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Konstantin Simonov: petroleum industry needs a tax move, but Finance Ministry postpones the decision

February 20/ 07:40

Moscow. The need to support oil refineries has been long discussed in Russia. In Autumn 2017 the head of Finance Ministry Anton Siluanov suggested reducing the export fee. He explained that it would enable to finalize the long-discussed tax move in the petroleum industry.

A few days ago Anton Rubtsov, the director of the Oil and Gas Refining Department for the RF Energy Ministry, voiced his opinion on the subject. He believes that zeroing the export fee and increasing the MET (mineral extraction tax) under the current conditions threatens losses to refineries and increase in prices for consumers.

Konstantin Simonov, the head of the National Energy Security Fund, talked to the Oil and Gas Information Agency about the influence of the tax move on the oil producers and consumers and clarified if the refineries tax relief would make petrol cheaper.

- The tax move was initially designed to make refining its victim, it’s not a secret. There is no need to go deep into tax legislation, the idea behind the move is quite simple – gradually eliminating the export fee and consequently increasing the MET. The idea is to shift the tax load from the customs to the well.     

Around 100 million tons of oil in Russia stays on the domestic market, plus the petroleum products which are refined and exported. If the product is refined in Russia the producer would still have to pay the MET. The Finance Ministry agreed to the move because it would allow adding tax base and increasing the budget income. 

The companies working with oil on the domestic market would be under the biggest pressure, because their tax load per ton of oil would increase. As a result, the refinery would suffer the most. I think that the Finance Ministry thought that since refining was a part of vertically integrated companies (VIC), they would be able to compensate for the losses with the other segments of their business. 

The Ministry also believed that since the new tax load fell mainly on the refinery, this segment could become even more monopolized. The large companies would be able to get rid of any smaller companies, which would be pushed out of business by the new tax system. So, the oligopoly would grow even stronger and the VICs we supposed to agree with the idea. However, oil companies are trying to get tax reliefs and the Finance Ministry won’t allow that.

Another hot topic is developing independent refining. It’s not clear how to do it with such taxation. The VICs at least have the advantage of buying the crude for refining under internal price; an independent refinery won’t have this chance. It turns out that we won’t be able to create competition without changing the tax system. In this respect such greed poses serious problems and not only for the VICs’ budget, but rather for trusting the FEC and the state and for the future of refining in general.   

Personally I think that these decisions need to be taken. The state has to comply with its obligations. The idea behind increasing the MET was to be more honest to the oil companies, which now find themselves in a situation when they have to increase investment while decreasing the revenue.

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