According to Vedomosti, at yesterday’s meeting with Deputy Prime Minister Arkady Dvorkovich the government discussed an additional increase in the excise duty for Euro-4 and Euro-5 fuels in 2014-15 in order to compensate for the drop in income from the road fund. The decision is to be made by the end of September.
We reiterate our view that this development is negative for the Russian oil sector. The lower excise on Class 4 and Class 5 gasoline were the only stimulus for oil companies to invest in quality projects. It was one of the cases when the government created an economic incentive to invest in refining depth and quality, and proved to one of the most efficient, from our point of view. Were it to be cancelled, we believe the investment climate and overall confidence in the predictability of the Russian tax system would be substantially undermined (given that the majority of the investments are already in place). We see this development as negative for the Russian oil sector's long term fundamentals, but do not expect any short-term movement in stock prices.
Dmitry Loukashov, Alexander Kirevnin, Ekaterina Rodina, Elena Kopylova, Mikhail Zarkhi
VTB Capital analyst
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