Having a differentiated excise tax rate on oil products was the only economic incentive for Russian oils to invest in improving fuel quality. We estimate the total effect from the increase in excises on EBITDA 2013 to reach some USD 160mn for whole industry, with Lukoil and Gazprom Neft to be hardest hit. For Lukoil, we expect the total effect on EBITDA 2013 to reach some USD 70mn, while for Gazprom Neft it is USD 30mn.
Overall, we see this initiative as questionable as, on the one hand the government is giving oil companies an incentive to maintain and increase crude oil production, while on the other it is taking away previously granted incentives to improve oil product quality. It is thereby undermining the industry’s trust in the sustainability of government promises and the regulations which are already in place.