20 Jun 2019 17:36

Putin instructs that aviation kerosene be included in the reverse oil excise system with the damping component

MOSCOW. June 20 (Interfax) - Russian President Vladimir Putin has instructed the government to factor in not only production of gasoline and diesel fuel but also that of aviation kerosene and bitumen in calculating the reverse oil excise with a damping component.

Putin issued the instruction at the annual Q&A session when asked about growing airline fares in the country.

"These measures [the reverse oil excise with the damper] do not include aviation kerosene. Motor fuel has been included, all gasolines and diesel fuels, but aviation fuel has not been included, and this is a problem. Prices for aviation fuel surged more than 30% last year, and there was a corresponding 9.5% increase in [prices for] airline tickets. This has never happened to us. For us, growth was typically around 2% per year, and now here we have nearly 10%. In the price of an airline ticket, for example, for Aeroflot , this is the cost of aviation fuel," the president said.

"I have been talking about this with the government, with those who oversee this in the government, and I would like to recall once again - this is an obvious oversight, and it must be corrected immediately. As for aviation fuel , this also concerns bitumen, because highways must be built, and if we don't do this, then prices for highway construction will go sky-high, as high as our planes fly, and we will not fulfill the highway construction goals that we set for ourselves," Putin said.

Reverse excise on oil with the damping mechanism envisages a tax refund on oil excise, depending on the volume of gasoline, diesel and petrochemical feedstock produced, and the region in which an oil refinery is located.

According to the Association of Air Transport Operators (AEVT), Russian airlines closed 2018 with losses of more than 70 billion rubles, due mainly to a sharp rise in the cost of aircraft fuel, which went up more than 40%.

The Transport Ministry suggested granting around 23 billion rubles in subsidies to carriers which would have covered half the additional fuel expenses. The AEVT proposed increasing the tax rebate for aircraft fuel by raising the coefficient from 2.08 to 3.5. A working group led by deputy prime ministers Maxim Akimov and Dmitry Kozak was set up to discuss measures for the industry, but decisions have not been reached regarding compensation or the excise.

The Transport Ministry told Interfax that it had suggested a one-off compensation of 22.5 billion rubles for airlines last year due to the spike in fuel prices and that the proposal was now with the government.

"Also, we need to have a price damping mechanism for aircraft fuel in order to be ready for sharp future fluctuations on the market. For this it is necessary to extend the reverse excise mechanism to aircraft fuel, and also to road asphalt, so that as our president so correctly pointed out the cost of our roads does not go sky high," the ministry said.

Ilya Dzhus, spokesman for Deputy Prime Minister Dmitry Kozak told reporters the government would include amendments to reflect aircraft fuel when the reverse excise on crude with a damping component is being calculated in the general package of damper amendments.

"The amendments to tax legislation that have been drafted to adjust the damping mechanism will be revised promptly given the need to grant a reverse excise tax to aircraft fuel manufacturers," he said.