Completion of the tax manoeuvre in the oil industry will increase the price of oil in the domestic market

31 july 2018 | IA REGNUM

This week, the State Duma has passed the bill on the tax manoeuvre in the oil industry in its final reading. Seeing how the Belorussian oil industry is tightly linked with Russia, Belorussian experts started debating about how the Russian bill is going to impact Belarus. Alexander Amiragyan, Deputy Head of the Department of the Fuel and Energy Sector of the Analytical Center, answered some of the most pertinent questions in a comment for REGNUM.

Alexander Amiragyan
Alexander Amiragyan
Department for Fuel and Energy Sector

First of all, the expert explained how the tax manoeuvre can pass in Russia. Mr. Amiragyan noted that once the manoeuvre is completed in the Russian oil industry, the export tariff on oil and petroleum products will be gradually phased out between 2019 and 2024 while the tax on the extraction of natural resources will be increased. "Today the price of oil in the domestic market in Russia is determined primarily by the global price less the export tariff and transportation cost, which means that as the export tariffs on oil are decreased and the tax on the extraction of natural resources is increased, the domestic price of oil will go up," the expert said.

After that, as the domestic oil prices increase, the proposal is to introduce an excise on petroleum fuels and pay it back to oil refineries that meet specific criteria as a way to support the domestic petroleum industry. For example, this could include production and delivery of class 5 motor fuels to the domestic market.

On the other hand, the processing of Russian oil and exports of petroleum products are an important export part and budget revenue of Belarus, where Russia supplies some 18 million tons of oil per year as part of an agreed balance between the countries. All this oil gets processed and then Belarus exports over 70% of the petroleum products to Europe, Mr. Amiragyan noted.

"When Russian oil is sold to Belarus no export customs tariffs are paid, meaning that the price of oil in Belarus is the same as the domestic price in Russia plus transportation costs. This set-up is very profitable for Belarus as Belorussian companies get oil at prices less than the global price, they then process it and sell the petroleum products at global market prices. Seeing how Belorussian oil refineries offer relatively high levels of oil processing and light products yield (gasoline, diesel fuel and others), the existing configuration ensures high profitability for all parties involved in Belarus: the oil refineries and the state," the analyst stressed.

According to the expert, the completion of the tax manoeuvre in Russia's oil industry will increase the price of oil in the domestic market. And that will mean higher prices for Belorussian companies, Mr. Amiragyan believes. In addition, Belorussian oil refineries do not intend to introduce the same support measures as their Russian counterparts (in the form of negative oil excise).

This means that once the tax manoeuvre is completed, the profitability of Belorussian oil refineries is going to decline as they will be having to pay more for their raw materials, the expert believes.

Source: REGNUM