UPDATE 2-Russia mulls fuel oil export fee hike in April-May

Thu Mar 15, 2012 10:01am EDT

Related Topics

* EconMin could hike duty to 90 pct of the fee on crude oil

* The fee could be increased to $414.6/T from $271.4/T in March

* Existing plans foresee equal fuel oil and crude oil fee by 2015

* Russia exports 55 million tonnes of fuel oil annually

By Olesya Astakhova and Vladimir Soldatkin

MOSCOW, March 15 (Reuters) - Russia's Economy Ministry has proposed to increase the fuel oil export duty to 90 percent of the fee on crude oil from 66 percent from April or May, a move to help solve a burgeoning budget deficit, a deputy minister told Reuters on Thursday.

Alexey Likhachyov confirmed earlier reports from government sources that the ministry had proposed the hikes.

"If the authorities agree on the decision, it would be enforced in May," he said, adding that the ministry wants to "restore justice" and tax fuel oil with the same rate as gasoline and naphtha.

But industry watchers cried foul, saying the fee increase would wipe out refiners' margins. Export duties and the mineral extraction tax are the major components of the country's taxation of the oil sector.

If the increase is implemented as early as April, the fuel oil export duty would jump to $414.6 per tonne from $271.4 per tonne in March.

Russia exports 55 million tonnes of the product a year.

"It (the rise) may happen as early as April," a government source said, adding the Economy Ministry believed the current tax has failed to generate the expected budget revenues.

"Our minister proposed to hike the fee due to the market situation, including the rise in oil prices," another source at the Economy Ministry said.

"Looks like the increase will come into force starting from May, not next month," the source added.

STRANGLEHOLD

The proposal to increase the tax came after Russia's budget deficit spiked in January-February to 245.3 billion roubles ($8.3 billion), following a boost in spending in the run-up to the March election that returned Vladimir Putin to the presidency.

The deficit amounted to 3 percent of gross domestic product, compared with an expected 1.5 percent for the whole of 2012. Economists have warned the pre-election spending surge could fuel inflation and complicate the government's efforts to lower its dependence on high oil prices.

Traders say the proposed increases may lead to a collapse in Russia's refining industry.

"If they introduce a new duty on fuel, this would be a stranglehold on the refining sector instead of promised reforms," said a source at a Russian refinery.

Last October, Russia introduced a new crude oil and oil product export duty regime - dubbed "60/66" because it cut the crude duty to 60 percent and set most oil product duties at 66 percent of the duty on crude - in order to boost production of oil and high-grade refined products.

The export fee for gasoline and naphtha was already set at 90 percent of crude oil duty from last May, when the government wanted to tackle fuel shortages on the domestic market.

It had been envisaged that crude oil and fuel oil would be subject to equal export duty by 2015.

According to calculations of IFD Kapital analyst Vitaly Kryukov, with the export fuel oil duty rise to 90 percent, the current average refining margin of $15 per barrel would shrink to naught.

"This would put paid to the investments into refining and plans to modernise plants, which eventually would hit the state itself," he said.

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