The Russian government imposed a new petrochemical industry taxation rule that envisions gradual decrease on an annual basis of the export tax for crude oil and petroleum derivatives such as fuels and lubricants.
Effective Jan.1 in accordance with this rule the government issued a monthly rate index tied to crude oil price fluctuation on international markets. The Finance Ministry announced a significant decrease of the export taxes that will take effect in August.
On Aug. 1 the crude oil export tax comes down to U.S. $133.10 per metric ton from $142.10/t in July, according to reports in some Russian media. The fuel export tax rate will drop to $103.80/t from $111.60/t in July, while the export duty for lubricants and other petrochemicals comes down to $63.80/t from $68.60/t in July.
Under the new law, the export tax rates on crude oil, fuel, lubricant and other oil products is set to gradually decrease more than half by 2017. During 2015 , the duty for lubricants and other oil derivatives should stand at 48 percent of the crude oil export tax. In 2016 it is due to decrease to 40 percent, and it will come down to 30 percent the year in 2017. However, this relief was offset by a 70 percent increase in the tax for mineral extraction that came into effect in January as well.
The industry expected that the growing production cost for oil products tied with the increased mineral extraction tax could balance with the lowered fuels and other oil derivatives tax excise, Tamara Kandelaki, head of the Moscow-based InfoTeks consultancy, told the GBCs CIS Base Oils, Lubricants and Fuels conference in Moscow in May. It is a bad idea, though. It seems that the high-profile ministerial departments are not aware of such [economic] terms as export parity, netbacks and premiums in the domestic market.
These measures came after Lukoil, Gazprom Neft and Tatneft, the countrys largest lubricants players, supported by some lawmakers, appealed to the government in a Dec. 2013 letter detailing that the high export tax could ruin the prospects for development of high quality base oil and lubricant production in the country.
The Russian economy and the countrys federal budget are significantly dependent on crude oil and petrochemical product exports. Oil and gas sales account for a half of Russia’s budget revenues.
About a year after the appeal, international crude oil prices plunged from over $100 per barrel in July 2014 to $47/bbl in January, the lowest since the global recession in 2008, affecting the countrys economy and its lubricant market. In 2014 Russia consumed 1.6 million tons of base oils and lubricants, down from 1.7 million tons in 2013, according to InfoTek. The market is expected to stagnate further.
Russias gross domestic product is slated to contract about 3 percent this year. Energy giants such as Rosneft and Gazprom significantly slashed their refining and pipeline investment plans. Other oil majors such as Lukoil, Gazprom Neft and Bashneft face fiscal problems due to ruble devaluation caused by the weak economy, low crude oil prices and international sanctions imposed on a number of Russian energy companies and banks.