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Plans to adjust export duties on oil and oil products

According to mass media reports, the energy ministry suggests introducing new taxation procedures in March 2011 stipulating reduction in the oil export duties and advance in export duties on oil products. On January 18 main parameters of the reform were approved at a meeting chaired by Deputy PM Igor Sechin. According to the proposed novelties, the export duties on crude are to be cut by about 7%, while duties on light and dark oil products will be made level at 66% of the crude duties. The current combined rate of duties on oil products is 55% of the crude duties (70.7% on light and 38.1% on dark oil products).

The suggested measures may theoretically promote growth in Russian crude exports and thus decrease the amount of missing budget revenues caused by the decline in the crude export duties (or even exceed it). Part of enterprises will have to think about investing in technical upgrade of their facilities, because the widespread exports of cheap low quality dark hydrocarbons will become less profitable. Subsidies to Belarusian refineries by the Russian side will also drop because Russian export duties will be also applied onto them within the framework of the Customs Union agreements.

Yet, there will be a risk of decline in Russia's total volume of processing (some estimations point to a 30m ton drop per year), which in the long-term perspective does not meet modernization priorities of the Russian economic development proclaimed on the highest political level. It is indicative that Rosneft has been recently reported to have refused a major refining project in Russia - building a large refinery at the end of the ESPO oil pipeline. This may gradually turn into a tendency. In this case we will again face the problem of small refineries operating in the shadow legal conditions or working even illegally but satisfying unpretentious demands amid surging domestic petrol prices, which is possible if the volume of refining reduces.

By Stanislav Mitrakhovich, NESF leading expert

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