tomsk Region and its outlook as well as the credit ratings of government securities issues of the Tomsk Region (RU000A0JUCZ6, RU000A0JW1K9, RU000A0ZYMJ7) are expected to be revised within 182 days after the rating action date (April 6, 2018) in compliance with the 2018 calendar of planned sovereign credit rating revisions and publications.

The credit rating was assigned based on the data provided by the Tomsk Region, information from publicly available sources (the Ministry of Finance, the Federal State Statistics Service, and the Federal Tax Service), as well as ACRA’s own databases. The credit rating is solicited, and the Administration of the Tomsk Region participated in its assignment.

No material discrepancies between the data provided and the data officially disclosed by the Tomsk Region in its financial report have been discovered.

ACRA provided no additional services to the Administration of the Tomsk Region. No conflicts of interest were discovered in the course of credit rating assignment.

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Analysts

Ilya Tsypkin
Associate Director, Head of Municipal Ratings, Sovereign and Regional Ratings Group
+7 (495) 139 03 45
Evgenia Trautman
Senior Analyst, Sovereign and Regional Ratings Group
+7 (495) 139 04 80, ext. 104
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