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. Last Updated: 07/27/2016

Oil Tariff Abolition Cheers IMF, Firms

Russia's oil barons welcomed Moscow's reluctant agreement Thursday to scrap oil and gas export tariffs, but expressed concern that the government might try to overcompensate by hiking the excise tax on oil sales to unreasonable levels.

Moscow's affinity for export tariffs had been a key stumbling block to a sorely needed multibillion-dollar loan from the International Monetary Fund, which sternly opposes such tariffs because they impede free trade.

As part of a $10.2 billion loan deal agreed upon Thursday, Russia will have to scrap export tariffs on oil starting July 1 and on natural gas March 15, Finance Minister Vladimir Panskov said Thursday. They will be replaced with higher excise taxes on all oil sales.

"It's a move toward civilized market," said a spokesman for Yukos oil company, Andrei Krasnov. "The oil price has to be decided between the seller and the buyer, not by the government. The export tariffs have added to the oil cost a lot."

Producers of crude oil are worried, however, about how the government intends to make up for the lost budget revenue. "It is too early to be very enthusiastic about this decision," said LUKoil spokesman Pyotr Neyev. "We should wait and see how the excises increases will affect our exports."

About one-third of Russia's oil output is exported. Last year the government collected $3.2 billion in export tariffs.

Russian officials have favored export tariffs over excise taxes because they fear that reliance on the latter would cause domestic oil prices to skyrocket.

The IMF has long held the position, however, that export tariffs hinder free trade and competition. In negotiations last year Moscow promised to begin phasing them out. Tariffs were supposed be cut in half, to the equivalent of 10 European Currency Units (about $8) per ton, effective Jan. 1, but the reduction still has not gone into effect.

Panskov said the government definitely will raise the excise taxes, but he gave no figures. "We considered how to compensate for the revenues that will be lost as a result," Interfax quoted him as saying. "We agreed that only some these losses will be compensated by means of raising the excises. The rest will be covered with the help of other measures."

Earlier this year the government said it intended to raise excise duties to 75,068 rubles (about $15.75) per ton of oil from 33,780 rubles per ton to compensate for the losses in the budget.

In principle, some experts say, excise taxes should be easier to collect than export tariffs and should generate more revenue because they apply to all sales, not just to exported oil.

That assumes, however, that Russian industry and government work out their massive debt and cash-flow problems in which suppliers often receive payment for deliveries very late, if at all.

Alexander Blokhin, an oil expert from the United Financial Group, said the government will be able to collect most of the revenue only on paper.

"It will be very difficult for them to collect all the excises because currently oil companies are not paid for 25 percent of all their domestic sales," Blokhin said.

?Russian oilmen and analysts Thursday brushed off a senior minister's comments that domestic oil firms owed the budget $2 billion, saying the government was merely scrambling for cash, Reuters reported.

First Deputy Prime Minister Oleg Soskovets said Wednesday that $2 billion from crude exports had not reached state coffers on time -- the latest in a series of government attacks on the industry.

"The criteria on the basis of which Soskovets has come up with this figure are not very clear at all," said Yukos spokesman Andrei Krasnov.

"I very strongly suspect that ... he is part of a government quarrel taking place over how to find money for the budget and pay off wage arrears."