08 April 2019, 14:15 / Updated 08 April 2019, 22:00 / Business

Sechin criticized the government's approach to managing the fuel market

He proposed his solution to the problem of “manual control” - to introduce quotas for supplies in Russia Vitaly Petlevoy

Igor Sechin and Dmitry Kozak have known each other for a long time; they worked together in the mayor's office of St. Petersburg in the 1990s. In the photo - Sechin and Kozak at a government meeting in 2011 / Alexey Nikolsky / RIA Novosti

“Since May 2018, manual, non-market regulation of prices for motor fuels has been introduced, while more and more manual regulation mechanisms continue to be proposed,” Rosneft Chief Executive Officer Igor Sechin wrote to Prime Minister Dmitry Medvedev on March 29. Vedomosti has reviewed a copy of the letter, and Interfax also writes about the document.

Rosneft estimates its losses since May 2018 at more than 75 billion rubles. If the agreement between the oil industry and the government on fixing fuel prices is extended, the company will lose 30 billion rubles each. per quarter, writes Sechin.

Manual management of the industry leads to oil refineries making losses. As a result, “the oil industry actually subsidizes related sectors of the economy, while the beneficiaries of frozen prices are all consumers, including monopolies and corporations,” Sechin writes. The oil companies were only “informed of the decisions taken by the government regarding regulation of the domestic motor fuel market.” The measures were announced without discussion with business, and it was to them that “the losses from curbing prices” for fuel were “shifted.”

Sechin offers several ways to stabilize the market. One of the key ones is to oblige all subsoil users to process oil at Russian refineries from May and supply at least 17.5% of the oil produced in Russia in the form of petroleum products to the domestic market.

The government cannot determine the source of funds to compensate oil workers

Business / TEK

To administer this, he proposes to introduce a mechanism that would allow those companies that have free processing capacity to buy oil from those who produce more than they can process. The latter will pay for refining, and the former may even help with the sale of petroleum products in Russia or abroad. The FAS will monitor the cost of refining, and the Ministry of Energy can record the implementation of the plan - the supply of 17.5% of the produced oil to the domestic market in the form of fuel.

“A system in which each oil company would undertake to satisfy the demand for petroleum products in proportion to production is fair in essence, but difficult to implement in practice,” says Denis Perevezentsev, vice president of Moody’s. There is a risk that you will have to manually regulate pricing for oil refining services and access to refinery capacity. Every oil-producing company, regardless of the presence of a refinery, will turn into a “virtually integrated structure,” he says.

Some plants in Russia are underutilized: for example, the Ufa refineries of Rosneft’s subsidiary, Bashneft, are operating at 78%, the Antipinsky Refinery is at 71%, Interfax reported data from the Central Dispatch Department of the Fuel and Energy Complex. Some enterprises have high utilization: Permnefteorgsintez, Lukoil and Ilyinsky Oil Refinery - 98% each. Based on Sechin’s proposal, he wants to redistribute capacity utilization in Russia, which on average in 2018 was about 88%. “The main beneficiaries of this redistribution will be the refineries of the largest vertically integrated companies at the expense of those who do not own their factories,” says Mikhail Turukalov, general director of the Commodity Market Analytics agency. The economics of the refineries of major players will improve due to refining fees and due to the purchase price of raw materials.

Sechin, in a letter to Medvedev, also repeated his proposal to introduce a floating excise tax, which would change depending on oil prices, shift its payment from refineries to gas stations (Gazprom Neft CEO Alexander Dyukov recently advocated this) and called for a fight against commodity speculators -commodity exchange. “The initiatives are aimed at expanding the share of the largest companies in the fuel market and ousting independent traders from the market,” Turukalov is sure.

Medvedev instructed First Deputy Prime Minister Anton Siluanov and Deputy Prime Minister Dmitry Kozak to “prepare a position for the meeting,” which took place on April 4. But no decisions were made there. Representatives of Medvedev's deputies, the prime minister himself and Rosneft declined to comment.

“There continues an unresolved dispute about who should bear what risks associated with changes in market conditions – consumers, the budget or oil workers,” summarizes Dmitry Marinchenko, senior director of Fitch’s corporate department. Oil workers believe that if the state wants to freeze prices, the budget should pay for it. A quota for mandatory delivery to the domestic market is not a very market-based measure, Marinchenko believes, it can lead to a gap between domestic prices for petroleum products and the export alternative. This will lead to even greater government regulation in the industry. But transferring excise taxes from refineries to end consumers is a logical measure, given that the excise tax, in fact, must be paid by the consumer. But problems with administration may arise, since the share of independent gas stations in Russia is still large, the expert concludes.

1 / 3