April 22, 2013, 03:16 / Finance

The Ministry of Finance will not touch oil

The threat of increasing the mineral extraction tax may force oil workers to agree to accelerated indexation of excise taxes and duties on fuel oil exports Philip Sterkin Irina Kezik

The Ministry of Finance and the Ministry of Energy are close to a compromise: a source of additional income for road funds has been found, Finance Minister Anton Siluanov told Interfax. To encourage the production of more environmentally friendly Euro 4 and Euro 5 fuels, the government is raising excise taxes on them more slowly than on Euro 2 and Euro 3, but this is draining road funds of revenue. Deputy Minister of Finance Sergei Shatalov said that 70% of gasoline and about 50% of diesel fuel on the Russian market are of Euro-4 and Euro-5 classes.

The Ministry of Finance proposed three sources to cover the deficit: accelerated indexation of excise taxes on Euro-4 and Euro-5, an increase in the duty on fuel oil exports from 66 to 75–80% of the oil price from 2014, and the mineral extraction tax rate for oil by 5 % in 2014–2016

Siluanov described the compromise this way: excise taxes will not be sharply indexed, the duty on fuel oil will increase to 70% of the oil duty, and then there will be no need to increase the mineral extraction tax. Siluanov did not say about the rate of indexation of excise taxes.

The Ministry of Finance previously wanted to double excise taxes on Euro-4 and Euro-5 gasoline in three years - to the level of excise taxes on classes 2 and 3. A representative of the Ministry of Energy said that there is no agreed upon single position on the growth rate of excise taxes on gasoline. He expects it to be worked out next week.

According to Siluanov, oil workers have expressed themselves unequivocally that increasing the mineral extraction tax for them is the most negative, most unpleasant way out of this situation, so they are ready to discuss increasing both excise taxes and export duties. Previously, the government had already decided that in 2015 the duty on fuel oil would be equal to the oil duty.

“Of course, increasing the mineral extraction tax will harm the economy of oil companies and may bring the development of some fields to the brink of profitability,” Bashneft President Alexander Korsik told Vedomosti.

You can’t touch the mineral extraction tax - this could kill the entire positive effect of the “60-66” duty system, which allowed oil companies to increase investments in production, said Alexey Kondrashov, head of Ernst & Young’s international tax practice for the oil and gas sector: $4 additional net income per barrel due to load reduction for oil exports and growth for the export of dark petroleum products. The introduction of the “60–66” export duty system increased investment in the oil industry by 14.5% to 835 billion rubles in 2012: in oil refining – by 25%, in well drilling – by 9%, said Energy Minister Alexander Novak .

The increase in the export duty on fuel oil will largely compensate for the deficit in road funds, believes Denis Borisov, director of analytics at the Moscow oil and gas center Ernst & Young, the measure will bring the budget about 40 billion rubles, and the deficit in 2014 was estimated by the Ministry of Finance at 48.4 billion rubles. But when making a decision, it will be necessary to take into account the dynamics of fuel oil production - along with the fall in its production, additional revenues will also fall. The measure will not hit oil workers too hard, Borisov believes, refinery margins are on average $7 per barrel; if the duty is increased, it will fall by only about $1. “It’s like choosing whether to cut off an arm or a leg,” says a pessimistic oil company employee.