Russia will revise oil export duties monthly, rather than every two months, and may replace a mineral extraction tax with a levy on excess profits to shield the country’s producers from sharp losses as oil prices fall. Russia allows ruble to fall.
Prime Minister Vladimir Putin said the current system of setting export duties for the world’s second-largest exporter was based on stable oil prices. Crude has more than halved in value since peaking above $147 a barrel in July. “Today, when prices are fluctuating so much, it is of course necessary to correct this model,” Putin said in comments posted on the government website, www.government.ru, late on Monday. He said the economy, energy and finance ministries had proposed the monthly monitoring in order that duties were set at a level more closely corresponding with current oil prices.
Russia cut oil export duties to $287 per ton from November 1, from $372.2 in October, in response to calls by producers who feared making losses on overseas shipments. Russia’s senior energy official, Deputy Prime Minister Igor Sechin, had lobbied for an even lower November tariff of $195.20. The delay in announcing the cut led Russian exporters to cut November export volumes. Nikolai Tokarev, president of pipeline monopoly Transneft, told Russian media on Sunday volumes had been cut by a quarter since the start of the month.
Under the new proposals, the December duty would not be based on the average September-October Urals price of $84 a barrel, but on the average price between October 15 and November 14, Troika Dialog analysts said in a note. “If these measures are taken in the near future, it would have a positive effect on the activities of oil companies in an environment where prices are falling,” said Dmitry Dolgov, spokesman for Russia’s No. 2 oil producer, LUKoil.
The government usually sets oil and oil product duties based on its monitoring of international prices for Russia’s mainstay Urals crude blend. After breaking with tradition to cut duties in September, a monthly revision now appears likely. “It would be positive if they keep the lag as short as possible, because oil companies will have more clarity in terms of planning investments,” Troika Dialog analyst Alex Fak said.
Russia has already provided up to RUB 140 billion ($5.1 billion) in tax breaks to its major oil producers as the Kremlin attempts to stimulate investment in hard-to-access deposits and kick-start output that is stagnating after a decade of growth. Putin said further steps were needed to help the oil sector. “The world financial crisis, instability on global resource markets and the oil price decline require us to take measures that will allow us to provide stable growth and development for the sector,” he said.
Kommersant business daily reported the government was considering dropping the mineral extraction tax, which takes 20 cents of every dollar oil prices rise above $9 per barrel, in favor of a tax on excess profits. “The current system is definitely broken, having been unable to cope with high oil prices, the resultant rapid increase in oilfield costs and the rising need for heavy re-investment in the oil patch to maintain current production levels,” Alfa Bank analysts said in a note.
Putin also said small and medium-sized businesses should play a greater role in developing the oil sector. “Russia, as one of the largest oil and oil product exporters and producers, cannot stand on the sidelines when it comes to forming world prices on such resources. We must work out a whole set of measures allowing us to influence the market.”
Russia’s central bank on Tuesday eased its defense of the embattled ruble, which fell sharply and triggered a sell-off in stocks as the country faces its worst financial crisis in a decade. The central bank also raised the its refinancing interest rate by a full percentage point, to 12%, in an effort to stem breakneck capital flight and ease inflation.
The ruble fell 1% on Tuesday to 30.70 against a dollar-euro “basket” as the bank widened the ruble’s trading corridor by 30 kopecks, or .30 ruble, in a move seen as a concession to a weakening economy and the falling price of oil. The central bank had been using its foreign currency reserves to buy rubles and keep it from falling below 30.40 in a practice called a managed float. (Reuters, The Economic Times)