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. Last Updated: 07/27/2016

LUKoil Leads Industry in Blasting Export Tax

Oil giant LUKoil Thursday launched what is likely to be a tough campaign by Russia's exporters against the government's decision to slap a 5 percent tax on a raft of commodities.

"The Finance Ministry has managed to push through a decision that will hurt the Russian oil sector. It will reduce the volume of oil product exports and hence the revenues to the budget," Leonid Fedun, vice president of LUKoil, told Reuters.

Fedun said that oil companies would not be able to pay the export tax unless the world price rose to at least $11.50 or $12 per barrel from its current level of $10.80 per barrel.

The government decided on Wednesday to slap the 5 percent duties on exports of gas, oil, copper, nickel and a few other commodities for a period of six months. The move is designed to plug a hole in Russia's 1999 budget.

But opposition from exporters is likely to be strong and the battle may not yet be over. The decree will only enter into force after it is published in Rossiiskaya Gazeta, the official government newspaper.

But Natalya Rodionova, an official with the government's press service, said this might take a week. The Finance Ministry refused to give any official comment on the new regulation.

A source in of the Fuel and Energy Ministry who spoke on condition of anonymity said the decree might yet be altered.

"I am not sure that it will be approved in its present draft," the source said. "It might be that not all necessary parties have signed up. We spent the last two days just discussing the decree."

A Finance Ministry official, who asked to be anonymous, said he believed that the decree would go into force despite the opposition.

"The budget for 1999 approved in its first reading stipulates revenues from export duties worth 30.8 billion rubles ($1.3 billion) and this is just a way to get these revenues," the official said.

The official said that commodity exporters had made big profits as a result of the ruble devaluation which had pushed their revenues up.

"Immediately after the crisis struck, the disparity between export and domestic prices was huge. Now the gap is narrowing as domestic prices catch up," the official said.

The Finance Ministry source did not exclude the possibility that in future, taxes could be slapped on exports of crude oil too.

The semiprivate gas monopoly Gazprom which exports about $7 billion of gas a year would not comment officially on the decree Thursday.

"If the decree is formally approved, we will have nothing to do but pay. We always abide by legislation," said Yury Subbotin, a spokesman for Gazprom.

Gazprom did however release a statement underlining its financial troubles, including huge foreign exchange losses caused by the ruble devaluation.

Konstantin Reznikov, oil and gas analyst with Alfa Bank, said the decree would cost the oil and gas sector roughly $500 million.

Gazprom would have to pay $195 million to the budget, LUKoil $53 million, Surgutneftegas $48 million and Tatneft $20 million, Reznikov said.

This somewhat differs from Troika-Dialog estimate that the decree would raise $1 billion, since the vast majority of revenue is supposed to come from oil and gas.

The other major victim of the decree will be Norilsk Nickel which exports copper and nickel.

Russia last month imposed export duties on fuel oil in a move designed to ensure supplies for the domestic market. Russia had previously phased out export duties under pressure from the International Monetary Fund which argues they distort trade and cut export earnings.

Analysts said that the government may try to extend the decree beyond six months but it will face opposition.

For one thing, it would complicate Russia's attempts to join the World Trade Organization.

"Trade restrictions obviously contradict WTO regulations. However, they allow for temporary tariffs if there is a balance of payments problems," said Peter Westin, an economist with Russian-European Center for Economic Policies.

The powerful oil and gas lobby will also oppose any extension of the export duty. They may also show their displeasure by cutting payments on other taxes.

"Recent developments show that the government loosened its grip over Gazprom. It's policies are like the tide: one day they push Gazprom in the corner and another let it out like a jinni," said an analyst at one Moscow think tank.


Tariff's cost

The cost of the new tax decree on big exporters, in millions of dollars

Gazprom 195

LUKoil 53

Surgutneftegaz 48

Norilsk Nickel 26

Tatneft 20

Source: Alfa Bank, Troika Dialog