23 Jan 2024 09:33

Russian regulator proposes to calculate oil transport cost for mineral extraction tax using Argus data

MOSCOW. Jan 23 (Interfax) - Russia's Federal Antimonopoly Service (FAS) has presented a method for calculating the transportation cost for oil that will be used to determine the mineral extraction tax (MET) on crude.

Pricing of Urals crude for the MET on oil changed as of January 1 because price index provider Argus is stopping publication of quotes for Urals in northwestern and southern European ports (CIF basis). Only quotes in Russian ports (FOB) will remain.

"Therefore, we are switching to quotation of oil at Russian ports - the Argus FOB quote, increased by the cost of transportation to ports in northwestern and southern Europe, determined according to a procedure established by the Russian government, but not less than $2 per barrel," Deputy Finance Minister Alexei Sazanov said earlier. The price of transportation to European ports, to which Russian oil has not been shipped since December 2022, will be calculated according to the method of the FAS or be set at $2 per barrel in its absence.

In the draft method posted on the website for draft legislation, the regulator proposes to determine the cost of transporting Russian oil to European ports using data calculated by Argus (tanker charter rate; icebreaker fee in Primorsk; for oil offloaded from Novorossiysk, demurrage in Turkish straits, etc.; port fee in Rotterdam; and cost of insurance, consisting of the cost of insuring cargo in the amount of 0.03% of the FOB Primorsk price and insurance premium for military risks).

The Urals price for calculating taxes for the time being will be the higher of two figures: the Brent price with a certain discount or the Urals price at Russian ports plus the cost of transportation to European ports. Starting in 2025 or sooner, there might also be the St. Petersburg International Mercantile Exchange (SPIMEX) quote, the method for calculating which is still in the works. After the SPIMEX quotation is launched, the cost of transportation to European ports calculated according to the FAS method will also be added to it.

The bill stipulates the reduction of the Urals discount to benchmark Brent in the calculation of oil taxes, projecting that it will be $15 (forecast) for 2024, $10 (forecast) for 2025 and $6 (forecast) for 2026. The amount of the maximum discount of $20 per barrel is also stated as a forecast.

Argus data showed that the Urals discount to Brent was about $14 per barrel in mid-December.

Since April 2023, the MET on oil has been paid based on the actual price of Urals crude (calculated by Argus on CIF basis, but not less than the Brent price minus a certain discount, which was $34 per barrel in April, $31 in May, $28 in June, $25 in July and $20 from September 1).

The Russian government has the right to increase the forecast discount for the period of 2024-2026 to a maximum of $20 per barrel.