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. Last Updated: 07/27/2016

Gas Refiners Campaign For Export-Tax Relief

Producers of liquefied petroleum gas, or LPG, have agreed with the government to saturate the domestic market with their products, eliminating a shortage of the gas within Russia that has gone on for several months.

In return, companies that produce LPG, usually as a byproduct of refining crude oil, expect the authorities to reduce the tax on gas exports, market players said Tuesday.

The government issued a resolution Monday that regulates LPG supplies to domestic customers and instructs each of the country's 12 producers which regions they should service. The order followed an agreement last week between First Deputy Prime Minister Nikolai Aksyonenko and the companies.

The government increased an export tax on LPG from an average of 8 euros to 10 euros per metric ton to 60 euros ($61) per ton from Nov. 9.

"Our proposal from the beginning was 10 euros and an agreement that the companies would supply regions [with the gas]," Fuel and Energy Ministry spokesman Yury Nogotkov said Tuesday. "The [60 euro] tax became an effective export ban on the companies."

"Only [Surgutneftegaz] Kirishi refinery [in the Leningrad region] - the refinery closest to the border - is working at break-even," Nogotkov said. That refinery has the cheapest transport costs of the 12 producers, he added.

The ministry does not rule out the possibility of slashing the export tax if the companies fulfill their obligations as set out in the agreement, Nogotkov said.

Householders received 1.1 million tons of LPG in the first 10 months of 1999, 8.4 percent less than for the same period last year.

The approximately 100,000 tons of LPG demanded by householders should be easy for the traders to make up, Nogotkov said.

The LPG firms will work under almost the same scheme as oil companies do. Oil firms receive quarterly requests for crude deliveries to oil refineries for products sales to domestic customers or for shipments to certain regions under the northern oil products deliveries program. LPG export cargoes will be cleared by customs at the production units, the resolution says.

The wholesale price of domestic LPG, which is regulated by the government, has recently doubled to 780 rubles ($29.50) per ton while domestic retail prices have risen to 2,500 rubles per ton in the Moscow region.

The fixed price had not changed since April 1995, while LPG quotes soared in Western Europe from $105 per ton to $220 per ton in July, Nogotkov said.

As a result, LPG traders diverted extra gas for export and drained the domestic market. About 1.6 million tons of LPG was exported in the first 10 months of 1999, a 460,000 ton increase over the same period last year.

Russian firms are expected to produce about 5.15 million tons of LPG this year - of this only 1.46 million tons will be consumed by householders and filling stations, according to Fuel and Energy Ministry data. About 13.5 million apartments, of which 7.8 million are in rural areas, consume about 32 percent of LPG production.

Of the country's total output, about 35.8 percent is delivered for further processing to petrochemical companies and another 32.1 percent is exported, a spokeswoman for major gas producer Sibur said Tuesday. Sibur is expected to produce about 1.39 million tons of LPG, or 27 percent of national output in 1999.

Petrochemical companies produce about 31.1 percent of LPG, while oil refineries and gas refining plants output respectively 28.3 percent and 15.1 percent of the total LPG production, Sibur said.