Ukraine Duty Draws Criticism

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Ukraine Duty Draws Criticism
Photo courtesy Azmol Storage tanks at Ukrtaine blender Azmol's plant.

Ukraine lubricant companies contended last week that they are facing a serious financial crisis because of a new base oil import duty that went into effect May 23.

Under the new tax, established by federal law No. 466-IX, “other lubricating materials and other petrochemicals” are included in the taxable products with a flat fee rate of €213.5 per ton (U.S. $241) of imported production. The duty also applies to high-temperature distillation products, black fuel oil and 100 other petrochemical products.

The situation seems fluid and is changing rapidly. Last week, captains of the country’s lubricant industry sent delegations to negotiate with government officials in an effort to stop the hastily imposed law. Meanwhile, several of the country’s largest lube makers signed a letter addressed to Ukraine President Volodimir Zelensky’s office. Zelensky signed the new law on May 21.

Companies opposing the tax, such as Azmol-British Petrochemicals, a large lubricant maker in Berdnyansk, Ukraine, reported that they halted their operations. Around a dozen independent lubricant blending plants operate in Ukraine.

“The government didn’t even give us a transition period so that we can prepare how to work with products that now fall under excise documentation,” Maxim Tokin, Azmol-BP’s marketing director, said in a YouTube video of the televised June 4 news conference, which took place at the Interfax-Ukraine News Agency’s press center. Tokin explained that whereas before, the company was considered a resident business that didn’t have to pay an excise duty, now it suddenly must pay an excise duty, but has not had time to prepare the documents.

The government imposed the law in an effort to curb the illegal import and use of base oils as diesel fuels. Tokin said lubricant manufacturers become a collateral damage in the fight.

“The Ukraine authorities are trying to lock down on illegal [use of base oils as] diesel fuel, so they have imposed an excise duty on certain commodity codes,” Terry Dicken, Azmol-BP’s technical director, told Lube Report last week.. “Unfortunately, these codes also include those used for lubricants and greases. I am also inclined to believe this applies to [some finished] products too.”

He said lubricant marketers in the country coordinated in writing letters that appealed to the president, Rada – which is the country’s national parliament – and state agencies. “We are all equal in the face of this law, and the consequences can be really devastating for every domestic lubricant maker,” Dicken said, adding that Azmol-BP halted its purchase of base oils and had difficulties fulfilling orders placed by its clients.

The country’s lube makers fear that this can be devastating for domestic production because foreign competitors can easily overrun them.

Furthermore, some companies such as Zaporizhia-based Yukoil, have customers in Ukraine’s strategically important national security, energy or transportation sectors, such as the ministry of defense, state nuclear power production agency Energoatom, state natural gas company Ukrgasvydobuvannya or state-run Ukrainian Railways.

Around 20 percent of the total lubricants production in Ukraine is exported to about 100 foreign markets.

“If we are not able to realize the already-won tenders, the state companies might sue us,” Yukoil Marketing Director Andrey Guschin said in the video from the news conference. Also, we can easily lose export markets.” Around 20 percent of the total lubricants production in Ukraine is exported to about 100 foreign markets.

Vyacheslav Polischuk, head of Agrinol, another Berdyansk-based lube manufacturer, said its workforce of 1,500 could lose their jobs because of the tax.

“At the moment Agrinol and Azmol halted their operations, and we don’t know what will happen in the coming days,” he said.

Photo courtesy Azmol

Storage tanks at lubricant blender Azmol-BP’s plant in Berdnyansk, Ukraine.

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