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. Last Updated: 07/27/2016

Pipeline Tariffs Cut To Combat Oil Crisis

Russian officials said Friday they will cut oil pipeline tariffs during the second quarter of the year in an attempt to help Russian companies deal with depressed oil prices.

Two slightly different reports issued Friday appeared to be speaking of the same tariff cut, although it was unclear how long the tax cut will last.

Interfax quoted the Federal Energy Commission as saying a transport tariff on exported oil will be halved to $1.50 from $3 per metric ton of oil beginning April 1. Multiplying that savings by the roughly 25 million metric tons Russia exports each quarter, the cut in tariffs will equal a $37.5 million quarterly tax break for oil companies.

Earlier Friday, acting First Deputy Prime Minister Boris Nemtsov said a transport tariff equaling 3.8 rubles ($0.63) per metric ton of oil shipped 1,000 kilometers would be eliminated for an unspecified period. That would equal a cut of $1.86 per metric ton of exported oil, assuming as some analysts do that the average distance to export is 3,000 kilometers.

Confusing as the reports were, the news was welcomed by Russian oil majors, which face drastically reduced profitability this year in the wake of a severe slide in oil prices.

"The government's decision shows that the government is aware of the necessity of passing immediate measures to stabilize the oil complex," read a statement Friday from oil company Yuksi.

Still, the cut in pipeline tariffs is nowhere near enough to satisfy Yuksi and other oil majors, which have requested that excise taxes of 55 rubles per metric ton of oil be cut to 25 rubles.

"To improve the position of Russia's energy complex, it is necessary to lower the average excise tax on oil from 55 to 25 rubles per metric ton," the Yuksi statement added.

Such a cut would equal $1.5 billion in annual tax savings for the industry.

The heads of Russia's seven biggest oil companies in January addressed a letter to then-Prime Minister Viktor Chernomyrdin requesting that excise taxes and pipeline tariffs be reduced.

In addition to the tariff cut announced Friday, Russia is considering two additional breaks to the sector.

Alexander Livshits, senior economic adviser to President Boris Yeltsin, said in a newspaper interview that one government decree under consideration would refund almost all of a mineral replacement tax levied on companies, which could lead to savings of $0.50 per barrel, according to investment bank MFK Renaissance. A second decree would guarantee government payment of all oil shipped to government-owned entities, which often lack the cash to pay for fuel.