1 Jun 2023 11:18

Russia might put off reducing damper payments to oil cos until Sept - sources

MOSCOW. June 1 (Interfax) - Russia will probably postpone changes to the so-called fuel damper that will slash government payments to oil companies by half from July until September, several sources familiar with the situation told Interfax.

The bill to change the damper for oil products has not even been submitted to the State Duma yet. Talks on revising the parameters of the damper have dragged on and procedurally government agencies will not have enough time to agree on the bill and submit it to the Duma within a timeframe that would allow it to go into effect on July 1 as planned, the sources said.

One source said that Deputy Prime Minister Alexander Novak will hold a meeting on the fuel damper on Friday. Novak held a meeting with the heads of oil companies last Friday to discuss the problems of the fuel market, at which they said the market was stable.

The Finance Ministry told Interfax that the issue is being discussed in the government. "Final decisions have not been made," the ministry said.

Finance Minister Anton Siluanov said earlier that the damper is currently going into oil refiners' margins and that the ministry, unable "to overlook this fact," proposes to cut it in half for the period from July 2023 to July 2024 in order to correct this situation. As a result, government payments to oil companies will decrease by 30 billion rubles per month. Asked what parameter in the calculation of the damper would be revised, Siluanov said: "Simply a coefficient of 0.5."

This will be the second revision of the fuel damper this year. As of April 1, the price differential used to calculate the damper for gasoline was raised from $20 to $25 per barrel and a price differential of up to $10 per barrel was introduced for the calculation the damper for diesel fuel.

However, this did not save the government any money. Oil companies received 107.2 billion rubles from the federal budget in April compared to 96.7 billion rubles in March. This led to the discussion of a more radical change in the mechanism's parameters.

Government damper payments to oil companies totalled 360.5 billion rubles in the first four months of 2023, compared to 801.9 billion rubles in the same period last year, and payments for all of 2022 totaled a record 2.16 trillion rubles.

Russia introduced the dampening mechanism for oil products in 2019. Until April 2023, it was calculated as the difference between the export price of fuel and the indicative domestic price, set by legislation. If this difference was positive and exports became more lucrative than deliveries to the domestic market, the government paid oil companies, and if the difference was negative oil companies paid the government.

However, sanctions against Russia led to the incorrect calculation of export prices for Russian oil products, while Russia's Ural's crude began to trade at a discount. The Finance Ministry is now looking for an optimal formula for the fuel damper that would save money for the government without dramatically worsening the finances of oil refineries and the situation on the fuel market in general.