26 Apr 2022 17:25

Budget revenue shortfalls in event MET calculation formula changed could total up to 1 trln tubles, MinFin opposes this

MOSCOW. April 26 (Interfax) - The budget revenue shortfall resulting from changes in the formula for calculating the mineral extraction tax (MET) based on the sales price will amount to up to 1 trillion rubles, Deputy Finance Minister Alexei Sazanov told Interfax.

Sources have told Interfax that the government considered the issue of transferring mineral extraction tax calculation from CIF Urals prices to FOB Urals prices as part of the third package of measures to support fuel and energy sector companies as a way to factor in actual price conditions in the market.

Previously, the Finance Ministry opposed changing the formula for calculating the MET on oil depending on the actual oil sales price, rather than the price calculated on the basis of Argus pricing agency prices.

"In terms of the matter of actual sales when CIF changes to FOB, the mineral extraction tax will actually be reduced by the cost of transshipment and insurance. According to our calculations, this is from 800 billion to 1 trillion rubles per year of lost MET revenue," the deputy finance minister said.

"Historically, the freight price has always been included [in the calculation formula] and the CIF price has been taken, so now with the increase in freight prices we decided to shift [additional costs] to the state as well. Of course, we have no sources [to make up for shortfall in revenue]," he said.

It was reported earlier that the cost of freight and insurance for Russian oil rose sharply after the start of the military operation in Ukraine.

According to Interfax's sources, the cost of insurance and freight is currently around $2-4 per barrel. Russian companies sell their oil at ports on FOB terms.

According to the Finance Ministry, the average price of Urals for the period of monitoring from March 15 to April 14 was $79.81 per barrel. This figure is factored in to calculate export duties. Per government decree, the Finance Ministry uses price information from the Argus agency. It follows from the data that the Urals price discount relative to benchmark Brent crude continues to increase, totaling on average about $30 per barrel.

The average price for Brent futures with the nearest delivery date during the last 30 calendar days is $108.5. Consequently, the discount on Urals, which has traditionally been symbolic - $1-2 per barrel - and began to grow rapidly due to the introduction of sanction on Russia, was about $28.7, that is a little more than a quarter of the price.

During the previous monitoring period, which covered part of the pre-sanction era (February 15-March 14), the difference in the average Urals and Brent price was much less significant - $95.59 vs. $104.97, i.e. the discount was less than $10. For the calendar month in March, the average Urals price was $89.05 and Brent was $112.46, that is the discount reached $23.4, or about 20% of the price.