UPDATE 3: Russian govt readies bill on oil, fuel taxation reform

(Adds background in paragraph 2)

MOSCOW, Jun 21 (PRIME) -- The government has approved finalization of the tax reform in the oil and gas sector and will submit a draft law, which is to raise 1.3–1.6 trillion rubles of income for state coffers in six years, to parliament on Thursday, Deputy Prime Minister Dmitry Kozak said.

The changes, discussed by the government for many years, will consist in reduction of the oil export duty by 5 percentage points a year to zero in 2024 from the current 30%. As compensation to the state budget, the mineral extraction (MET) tax on oil and gas condensate will increase.

Prime Minister Dmitry Medvedev said that the government offers to introduce an oil excise refund for the companies that supply oil products to the domestic market.

“We offer to use a mechanism of excise refund. Oil refineries where high-quality gasoline and diesel fuel of at least the fifth class are produced will be entitled for the oil excise return. I would also like to emphasize that only companies which sell products on the domestic market will be entitled for the incentive for well-known reasons,” Medvedev said.

Energy Minister Alexander Novak said that refineries will be entitled for oil excise refund if they sell more than 10% of gasoline on the domestic market.

Kozak said that no decision on domestic supply quotas has been made: “There has been no order, no offer, there was an issue of whether the government is considering proposals to oblige oil companies to ship oil under quotas to the domestic market. It was considered and discussed. No positive decision on the issue has been made.”

He said that the government will grant oil excise refund to companies that undertake to upgrade their facilities in three years and companies under the E.U. and U.S. sanctions.

Kozak said that the government reserved its right to introduce an export duty on oil products in case of a force majeure. “The government… does not rule out the possibility… of introduction of temporary export duties on oil and oil products in case of a force majeure to prevent galloping engine fuel price increase.”

Lower fuel excises will limit domestic fuel prices only in 2018, while starting from 2019, this goal will be attained via an oil excise refund, he said.

Medvedev said that the government wants to keep the existing MET incentives after changes in the oil taxation system.

“These changes will come in force from next year and will be valid for the next six years. To avoid an additional burden on prices, we offer to keep the current MET incentives,” he said.

“I talk about production at new sea deposits, and development of gas condensate which is used in production of liquefied natural gas, on deposits in the Yamalo-Nenets Autonomous District.”

Medvedev added that reduced MET rates will remain for hard-to-recover oil.

Kozak said that the MET will increase through 2021, taking into account its growth over previous years.

Novak said that the bill includes a concept of additional amortizing excise on oil which will depend on the global market situation.

Kozak said that taxes will be changed only if oil prices soar: “Force majeure is an abrupt increase in global oil prices, which prevent domestic prices on oil products from being hold down. This is the only reason for us to change the fiscal burden, no additional demands of the budget, as it usually happens, no social and economic tasks which arise, there were many such ideas, there are always more ideas than money… these are not the grounds to change the fiscal conditions for operations of companies.”

(63.6175 rubles – U.S. $1)

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