Kremlin to Increase Fuel Tariffs

As motorists brace for periodic fuel shortages and hikes in the price of gasoline, the government is taking quiet steps to ensure supplies by revising export tariffs on fuels.

Oil firms, which last year exported all they could, now have plenty of cash from windfall profits due to high oil prices and are likely to respond by keeping the domestic market supplied.

Deputy Prime Minister Viktor Khristenko said Wednesday that doubling the tariff of 20 euros ($18.18) per metric ton on exports of fuel oil was unlikely to harm anyone and a decree will be signed next week putting tariffs on fuel oil and gasoline up to 25 euros per ton from mid-September, Interfax reported.

Khristenko didnt rule out introducing domestic quotas for oil-producing and processing companies.

In Moscow, gasoline prices are stable at 5 rubles (18 cents) to 5.2 rubles per liter for 80-octane and 8.6 rubles to 8.8 rubles per liter for 92-octane.

However, in the Tula and Kaluga regions the cost of 95-octane has jumped from 6.05 rubles to 9 rubles per liter and then down to 7.5 rubles in the last week, and in Voronezh, central Russia, 92-octane has risen to 10 rubles per liter, Interfax reported.

In the last week of July there was a 1.4 percent rise in gasoline prices throughout Russia, Interfax quoted the State Statistics Committee as saying this week.

Andrei Krivorotov, head of Tyumen Oil Co.s press service, said that a rise in price of high-octane gasoline by the end of summer is common in many countries, including Russia, and prices may even go down in September unless the exchange rate changes, Interfax reported Monday.

Aware that a threefold hike in the gasoline tax due to come into force on Jan. 1, 2001, is likely to be unpopular, and reassured by world oil prices persisting around $30 per barrel, the government moves can be seen as an attempt to cushion the impact of its economic changes on motorists. Taxes on fuel oil and oil are also to rise.

The government justified the impending hike in tax on fuels and also hikes in taxes on alcohol and cigarettes by saying they were needed to make up for revenue that would be lost to plans to slash other taxes. These include introducing a 13 percent flat income tax and reducing other payroll taxes that President Vladimir Putin signed into law this week.

Khristenkos announcement came only a week after the 20-euro tariff was introduced until Aug. 2 it was 12 euros and quotas were abolished only in July.

Analysts dont see the steps as a sign to avert an impending panic over prices.

Dmitry Avdeyev, oil analyst at United Financial Group brokerage, said Thursday in a telephone interview that export tariffs could be doubled, tripled or left unchanged, all depending on the amount of fuel oil remaining in Russia.

"Doubling the 20-euro tariff may imply that the government is seeking to build up more reserves for winter as fuel oil is the type mainly used for heating," said Ivan Mazalov, oil and gas analyst at Troika Dialog investment bank.

Its immediate effect would be to make exports of fuel oil unprofitable for companies far from the borders that have considerable transport costs, he said.

Gennady Krasovky, gas and oil analyst for NIKoil brokerage, agreed that the fuel oil thus spared from being sold abroad will likely substitute natural gas in electric power stations, especially in Siberia where many of the old oil refineries havent been modernized to produce more refined products.

Last years scenario with petrol stations running out of gasoline in central Russia and the cities of St. Petersburg and Sochi is unlikely to be repeated, Krasovky said.

Domestic consumers have since begun paying in cash instead of barter, something that made the market unattractive in 1999, he added.

Foreign customers paying in hard currency were giving oil exporters a chance to pay taxes. A doubling of export returns on crude oil in the fall of 1999 had led to last years supply crisis, he said.

Oil products have always been a stable hard-currency earner for Russia, but their role seems to be changing, Kommersant on Wednesday quoted Gazprom head Rem Vyakhirev as saying.

Gazprom has been involved in a bitter struggle this year with national power grid Unified Energy Systems over natural gas supplies to UESs power stations.

Vyakhirev told Kommersant that to avoid a crisis power stations must switched from gas to coal and fuel oil.