Russian State Duma passes law to return full damper on fuel, increase MET on Gazprom condensate, change Urals for taxes
MOSCOW. Nov 17 (Interfax) - The Russian State Duma has passed the law to return the fuel damper in full as of October, according to the voting results.
Compensation for budgetary expenses for the payments will occur owing to the automatic increase in the MET on oil included in the formula; growth in the MET on condensate for Gazprom ; as well as a reduction in payments for the reverse excise duty for oil refineries that do not fulfill their obligations to supply petroleum products to the domestic market.
The same law changes the formation of the Urals oil price for calculating the MET. Moreover, the legislation is being amended to allow combining the obligations of oil and gas companies regarding capital investments as part of agreements to modernize and upgrade oil refineries and as part of investment agreements.
Fuel damper
The law proposes to reinstate the damper fuel subsidy to its former amount effective October 1. This subsidy was slashed by half in September, but the government later decided to reinstate it to the former amount. But the Finance Ministry insisted that those payments be offset by other sources. The law will change the formula for calculating the reverse excise on oil by adding a requirement for gasoline and diesel fuel supplies to the domestic market.
The proposal is to add a new deduction to the reverse excise formula that will reduce the receivable reverse excise if an oil refinery's shipments of Class 5 gasoline and diesel to the domestic market in a given tax period amount to less than 40% of its light oil products output. The reduction would amount to 390 rubles per tonne for tax periods from January through August 2024 and 250 rubles per tonne beginning in September 2024.
The law clarifies that the volume of straight-run gasoline to be processed into aimed at processing into petrochemical products, as well as benzene and paraxylene will also be taken into account.
The change in formula will not apply to companies in which the state owns more than a 25% stake.
Tax law allows damper payments to companies to be increased retrospectively, According to the text of the amendments, but there will be no retrospective increase for MET - elevated mineral extraction tax payments for October-December will be postponed until January 2024.
The Finance Ministry has not specified the increased volume of the MET on oil that will be paid in January 2024. According to Sinara Investment Company's Kirill Bakhtin, the MET on oil for all companies will increase overall by 190 billion rubles in October-December, when the damper returns to the previous parameters. Specifically, oil companies will have to pay 190 billion rubles more in January. Bakhtin noted that monthly oil and gas revenues to the budget are estimated at 900 billion rubles, thus the change in the MET formula could be moderately positive for the ruble in January 2024.
The Finance Ministry also proposed to extend the discount on the price of Urals crude to Brent in the price of the export alternative for diesel fuel when calculating the damper until the end of 2026, like for gasoline. It is currently limited to 2023.
MET for Gazprom
The Finance Ministry has also proposed to raise the mineral extraction tax on condensate produced by Gazprom and its subsidiaries, other than those where gas accounts for less than 35% of total hydrocarbon production, by a "Kabdt coefficient," which is intended to compensate for the negative excise on feedstock, multiplied by 1.5. Two Gazprom plants receive the damper subsidy on fuel, but produce it from condensate and therefore do not pay the MET on oil.
Deputy Finance Minister Alexei Sazanov said the law increases the MET for Gazprom on condensate in order to compensate for those damper payments that go to the refineries of which it is the owner: Urengoi, Salavat and Astrakhan.
Urals price
The law also changes how the price of Russian Urals oil is formed for calculating the mineral extraction tax. "Starting from January 1, 2024, the procedure for calculating prices for Russian oil will be adjusted, since the Argus quote for the north-western and southern ports of Europe (CIF) is no longer being published, only the quote for Russian ports (FOB) remains. So we are switching to a quote for Russian ports for oil which is, accordingly, increased by the cost of transportation to the ports of north-western and southern Europe, calculated in the manner prescribed by the Russian government, but not less than $2 per barrel," Sazanov said. The cost of transport to European ports, to which Russian oil has not been delivered since December 2022, will be calculated in the manner established by the Federal Antimonopoly Service. If the order is not determined or the price is not published, then it will be $2 per barrel.
The Urals price for calculating taxes will be the highest of three values - the Urals price at Russian ports; the Brent price with a certain discount; or, from 2025, the SPIMEX quote, a method for calculating which has not yet been elaborated. Once the SPIMEX quite comes into effect, it will be increased by the cost of transportation to European ports, calculated according to the Federal Anti-monopoly Service method.
The Urals price discount to the Brent benchmark will be reduced in the calculation of oil taxes in 2024 by $15 per barrel (indicative), in 2025 by $10 (indicative) and in 2026 by $6 per barrel (indicative). The maximum discount of $20 per barrel is also indicative.
Mineral extraction tax has been paid since April based on the actual price of Urals, as calculated by Argus based on the cost, insurance, and freight (CIF) price at European ports, where Russian oil has not actually been delivered since 2023; however, not less than the Brent price minus a certain discount. The discount was $34 per barrel in April, $31 per barrel in May, $28 per barrel in June, $25 per barrel in July and $20 in September. A discount to Brent has been established in the export duty along the same lines as the calculation of the mineral extraction tax.
By introducing a minimum discount threshold, the government is seeking to neutralize the effect of a decrease in the price of Urals relative to Brent for budget revenues. Oil companies pay tax based on the actual Urals price, but not less than the Brent price adjusted for the established discount.
The government has the right to increase the forecast value of the discount for the periods 2024-2026, setting it at no more than $20 per barrel.
Refinery upgrades
The law also ushers in an amendment allow combining the obligations of oil and gas companies regarding capital investments as part of agreements to modernize and upgrade oil refineries and as part of investment agreements.
"We have worked on the changes that were proposed, including by the industry itself, due to the fact that a number of refineries plants are being upgraded by general contractors, who are delivering major projects that increase refining depth. Now we have two agreements - one on modernization and an investment agreement. Under one you need to invest 60 billion rubles, and under the investment agreement - 50 billion rubles," Sazanov said at a meeting of the State Duma budget committee.
At the same time, there is one facility for which investments amount to more than 130 billion rubles. "There has been a request to count those investments that are made within the framework of the modernization agreement as part of the investment agreement, provided the total amount of investments exceeds 130 billion rubles, and units are commissioned at the earlier date prescribed by one of these two agreements, and "no later than the end of 2025," he said
"We have drafted the appropriate changes: if under one of the agreements investments exceed 130 billion rubles and the facility is put into operation before the end of 2025, then in this case both the modernization agreement and the investment agreement will be considered fulfilled," he said.
He said this was a technical amendment that would not result in a shortfall in budget revenues and was explained by the fact that one large facility cannot be divided into two groups of facilities so that both would have 50-60 billion rubles. "The general requirements for investment and the timing of the commissioning of units will be met," Sazanov said.
The government in 2021 introduced an investment allowance on the reverse excise tax on crude for refineries carrying out modernization projects for a period of ten years. The Energy Ministry has signed 21 investment agreements with oil companies worth more than 1.6 trillion rubles. These investment agreements now provide for the completion upgrades by the end of 2026. Failure to comply with the deadlines results in being stripped of the entitlement to the investment allowance for tax deduction for duration of the agreement, starting from the first tax period.