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. Last Updated: 07/27/2016

Ministry Proposes Doubling Oil Tax




The Trade Ministry is set to submit draft regulations to the government on Thursday that would double the export tax on oil to 5 euros ($5.31) per metric ton if enacted, ministry spokesman Igor Makurin said Wednesday.


The tariff hike came on top of an earlier double whammy from the government and national oil pipeline monopoly Transneft, who brought in additional export and transshipment levies that analysts said will increase costs by as much as 45 percent for exporters.


The export tax measure - which simply requires Prime Minister Yevgeny Primakov's approval to come into effect - would raise monthly revenues from about $25 million a month to $50 million a month.


A government regulation brought in earlier this year sets a sliding scale of levies on Russian crude exports. When the Urals blend that is a benchmark for Russian crude averages less than $9.80 for the calendar month, there is no export tax. A 2.50 Euro per metric ton tax kicks in above that point, rising to the 5 euros per ton rate should the price rise above $12.30 per barrel.


Russian oil producers received further bad news when the government said Wednesday that Primakov had signed a regulation last Friday to charge oil exporters an extra $1.43 per metric ton from May 1, according to Interfax.


The revenues will be forwarded to Russian oil pipeline monopoly Transneft to allow it to fund the ambitious Baltic Oil Pipeline System, or BOPS, project. The levy aims to raise $100 million by the end of this year to help build the BOPS, which would link the oil fields of Russia's Far North to the planned oil terminal at Primorsk, situated some 100 kilometers north of St. Petersburg.


Adding to Russian oil companies' pain, Transneft hiked its own oil transshipment tariffs for export as of May 1.


The new set of export tariffs will increase the cost of crude shipment to the Baltic ports and through the Druzhba pipeline to Europe by about 40 to 45 percent, said Vladimir Nosov, an oil analyst at Fleming UCB Bank.


Shipment charges to the Black Sea ports are likely to rise by roughly 30 percent, Nosov added.


Deliveries to refineries inside Russia and the Commonwealth of Independent States will be less affected with new tariffs, hiked by an average of 15 percent.


Fleming UCB analysts have estimated that the average price for free on board Urals in northwest Europe was about $14.37 per barrel in April. The same blend in the Mediterranean reached a price of $14.20 per barrel.


The exact day of the export tax increase is entirely in the hands of Prime Minister Primakov, but the government is known to be eager to collect extra cash from oil companies as they benefit from rising world oil prices.


Although they dipped slightly on Wednesday, benchmark front month Brent crude futures had on Tuesday hit their highest level since December 1997 on London's International Petroleum Exchange, closing at $16.93 per barrel.