Economist Klepach predicted “losses and debts” for the Russian fuel and energy complex

It’s time for a major industry overhaul

Without serious financial investments and technological costs, the Russian fuel and energy complex (FEC) will slide to the level of mechanical engineering: it will face losses and debts. The chief economist of VEB.RF Andrei Klepach said this on the sidelines of the Russian Energy Week (REW). In his opinion, the growth of domestic demand does not compensate for losses from energy exports, and therefore, the time has come for a serious restructuring of the entire industry.

What awaits the Russian oil industry? How long will we receive significant export income and how will we continue to live with the reduction in “black gold” production? Experts sought answers to these and other questions during a discussion on the topic “Oil industry: budget donor or economic engine?” within the framework of REW at the Manege Exhibition Center.

The industry faces serious challenges, Andrey Klepach emphasized.

“The share of oil in GDP will fall,” he noted. – We cannot increase exports. According to our estimates, at first there will be a reduction in exports, then an increase, but I don’t think it will be serious: until 2030, about 20 million tons. Most likely, there will be a maintenance or decline in production, but not a clear increase. Domestic demand does not compensate for losses from exports. The industry is on the verge of a major restructuring. And these are serious technological costs and financial investments.”

According to the economist’s forecast, without a developed long-term policy for the population and business, the industry “will live the same way as mechanical engineering, roughly speaking, with losses and debts.”

“There is a lot of uncertainty with all the pricing rules. Collisions with diesel and gasoline showed that the system is vulnerable. Domestic prices are going up,” he continued. – We need to develop a long-term policy for the population and business. This will lead to sustainable investment in the industry. For long-term structural changes to occur, fundamental, long-term rules of the game are needed.”

In any case, the share of the fuel and energy complex in the country’s economy will decline. Klepac emphasized that it will still be large, but will decrease.

Meanwhile, the share of the fuel and energy complex in the country’s GDP, according to the Russian Ministry of Energy, increased to 27.1% in 2022 compared to 25.5% a year earlier. Now, according to Anton Rubtsov, director of the oil and gas complex department of the Ministry of Energy of the Russian Federation, the share of the fuel and energy complex in GDP is 27%.

He noted that one of the main tasks for the industry today is to increase production and emphasized the importance of the additional income tax (ATT). Let us recall that in 2019, one of the key reforms in the taxation of oil production in Russia was carried out – a new AIT was launched, which, as is commonly believed, made it possible to achieve a balance of interests between business and the state. The bottom line is that companies receive an incentive to invest in the development of new fields, and the state receives new tax revenues due to increased production.

“NDD is a tool that is needed to solve a number of problems,” Rubtsov said. “But we need to develop effective approaches to this type of taxation.” The representative of the Ministry of Energy believes that it is necessary to improve the efficiency of rent withdrawal, as well as to ensure that production potential is preserved and to determine how to fairly withdraw excess profits. In addition, investment incentives must be maintained. According to Rubtsov, the ADD obviously provides incentives to bring new facilities into development and maintain production, and this is a big plus.