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Russia's Novatek seeks tax breaks for naphtha exports
October 21, 2013 / 8:55 AM / 4 years ago

Russia's Novatek seeks tax breaks for naphtha exports

* Novatek’s head asks President Putin for cuts

* Analysts say tax relief could boost its EBITDA by $200 mln

MOSCOW, Oct 21 (Reuters) - Novatek, Russia’s No.2 natural gas producer, is lobbying for a lower duty on exports of naphtha, a company spokesman said, in a move to help reduce its growing inventories at a new refining complex.

Novatek and petrochemical company Sibur started operating an oil product refining and terminal complex at the Baltic port of Ust-Luga in June, with plans to initially produce 2 million tonnes of naphtha and some 800,000 tonnes of kerosene and diesel a year.

In the third quarter alone, Novatek data showed it exported around 562,000 tonnes of naphtha from Ust-Luga.

Industry sources have said that Novatek Chief Executive Officer Leonid Mikhelson has asked Russian President Vladimir Putin for tax breaks as the company has faced growing inventories at Ust-Luga.

The spokesman confirmed on Monday that Novatek was seeking tariff cuts on naphtha but declined to elaborate.

“At the moment, the departments (in the government) are discussing the offer for the second time already. After Mikhelson met Putin, their position towards the cuts has softened,” a government source said.

LIQUIDS

Novatek’s liquids business accounts for 10 percent of its hydrocarbon output and more than half of its total earnings before interest, tax, depreciation and amortisation (EBITDA).

Sources said that Novatek was asking that the tax on naphtha exports be cut to around 80 percent of the export duty on crude oil from the current level of 90 percent.

The naphtha export duty NPTH-EXPDTY-RU is expected to fall to $356.30 per tonne in November.

According to Sberbank CIB analysts, Novatek could save some $40 per tonne in the event of export duty cuts, which could translate into an EBITDA increase of $200 million this year.

Novatek has also secured support for its liquefied natural gas project from Putin, who has ordered the government to expand tax breaks to more deposits that will supply gas to the future plant in Yamal peninsula. (Reporting by Vladimir Soldatkin, Natalia Chumakova and Olesya Astakhova; editing by Jane Baird)

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