The Ministry of Finance has suggested lowering the oil export duty beyond 2018 and cancelling it by 2025, according to Ilia Trunin, the Head of the Tax Department at the Ministry of Finance, Vedomosti reports.
The potential further lowering and cancelling of the oil export duty would lead to an increase in the oil netback, which would improve the economics of the upstream sector but increase costs for the downstream sector. This could also lead to an increase in the prices for oil products domestically, we think. It is unclear if the MET would be increased to compensate for the decreased tax payments to the budget as a result of the lower export duty, as it is currently stipulated by the tax manoeuvre which is effective from 1 January 2015.
Currently, Bashneft and Gazprom Neft have the highest exposure to the refining segment, which could potentially suffer, while Surgutneftegas and Tatneft have greater exposure to the upstream segment, which might benefit. However, it is hard to assess the impact on oil companies’ financials of any potential changes in tax legislation, as the parameters are still to be defined. Therefore we see the news as neutral for oil names at this moment.