Russian govt to limit Urals discount in calculation of oil taxes to $34-$25 starting in April

MOSCOW. Feb 13 (Interfax) - The Russian government has submitted a bill to the State Duma that proposes to revise the value of the average price of Urals crude on world markets for the calculation of the mineral extraction tax (MET) and excess profit tax (EPT), a memo attached to the bill said.

If the price of Urals crude determined according to current legislation is lower than the price of Brent (North Sea dated) by $34 per barrel then the price used for the purposes of legislation will be Brent minus $34 per barrel.

Subsequently the discount will be reduced and the price will be Brent minus $31 per barrel for May, Brent minus $28 for June and Brent minus $25 for July.

The government proposes to make this change for calculating the MET for production sharing agreements as well.

At present, the Urals price calculated by the Argus agency is used for taxation purposes. After the imposition of the European Union embargo on purchases of Russian oil in December, the price of Urals crude has been about $35-$40 per barrel lower than that of Brent crude.

The government is thus trying to offset the effect that the drop in prices for Urals crude compared to Brent is having on budget revenues. However, oil companies expect that the discount on Urals crude will decrease as logistics chains are established and demand for oil grows in China.

The budget for 2023 assumes an Urals price of $70.10 per barrel, but the last time that the actual price of Russia's main crude blend was slightly above this threshold was from October 15 to November 14, when it was $71.10. At the end of January it was $49.48, while Brent was trading at $84; the discount increased compared to December, but it stopped growing by the end of the month.

Sources told Interfax that the Finance Ministry, which wants to see higher tax revenues, proposed to set the maximum discount to Brent at $20 per barrel, while the Energy Ministry proposed to set it at $35 and then gradually reduce it to $25.