INTERVIEW: Russia may reduce oil export duty after 2020 – official

MOSCOW, Dec 6 (PRIME) -- Russia may reduce its oil export duty only after 2020, Frist Deputy Energy Minister Alexei Teksler told PRIME in an interview released on Wednesday.

The Energy and Finance ministries are discussing the problem, but they only talk about principles as no coordinated decision has been reached. “The idea of the principles is that a lower export duty may be considered only if it includes several moments. The key factor here is to avoid worsening the financial condition of the industry in general, in both production and refining,” he said.

“If we elaborate, I would like to point out several moments. The first one is the launch of the added income tax and at least one year of testing it. So, there are no prerequisites for a lower duty starting from 2019, when pilot projects of the added income tax are to start. Reduction of the duty is beyond 2020,” he said, adding that the second aspect covers the customs subsidy that should be cancelled for oil refineries in line with reduction of the export duty.

The reduction of the duty also bears other risks.

“If we speak about cancelling the duty, it is obvious that the bulk of our plants will be in the red zone, so we cannot simply cancel it, as it will immediately create high motor fuel supply risks for the market. We are now doing preliminary work with the Finance Ministry to work out different types of stimulating measures,” he said.

“On the one hand, we have a position of the finance ministry on the duty, but on the other hand, we understand that all the recent tax changes added a significant additional burden to oil refining, which led to worse economic results in the downstream segment, the refining margin has contracted in the whole country.”

The possible cancellation of the duty may require lower excises on oil products. “When we eliminate the export duty, the price of raw materials rises on one side, while the netback grows on the other side. Oil refining will be in the minus in spite of partial compensation of losses. So, this minus should be compensated through the mechanism of a return excise,” he said.

“It is likely that we will have to cut excises after the increase of the netback to eliminate impact on consumers.”

He also said that the bill on the added income tax will not include measures to support oil refining.

The government has to tailor the existing mineral extraction tax (MET) for each project. The Energy Ministry earlier proposed replacing the outdated MET with an oil field profit tax, or a tax on oil sales revenue minus development and delivery expenses, for brownfields. The Finance Ministry made a counterproposal to apply an added income tax, or the difference between the cash flow and capital expenditures.

“This is a parallel story. It is obvious that they are connected, as all tax issues in the industry are, but the text of the added income tax bills that were submitted to the State Duma include no measures to support oil refining. We are working on these measures together with the Finance Ministry,” Teksler said.

On November 21, Energy Minister Alexander Novak asked the government to approve the bill and to submit it to the State Duma, the parliament’s lower house, for approval in January–March 2018 so that it could come in force from 2019. The ministry chose 35 fields of oil companies Rosneft, Lukoil, Gazprom Neft, Surgutneftegas and others for participation in the pilot project to test the new tax.

GREEN POWER IN RUSSIA

Russia does not need construction of additional 20 gigawatts (GW) of green power generation, or power generation running on renewable energy sources, Teksler said.

“We have no such need today within the framework of our fuel and energy balance on renewable energy sources, we won’t have so much consumption. It would also be wrong to speak about additional termination of thermal power plants, as our country lies in the north, and these plants produce not only power, but heating power as well,” he said when asked about the ministry’s reaction to a proposal to build 20 GW more of green power generation.

“If we have 20 GW of additional consumption, it will be easier to discuss support measures for renewable power sources. But it would be wrong to speak about such an amount of new power generation running on renewable energy sources without higher consumption.”

(58. 6924 rubles – U.S. $1)

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