11 Dec 2017 12:17

Oil cos will need to apply for negative excise tax on crude, individual agreements to govern

MOSCOW. Dec 11 (Interfax) - Russian oil producers will have to file to receive the proposed negative or reverse excise tax on crude supplied for refining at modernized Russian facilities and the excise tax will be governed by individual agreements with the companies, Deputy Energy Minister Kirill Molodtsov told journalists.

"To a great extent, this should be a new agreement, either a four-party one or an agreement on implementation of modernization. Much depends on how our refineries in the third group will operate, that is, those that haven't begun modernization yet or have yet to achieve the higher refining processes. In theory, this should be on a declarative basis. The accounting might be conducted quarterly or even monthly," he said.

"I reckon that helping the plants to modernize is a task for the state, among other things. Judging from volumes, it turns out that 90 million tonnes of our refining capacity is a guaranteed volume with high margins from refining, from 2,000 to 3,000 rubles. That said, refineries are major infrastructure facilities, this is social responsibility and national security, so in the given situation, support of production and margins - the reverse excise tax - can be spoken of. It would be wrong to take the position that the time for modernization has ended and it's now time to get along without state support," Molodtsov said.

"Rosneft is the company most strongly advocating introduction of this principle. The oil giant is making the request not just for its own refineries; it is also making the request for refineries that haven't finished modernizing and perhaps for plants located in the eastern part of the country. Support there really is essential, because in the country's east, where we have a lower population density, a lower refinery density, the volume of production, the cost of modernization is higher," he said.

The negative excise tax mechanism on oil for refining is a simpler and more comprehensible mechanism to apply and administer than, for example, tax credits for refineries, which stipulate deferred payment of excise taxes on oil products until refinery modernization is completed.

"Excise taxes on oil are tied to domestic market production volumes. This is a permanent situation. It can, so to speak, be calculated namely over a period, in the framework of the three-year budget. As for the tax credit, this is a more complex mechanism. I believe that we are ready to support it as the ministry in the sector, but the details need to be worked out from the administrative standpoint, how to organize the process, when to provide this loan, when to repay it, what are its terms?" Molodtsov said.

The proposed negative excise tax is a response to oil company complaints about low oil refining margins in Russia. The Energy Ministry has given instructions to work out measures to support the refining industry. One calls for introduction the negative excise tax on crude oil that a company supplies to its own refineries in Russia to produce gasoline and aviation kerosene. The size of the excise would depend on the production volume of these fuel types.

The scheme hasn't been worked out yet. So far, the Energy Ministry has only been instructed to prepare a report for the government on measures to support the oil refining sector by January 15, which will contain the main outlines for introducing a negative excise tax.

The Finance Ministry previously examined options for introducing a negative excise tax on crude oil as export duties on crude oil are removed.