Rosneft CEO criticizes Russian tax policy, CBR's tight monetary policy, failure to support payments

MOSCOW. Nov 30 (Interfax) - The crisis on the Russian fuel market in late summer, which pushed the government to resort to a temporary ban on oil product exports, was triggered by missteps in tax policy, Rosneft CEO Igor Sechin said in a press release on the oil company's results for the first nine months of 2023.

Rosneft "continues to be adversely affected by ongoing ill-considered changes in the industry taxation, such as the damper cut that triggered the crisis at the domestic fuel market in August-September," Sechin said, referring to the twofold reduction of the damper fuel subsidy in September, which was reversed in October.

"And as soon as in October Ministry of Finance initiated further changes in the method for determining oil price for tax purposes, which is a key parameter for oil industry taxation. In particular, the changes provide for economically unjustified reduction in Russian oil price discount to Brent. At the same time, the Ministry continues to use this irrelevant for Russia price benchmark (Brent) and disregards transformative shift in Russian oil industry - new crude delivery destinations and pricing approach," Sechin said.

Furthermore, the changes call for using "unreasonable cost of freight based on non-existent supply routes to Europe, not taking into account transportation, other logistical costs, as well as insurance, conversion, and interest payments," he said.

Another "change adopted without comprehensive analysis and industry discussion [is] gas price differentiation to various groups of industrial consumers," he said. "The change would result in gas market imbalance and gas shortages for socially essential industries. Moreover, gas [mineral extraction tax (MET)] increase (in the next 3 years the Company's MET payments would increase by 25%) would reduce the industry's investment and working capital and impair ability to sustain production levels in the future," Sechin said.

"These changes impede long-term investment planning and further implementation of existing projects," he said.

He also said Rosneft's financial results were negatively affected by the tightening of the Central Bank of Russia's (CBR) monetary policy.

"Since July, there have been progressive key interest rate increases that adversely affect the cost of financing for the Company, its suppliers and contractors leading to higher project costs and delivery time. It also affects our net income, which is the basis for dividends. The increases had an impact on the financial performance of the reporting period - in 9M 2023, interest expenses went up by 15% - and the compounded effect of CBR's key interest rate decisions will amplify this impact in the coming periods," Sechin said.

He also said that, amid the tightening of sanctions, with the introduction of ever new restrictions that have an adverse impact on Rosneft's activities, the CBR "has not yet created a reliable means for executing cross-border payments in different currencies, which impedes timely deposit of export revenue."