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. Last Updated: 07/27/2016

Oil Prices To Be Freed By Decree

The government is preparing to free the price of oil products next month in a bid to liberalize the industry, a senior Economics Ministry official said Friday.


First Deputy Economics Minister Yakov Urinson said his ministry is drafting a presidential decree to release oil prices that he expected to be signed in December.


"The best solution would be to free prices," Deputy Economics Minister Sergei Ignatyev told reporters. "And, through the creation of normal competition, including from foreign producers, improve the efficiency of production and reasonable prices for consumers."


The freeing of domestic prices could make the local market more attractive for Russian oil companies, which presently focus on hard-currency export earnings. Russian domestic oil prices are currently fixed at around one third of the export price of crude, which sells at $110 to $115 per ton, close to world levels.


Ignatyev said prices were unlikely to rise very rapidly after liberalization, saying they would probably increase at a rate 2 to 3 points higher than monthly inflation.


Urinson added that the inflationary influence of oil price liberalization had already been taken into account by the government in its projections of next year's inflation. The 1995 budget envisages monthly inflation of less than 1 percent by the end of the year.


Another factor that would stave off an upsurge in prices is the abolition of export quotas for oil and oil products Jan. 1, Ignatyev said, explaining that producers would attempt to keep prices low to compete on the international market.


Foreign Trade Minister Oleg Davydov, however, said the government was still considering whether to lift the export quotas held by 17 enterprises, Interfax reported Friday. The Foreign Trade Ministry has often voiced fears about Russian oil being sold cheaply to the West if controls are lifted because of the great disparity between export and domestic prices.


But Ignatyev said the lifting of quotas will not result in the flow of cheap oil to the West, because under the plan all exporters will have to pay export duties, from which many are currently exempt.


Urinson said the ministry believed the tax, currently set at 30 ecu ($36) per ton, should be reduced, so long as it was universally applied.


"We propose that all tax breaks be abated and that the tax be reduced from 30 ecus to a lower rate," he said. "But everybody should pay."


Interfax quoted a senior Economics Ministry source as saying the export tax should be cut to 20 to 25 ecus.