According to Vedomosti, Sergey Shatalov, the Deputy Minister of Finance, has argued that the current gasoline prices are groundless. He also said that the federal antimonopoly service needs to look at this problem more closely. Shatalov pointed out that some 70% of gasoline and 50% of diesel sold domestically are of the Euro4 and Euro5 class, which is a reason for the lower excises payments. Therefore, this should be the reason for the respective decline in retail prices, the Deputy Minister of Finance said.
Initially, the lower excises for Euro4 and Euro5 motor fuels were the main reason for the investments of Russian Oil companies in quality upgrades. As of now, the majority of these upgrades are already in place or have passed the point of no return. Thus, any changes in excises or limitations on domestic prices are set to materially affect the economics and financial justification of these projects. Even more importantly, it would do it post factum, raising additional questions as to the stability of the Russian fiscal regime. Overall, the continuous pressure of governmental bodies, applying to increase excises or to decrease retail prices, decreasing retail margins, is negative both for the Russian Oils’ financials and for the investment climate in general.
Dmitry Loukashov, Alexander Kirevnin, Ekaterina Rodina, Elena Kopylova
VTB Capital analyst
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