Coal in the tax context – Newspaper Kommersant No. 61 (7506) dated 04/10/2023

As Kommersant has learned, coal companies this year may face another increase in the tax burden. The Ministry of Finance is considering an increase in the MET in the fourth quarter in case of good financial results of market participants in January-March. At the same time, the state does not plan to introduce export duties on coal. According to analysts, the profitability of coal miners is falling, and at least thermal coal producers are unable to pay the increased MET.

The Ministry of Finance is considering the possibility of increasing the mineral extraction tax on coal in the fourth quarter, Kommersant was told in the press service of the ministry:

“We continue to monitor the situation in the coal industry. If the first quarter shows good financial results, we will offer an increased MET for the fourth quarter, rather than the introduction of export duties.”

The representative of the Ministry of Finance added that the introduction of export duties on coal “is not currently being considered.”

In recent years, the Russian government has several times increased the tax burden on the mining and metallurgical industry in general and coal miners in particular. Since the beginning of 2022, the MET on coking coal (used in metallurgy) has been linked to the global market: the rate is set at 1.5% of the average coal price in accordance with the SGX TSI FOB Australia Premium Coking Coal index, while previously a fixed in the amount of 57 rubles. per ton. At the same time, the idea was discussed to introduce export duties on coal, including energy, if the price exceeds $150 per ton at the port of shipment. As a result, tax revenues from the Russian coal industry doubled in 2022, to RUB 360 billion.

In 2023, taxes also increased, but temporarily: from January 1 to March 31.

The mineral extraction tax for anthracite, coking and thermal coal increased to 380 rubles. per ton, which should have made it possible to additionally attract 30 billion rubles to the budget. Deputy Finance Minister Alexei Sazanov emphasized that in this case, coal miners would be exempted from paying a one-time fee to the budget, which threatens all Russian companies with pre-tax profits of more than 1 billion rubles. in 2022. The details of the collection and its final amount have not yet been approved, but in mid-March, Finance Minister Anton Siluanov spoke about 300 billion rubles.

The coal companies do not comment on the plans of the Ministry of Finance for a potential increase in the tax burden. Since almost the entire industry has stopped disclosing financial statements, the financial position of companies can only be judged by rare statements and statistics from Rosstat.

Thus, according to the results of 2022, Raspadskaya, which produces coking coal, reduced EBITDA by 3%, to $1.3 billion, and revenue increased by 35%, to $2.8 billion, which is explained by changes in the terms of delivery and an increase in coal prices. According to Rosstat, the net profit of coal companies in 2022 increased by 10%, to 821.1 billion rubles. However, the share of profitable companies decreased to 67.3% against 70.6% a year earlier. In January, the balanced profit fell by 62.7% to 39 billion rubles, while the share of profitable companies fell immediately to 58.4%.

By raising taxes in 2022 and in the first quarter of 2023, the Ministry of Finance hoped to withdraw the excess profits of coal companies formed as a result of a sharp increase in prices in 2021–2022.

However, in reality, Russian coal miners, as a result of the outbreak of hostilities in Ukraine, were not able to take full advantage of the situation.

A significant discount has formed on their products relative to world benchmarks (already reaching 50% in April 2022), railway tariffs and freight rates for bulk carriers have increased. In addition, in 2022, the profits of companies were negatively affected by the strengthening of the ruble. And although the ruble has now weakened to 2021 levels and even exceeded them, global coal prices have also fallen.

Now there is no need to talk about the financial well-being of the industry, and the prices for steam coal are declining at all major sites, Sergei Grishunin from the NRA notes. In Europe, where last year there were record prices, now coal has fallen in price to $135-140 per ton, in China it costs about $160 per ton. According to the analyst’s estimates, taking into account the increased cost of freight, insurance and discounts, under the current market conditions, Russian coal miners can have a margin of up to 5-10% EBITDA when exporting to the east and 2-4% to the south. Taking into account the need to repay loans, there are “no opportunities for growth in the severance tax,” Sergei Grishunin believes. Coking coal suppliers to the east are in a slightly better situation: they can count on margins of up to 20-30% for deliveries to China and 10-15% for deliveries to India.

Evgeny Zainullin