Russian oil majors Lukoil, Gazprom Neft and Tatneft appealed to Prime Minister Dmitry Medvedev to slash Russias lubricant export tax to 20 percent of the crude oil export tax to improve the lubricants industrys dire situation.
Lukoil President Vagit Alekperov, Gazprom Neft President Alexander Dyukov and Tatneft General Director Nail Maganov voiced concerns over the current lube export duties in an official letter to Medvedev. The duties apply to both base oils and finished lubricants. Lube Report obtained a copy of the letter last week.
The principal volume of finished lubricants and greases consumed in the country is produced with the use of [API] Group I and Group III base oils, the oil majors heads said in the letter signed by them Dec. 26. Base oil products have high added value, and are traded at a premium over petrochemicals. While Russia has several plants that have Group I base oil production capacity, the companies stated in the letter, the demand for Group II and III base oils is satisfied by imports.
Currently, the lubricant export duty stands at 66 percent of the crude oil export duty, and it is due to increase to 100 percent of the crude oil export tax by 2015. In 2011 the government introduced this flat export duty for a number of petroleum products, including lubricants. The measure was taken to boost the supply of high quality petroleum production, simultaneously decreasing the exports of petrochemicals with lower value, according to the oil majors.
However, in the face of fierce competition and a volatile economy, the measure proved ineffective and disastrous for the development of Russias lubricant production, the oil majors claimed. Since early 2012 industry experts and high-ranking officials made numerous calls to the government to reconsider the introduced lube export tariffs.
Development of the countrys lubricant production and its efficiency is hampered by this kind of fiscal burden. Lubricants shouldnt be in a category of such products [bitumen, tar oil, fuel oil] slated for cutback in production. Lubricant manufacturing is a complex, multileveled process in which the refining depth is similar to that of fuels production, the oil majors heads indicated in the letter.
The oil companies warned that if the current lube export tariffs policy persists, Russia would not only be prevented from overcoming its dependence on imports in certain categories such as Group II and Group III base oils – demand for them is rising with the introduction of new equipment and vehicles – but it could also become dependent on imports in all base oil product categories.
After the lube export tariffs were introduced in 2011, it became apparent that planned investments for Group II and Group III base oil production cannot be paid off, and these projects are now put on hold or cancelled, the letter contended. Thats why they asked Medvedev to slash the lubricant export tax to 20 percent of the crude oil export tax.
This would lead to creation of high quality Group II and Group III base oil production that will provide independence from imports and energy security, the companies said in the letter. It would also contribute to the countrys economic development and higher employment in the regions.
The oil majors found that such a scenario could lead to gradual closure of ineffective Group I base oil plants and minimize low quality base oil exports.
They concluded their letter by asking Medvedev to order the economic development, energy and finance ministers as well as the countrys custom service to approve a decrease in the lubricant export tax. Thats how we can save our industry, and supply the countrys market with base oil and lubricants products made in Russia.