PRESS: Russia to raise compensations to oil firms for fuel prices

MOSCOW, Apr 16 (PRIME) -- The Russian government will again raise compensations to the oil companies for holding down local fuel prices, while the budget spending should be partially compensated by a slight increase of the mineral extraction tax (MET) on oil, Kommersant business daily reported on Friday quoting sources.

“The indicative price gasoline in the damper formula will fall by 4,000 rubles per tonne from May 1 instead of previously expected 2,700 rubles. The Energy Ministry and the Finance Ministry coordinated this decision because of the weakening of the ruble against the U.S. dollar, which, along with the oil price, defines the export alternative price for fuel,” Kommersant reported.

The ministries agreed to compensate 50% of budget spending on the changes in the fuel price damper by an increase of MET, but how MET will be raised is unclear. Sergei Yezhov, senior economist of Vygon Consulting, told the business daily that additional payments on the damper will amount to around 62 billion rubles, and the practice of raising MET without tying the growth to the economies of oil production could lead to unpredictable consequences.

The government previously created the damper to cap the fuel prices on the Russian market. In broad terms, the government compensates a part of difference between the export and local fuel prices to the oil companies if the export price is higher than the indicative local price. But if the local prices are higher, the oil companies share their excessive profits with the government.

(76.9808 rubles – U.S. $1)

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