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Oils – Dvorkovich opposed to sharp changes in oil taxes

Vedomosti reports that Arkady Dvorkovich, Deputy Prime Minister of Russia, yesterday agreed not to sharply raise taxes for the oil sector in Russia. The paper writes this idea was likely pushed by Rosneft. The company proposes slower MET growth (to RUB 620/t by 2018 from RUB 493/t now and vs. the RUB 920/t suggested by MinFin) and export duty for fuel oil growth (vs. 100% starting 2015 planned now) coupled with the sluggish crude export duty change (from 51% in 2015 to 45% in 2018 vs. 60% now). A government representative commented that the budget might lose RUB 300bn because of this initiative, stating that it is not acceptable for MinFin. MinFin and MinEnergo are to come up with their new proposals with regards to the oil sector tax changes within a week.
In our Tax Maneouvres – Episode III – the Phantom Menace of 30 May we wrote of potential further discussions of tax changes in the Russian oil sector and their imminence this year. While we discussed the harshest MinFin version in the note, we suggested that the government would most likely opt to choose a more graceful way to change the taxation. Nevertheless, we think any changes to current regulations would be negative for the sector (e.g. normalised for macro and operations, gradual changes to the industry’s tax regime, in fact generated some USD 7.9bn for the budget from 2010 to 2013 despite government claims that the taxes were just reshuffled). Most likely, we will see more different tax change proposals later this year, so it is difficult to estimate the final impact on the sector, but we think that the most efficient players with a greater exposure to downstream (refining and non-core activities, e.g. bunkering) would suffer the most, i.e. Bashneft and Gazprom Neft, to a lesser extent Lukoil and Rosneft. The companies biased to upstream might be relative winners given that the general trend of the tax manoeuvre is to balance upstream taxes, putting more of a burden on downstream.
Dmitry Loukashov, Ekaterina Rodina, Elena Kopylova, Alexander Donskoy
VTB Capital analyst


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