Don't give, but sell

Russian oil workers refuse processing schemes in Belarus

Russian companies no longer want to process oil at Belarusian plants on tolling terms. After Minsk approximately doubled excise tax rates on petroleum products in March, this scheme became unprofitable for oil workers. Some companies, for example LUKOIL and RussNeft, have already stopped refining oil in Belarus on processing terms. Others (according to news agencies, Slavneft) plan to do this in April. An official from the industry department of Belarus told Interfax yesterday: “All representatives of Russian companies operating in Belarus recently confirmed with calculations that the tolling scheme for oil refining in the republic is unprofitable. In this regard, Belarusian refineries may be left without customer-supplied oil from April if a decision is not made by the end of March to create conditions for the profitability of oil refining.” At the end of last week, a meeting of oil workers and Belarusian authorities was held in Minsk, at which Russian companies unanimously declared that refining was unprofitable under such conditions, a representative of one of them told Vremya Novostei. “Now, apparently, the Belarusian authorities are negotiating with each company,” he added.

Belarus processes approximately 21.5 million tons of Russian oil per year. Of these, approximately 6 million tons each come from Rosneft and Surgutneftegaz, 2.2 million from LUKOIL, approximately 2 million from Gazprom Neft and Slavneft, and about 1.8 million from Russneft. After a loud New Year's scandal with the closure of the Druzhba oil pipeline and the introduction by the Russian side of export duties on oil when supplying raw materials to Belarus, the government of Alexander Lukashenko was faced with the fact that oil refining in the country had become unprofitable. To solve this problem, officials were forced to reduce excise tax rates on petroleum products by approximately 60% starting January 18, and also offered Belarusian traders to pay some compensation starting in February - $24 per ton of imported oil. But in early March, Belarus returned to its original excise taxes. As a result, as Russian companies have already calculated, in March alone the total loss from oil refining on processing terms will be approximately $53--54 per ton, and when exporting petroleum products - about $44--46 per ton. These calculations take into account the abolition of turnover taxes - 3% of revenue, the abolition of a 20% discount for agricultural producers and the current level of export duties on petroleum products - $132 per ton of light and $72 per ton of dark.

LUKOIL confirmed to Vremya Novostei that since March they have abandoned processing agreements and are selling crude oil to Belarusian traders and the state concern Belneftekhim, which owns the main oil refineries in the country - the Mozyr Oil Refinery and Naftan. “It is planned that in March the volume of oil supplies will be about 240.78 thousand tons, of which we have already sold more than half of the oil,” the company notes. “Now this form is more profitable for us, but it’s too early to say what will happen next month.” Last year, LUKOIL supplied approximately 2.2 million tons to Belarus on a toll basis. Before the start of the New Year's events, the company recalls, it was planned that in 2007 this volume would be doubled.

A representative of another Russian company emphasizes that the oil industry has no other choice but to sell crude oil to Belarusians. Export schedules have already been approved, and they cannot be reoriented unilaterally, which means that companies are forced to leave their oil in Belarus, albeit on simple terms.

According to the calculations of Belneftekhim Deputy Chairman Mikhail Osipenko, abandoning the tolling scheme and switching to spot oil purchases could cost Belarusian refineries about $400 million per month. “Belarusian refineries will seek funds through foreign bank loans. The factories will receive loans and purchase oil,” he told Interfax, explaining that this issue has already been worked out with foreign banks. At the same time, Mr. Osipenko emphasized that the concern does not abandon the tolling scheme and continues to accept applications from Russian companies. “We do not plan that toll processing by Russian companies will stop in April. Applications are being collected, all traditional vendors have submitted or will submit applications,” said the deputy head of the concern.

One of these “traditional suppliers” will most likely be the state-owned Rosneft. As a source close to this company told Vremya Novostey, it has already signed an application for the supply of oil under a processing agreement to Naftan and the Mozyr Oil Refinery. “The company has an agreement for the supply of oil to Belarus, which is renewed monthly; it has been extended for April,” he noted, emphasizing that such a scheme still remains profitable for Rosneft.

Anna GORSHKOVA