After years of discussion, Russian authorities seem close to starting new oil tax reform as soon as next year that will gradually eliminate state support to refining by abolishing the export duty by 2024, in a move widely seen as hampering companies with heavy refining exposure.
The key parameters of the changes have been agreed, and the government plans to finalize and submit the bill to the State Duma next week, aiming to write it into law in the near future, a government source close to the discussion told S&P Global Platts.
The bill envisages cutting crude export duty by 5 percentage points per year over 6 years starting 2019 and introducing negative excise duty on crude for refineries next year to mitigate the impact on the industry, the source said.
The proposed tax reform may bring Russia's budget an additional Rb3.6 trillion ($58 billion) over 6 years given the current exchange rate, and a $50/b oil price, VTB Capital analysts said in a note. «This might end up having a negative impact on the industry,» they said.
Separately, the state is also working on a bill to start taxing additional profits, aiming for the new system to replace the widespread tax breaks.
The finance ministry has insisted on the reform as, for more than a decade, state investment in refining has exceeded the sector's spending on modernization more than fivefold via the difference in export duties for crude and oil products, mostly as subsidy to refiners.
The reform will save the state Rb1 trillion annual spending on subsidy, the ministry estimated. At the moment, crude oil export duty is set as a marginal tax based on the price of oil, with export duties for oil products set as a percentage of the export tax for crude.
The proposed tax change under deputy PM Dmitry Kozak, appointed in May to curate the oil and gas industry, comes despite the previous government signaling in March that the system would remain unchanged, after going through a series of upheavals in recent years.
The 1st wave of recent export duty changes, in 2015, significantly reduced the duties for both crude oil and light oil products, while raising the tax for heavy oil products to stimulate refinery upgrades. The timing of the 2nd phase of reform has been subject to fierce debate between the energy and finance ministries lately.
The energy ministry insisted until late-May on holding off reducing the export duty until about 2023 and complete the change in 2025, in time for the launch of the Eurasian Economic Union economic space. That was expected to equalize tax conditions for Russia and its neighbors - Armenia, Belarus, Kazakhstan, and Kyrgyzstan. The timeframe would also allow oil companies to complete their refineries' modernization, it said.
For its part, the finance ministry proposed refunding excise duty to refiners with high light oil product yields to support upgraded plants and encourage companies lagging behind to complete their modernization.
Yet, even modernization pioneers as Lukoil are likely to see an additional tax burden from the reform as it will be accompanied with a mineral extraction tax increase on crude and gas condensate, industry commentators have said.
As well as last week's decision to cut excise duty on motor fuels as of June 1, the government announced a plan industry to launch a mechanism enabling it to quickly raise export duty on oil products to ensure sufficient domestic fuel volumes, following recent gasoline price spikes.
The bill, which President Vladimir Putin called «a threat to oil companies» but pledged to support, will allow economic conditions for domestic motor fuel supplies and their exports to be evened out.
If implemented as of July, the move could contribute Rb120 billion to the 2018 state budget given flat year-on-year fuel exports, VTB Capital analysts calculated. The revenue would come at the expense of key diesel exporters' earnings, primarily Gazprom Neft, Rosneft and Surgutneftegaz.
Commodity Market Analytics consultancy said the move was a «half measure» after 9 months of oil product prices holding below export netbacks, and suggested increasing sales on commodity exchanges instead. Since 2013, Russian producers have been obliged to sell at least 10% of produced gasoline and 5% of diesel via commodity exchanges.
To boost liquidity and market transparency, the energy ministry proposed raising the figure for gasoline to 16% and to 8% for diesel. Many in the market say the norm should be raised to 60% for gasoline and 25% for diesel.