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. Last Updated: 07/27/2016

Punitive Tax Slapped On Fuel Oil Exports

The Russian government imposed a prohibitive export duty on fuel oil Tuesday in an effort to prop up underfunded energy producers, but refineries said they would refuse to give their products away on the domestic market.

Under a government resolution signed Dec. 30, exporters will have to pay a duty of 10 ecus per ton on two main types of fuel oil - M40 and M100 - shipped between Jan. 1 and March 31.

"We'll have to stop the exports - that's it," said Sergei Lapkin, deputy general director of the Moscow Refinery. "We would only make $10 on a ton and it's not worth the trouble."

Lapkin said his refinery would find ways to deal profitably with local clients, such as Mosenergo. Provincial refining executives, who have few paying customers in Russia, said they would look for ways to circumvent the duty.

The levy was introduced less than a month after Anatoly Chubais, CEO of Unified Energy System, complained to the parliament that the recent increase of oil exports has led to shortages of fuel oil at Russian power plants.

Fuel oil accounts for only 10 percent of all the fuel used by Russian power generators, and Chubais said UES had no supply problems with gas and coal, which account for 60 percent and 28 percent of the company's needs, respectively.

Fuel oil stocks, however, lingered at just 2.4 million tons on Jan. 1, or 600,000 tons less than required for the winter, said a UES spokesman, who asked not to be identified.

Power plants in the Far East and Far North are designed to work on fuel oil, the spokesman said, and it is those areas that are hit with the most severe energy problems in Russia. The fuel is often bought with federal subsidies, and power cuts are frequent when the money is late or fails to come.

The August financial crisis and the drop in international oil prices have forced refineries to demand cash up front from domestic buyers and increase exports. No official data on Russia's 1998 fuel oil exports was available on Tuesday, but an employee with the Fuel and Energy Ministry said the year's total was likely to amount to less than 10 million tons, down from 14 million tons the year before.

A senior manager with the Ryazan Refinery, part of Tyumen Oil Company, said fuel oil accounts for 40 to 45 percent of his company's output, and that up to 80 percent of the fuel is sold abroad, bringing the refinery about 15 percent of its total earnings.

But the manager, who asked not to be identified, said he hopes to dodge the government's restriction by simply renaming the products in question.

M100 and M40 are the most widespread types of fuel oil, but they are also just two of several hundred brands. By using a slightly different technology, refineries can produce similar fuel under a duty-free brand, the manager explained.

"We have to continue fulfilling our contracts in Europe," he said. "There are no options to sell it domestically at dumping prices or on credit."

The Ryazan Refinery continues to export despite the fact that domestic prices can be higher than prices in Europe. According to the manager, a ton of fuel oil costs approximately $10 abroad, but an average of 400 rubles (about $20) in Russia.

"The thing is that nobody here pays the money," the manager said.

The government used similarly punitive export tariffs on fuel oil in the past, introducing a 16 ecu duty in the winter of 1995-96. But the UES spokesman said the company wants to convince the government to create a special spending item in the budget - a Federal Fuel Fund - for regional' energy needs.

"It would not be a radically new system, it would simply improve control over money set aside for power supplies," the UES representative said. "But if our plan goes through we will not have to resort to such extraordinary measures anymore."