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Oils – potential tax manoeuvre might decrease the number of refineries in Russia


The potential tax manoeuvre might decrease the number of profit-making refineries, the majority of which are independent, writes Vedomosti. Plants with low refining depth are to suffer the most due to higher export duties on dark products.

To recap, the Ministry of Energy recently reported that the potential tax manoeuvre might mean that four of Rosneft’s refineries (Komsomolsky, Ryazansky, Saratovsky and Achinsky) as well as Surgutneftegas’ Kirishi become loss-making.

As detailed in our Russian Oils: Tax manoeuvre — Snatch, Turkish and Tommy, of 30 June, in refining, the growth in crude netback would mean more expensive feedstock for domestic refineries. However, assuming a netback pricing mechanism, the profitability of upgraded refineries would improve unless the government visibly limits gasoline and jet fuel prices' corresponding adjustment.

Based on our company models (all macro and operating assumptions intact), we calculate that the proposed changes to oil sector taxation (ex-income tax) amount to USD 5.0bn, USD 7.5bn and USD 8.0bn of incremental additions to the budget in 2015–17, respectively. At the same time, we estimate that the EBITDA of the top seven oil majors would increase USD 3.5bn, USD 1.4bn and USD 3.4bn in the respective years, compared with our current forecasts. This surprising contradiction — the simultaneous increase in sector profitability and growth in tax collection — can be explained by the fact these potential tax changes are to be sponsored by third parties. That is first and foremost Belarus, independent refineries, other buyers of crude oil condensate and, of course, the consumers of gas oil in Russia, as well as independent bunkering and jet fuellers.

Given that the paper recaps what has already been stated earlier, we do not expect any market reaction in the oil names. We remind investors that MinFin expects to reach an agreement with the oil companies on the upcoming changes in the tax regime for the industry by the end of July.

Dmitry Loukashov, Ekaterina Rodina, Alexander Donskoy,Kirill Sharikhin, Ekaterina Kataeva
VTB Capital analyst

oil, Russia

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