25 Sep 2023 09:39

Russia's current fuel subsidy and export duty will not keep prices low - MP

KHANTY MANSIYSK. Sept 25 (Interfax) - Russia will not be able to subsidize the domestic fuel market at the expense of exports and thus keep fuel prices low for domestic consumers with the current parameters of the damper fuel subsidy and export duties, the chairman of the State Duma Energy Committee, Pavel Zavalny said.

With the tax burden growing as a result of a mineral extraction tax increase, "damper payments need to be increased in order to subsidize shipments to the domestic market, but the opposite happened," Zavalny told reporters. The government has reduced damper payments to oil companies by half in September.

However, Zavalny said the previous damper payments do not need to be restored, "we need to correct the tax maneuver in terms of customs duties, the damper and the compensation mechanism taking into account the current situation."

"Our proposal is to somewhat increase customs duties and, in light of their increase, review the parameters of the damper and thus balance the foreign and domestic market. And, as the [Federal Antimonopoly Service] proposes, increase the amount of oil product sales on the exchange to 14%-15%. This will facilitate more supply, competition and a drop in prices," Zavalny said, adding that the Energy Ministry is considering various options along these lines.

"Obviously, the ban on oil product exports imposed as of September 21 cannot last long, a week or two, maximum a month, otherwise we might drive refining into losses and oil refineries will shut down," he said.

"Last year almost 2.2 trillion rubles were directed to oil companies for payment of the damper, in 2023 only 1.2 billion rubles were planned and they revised down further in order to balance the budget. But in August oil and gas revenues already exceed 800 billion rubles," Zavalny said.

The price of fuel at oil refineries is now essentially higher than on the retail market, "not by much, by 1-3 rubles, [but] this indicates that the retail market is being subsidized at the expense of the export market and it turns out that retail players who buy oil products on the domestic market ship a portion of oil products to the higher premium foreign market in order to offset their loses," Zavalny said.

"And as for the wholesale market, agricultural producers, they don't buy through filling stations after all, but from resellers, [but] it turns out that the fuel was exported, a shortage arose and prices increased. A shortage arose at a number of filling stations there, where demand is high, in the south, so a ban on exports had to be imposed. And this has already led to a drop in prices," Zavalny said.

"It's impossible to subsidize the domestic market at the expense of exports with the current parameters of the damper and customs duties - the economics will become negative. We must find a golden middle in order to subsidize the domestic market at the expense of exports, offering our consumers lower prices but at the same time maintaining market pricing," Zavalny said.

He said decisions should be made in the next two to three weeks, while changes to the Tax Code on the damper could be passed within a month.

Energy Ministry department director Anton Rubtsov said on Friday that the government is exploring fine-tuning the tax system so as to ensure fuel supplies to the domestic market at acceptable prices regardless of the external market situation. It is exploring options related to duties and taxes and wants to fine-tune the tax system "so that it works with high oil prices and high exchange rate and makes it possible to general budget revenues," he said.