Government continues considering increase in export duties for fuel oil
According to Interfax, Anton Siluanov, the Minister of Finance, has said that export duty on fuel oil might be raised from 66% to 75-80% as early as in 2014. He said that the ministry was considering the move because the planned export duty hike to 100% for fuel oil in 2015 will be tough for the sector, and a gradual increase might ease the transition. MinFin is also considering increasing the oil Mineral Extraction Tax (MET) by some 5%, as well as changing the pace of motor fuel excises tax growth. Ilya Trunin, the head of the tax policy department, clarified that increasing MET is a reserve plan in case the hikes in excise duties on gasoline and export duty on fuel oil are not introduced in 2014. He mentioned that MET rates would not be raised this year.
While the introduction of the 60-66 tax regime was a positive development for the oil industry, encouraging companies to invest in refining and increase production, the amendments to the initial plans of increasing export duties on dark products to 100% in 2015 has completely the opposite effect, in our view. We believe that the market will perceive the news negatively, as the increase in export duty for fuel oil to 75% in 2014 alone would reduce the EBITDA of major oil companies by some USD 2.5bn. The introduction of a higher MET rate would also squeeze the sector’s EBITDA by 1-5%, according to our calculations. Finally, we highlight the risk of a corresponding decline in production in the medium to long term.
Overall we believe that the news is strictly negative for Russian oil companies and that any development along this path would worsen the economics of the sector.
Dmitry Loukashov, Alexander Kirevnin, Ekaterina Rodina, Elena Kopylova
VTB Capital analyst
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