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. Last Updated: 07/27/2016

Economist Lauds Yeltsin Oil Decree

While President Boris Yeltsin's decision to scrap the punitive oil tax is designed to pave the way for eventual price rises, the measure could actually help to curb inflation, at least in the short term, and boost investment in the oil sector, a senior government economist said Thursday.

Artyom Troitsky, an economic adviser to Deputy Prime Minister Oleg Lobov, said in an interview that Yeltsin's decree amounts to a tax break for oil producers that, were it not for inflation, could even result in a lowering of the price of oil.

While Troitsky said the break is anti-inflationary, he said it will not prevent further price hikes because production costs in the oil industry will continue to grow.

"You cannot expect any price stabilization, because the oil producers hit by inflation pay more for equipment and wages", he said.

President Boris Yeltsin signed a decree last week, ending punitive taxes for producers who charged more than 9, 000 rubles ($8. 50) for oil.

Most producers paid the tax. Crude oil currently costs 26, 000 to 31, 000 rubles per ton, up from the average price of 23, 000 rubles per ton in June, according to commodities traders.

Repealing the tax was seen as a step toward freeing domestic fuel prices in Russia, which are about one-fifth of the world level. Fuel and Energy Minister Yury Shafranik hopes to lift prices to world levels but he faces opposition from government ministries and energy-dependent industries.

A cap on excess profits remains in place in the oil industry as do tight controls on exports.

Russia faced a significant decline in crude oil production last year, when it dropped to 398 million tons from 462 million ton in 1991. The production is expected to fall another 15 percent this year.

The government research center said Thursday that oil and gas prices edged up only by 3. 1 percent in June even when inflation hit 17. 4 percent for the month.

Troitsky said oil companies could use the savings from the tax break to step-up investment in the industry.