Oil exports succumbed to FOBs – Newspaper Kommersant No. 210 (7411) of 11/14/2022
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The entry into force of the EU embargo on Russian oil in December forced the Argus agency to radically revise the methodology for estimating the value of Urals, based on which the Russian government collects oil taxes every month. Instead of quotes in the ports of destination (CIF Rotterdam and Augusta), Argus will receive a FOB quote in Russian ports, and the value of the CIF quote (including freight and insurance) will be determined by calculation. The Ministry of Finance told Kommersant that for the time being they would use the CIF settlement quotation, while in the first quarter of 2023 they intend to discuss “the feasibility of switching to using other quotations.” According to analysts, the change in methodology will not have a significant impact on the amount of taxes.
The Ministry of Finance told Kommersant that they intend to use the existing Urals quotation based on CIF Rotterdam and Augusta (Sicily) in 2023 to calculate taxes, despite the entry into force of the EU embargo on Russian oil. Thus, to determine the level of MET, AIT, export duty on oil and reverse excise duty on oil for refineries, the “settlement” quotation of the Argus pricing agency based on the European market will be used, although Russian oil will hardly be officially supplied there (except for Hungary and Bulgaria, which have exceptions).
Argus on November 10 published a new methodology for calculating the Urals quote. Since Urals will officially stop coming to Europe, Argus will not be able to collect information about transactions on CIF bases in order to form a quote. Now the agency has launched FOB quotes in the Russian ports of Primorsk (Baltic) and Novorossiysk (Black Sea), and on this basis it will calculate CIF quotes for Rotterdam and Augusta by adding estimated freight and insurance.
The Ministry of Finance explained to Kommersant that “the CIF quote exists and continues to be published by Argus”, in 2023 its use will continue. At the same time, the Ministry of Finance, the Ministry of Energy, the Ministry of Economy and the oil industry will discuss the feasibility of switching to using other quotations in the first quarter of 2023, the ministry said, noting that “the safety and stability of tax and customs revenues is a priority in future work.” Argus and the Economy Ministry declined to comment.
Back in the spring, the Russian authorities discussed alternatives in case Argus refused to provide quotes due to sanctions, as Bloomberg and Reuters have already done. In particular, the use of indices of the SPIMEX exchange was considered.
The SPIMEX told Kommersant that the exchange had created and, in test mode, calculated a national export oil index based on data on over-the-counter transactions. “The method of its calculation, in contrast to the methods of foreign price agencies, is based on reliable and documented information about actually concluded transactions, and not on subjective survey data. In addition, the calculation base significantly exceeds the existing analogues of foreign price agencies and covers more than two thirds of export volumes. For example, in August, the calculation base amounted to 9.2 million tons (290 commodity lots), in September – 9.5 million tons (319 lots),” the SPIMEX said. They added that in the near future they would send the methodology for calculating the index for consideration by the Central Bank and the government.
In January, the EU accounted for 85% of total offshore oil exports from Russia, but already in September this share fell to less than 25%, while India accounted for 40%, Turkey – 21%, Argus notes. The main share of supplies to the EU, according to the agency, were shipments under long-term contracts concluded before June 4 (when the decision on the embargo was made in the EU), as well as supplies to LUKOIL refineries in Europe.
Argus has launched Urals Primorsk and Urals Novorossiysk quotations since October, said Sergey Kondratyev, deputy head of the economic department at the Institute of Energy and Finance. But before they were calculated, based on CIF quotes in Rotterdam and August (freight and insurance were deducted from them), and now they have become “real”, based on a survey of market participants.
According to Mr. Kondratiev, the change in the calculation of the CIF quote will not have a significant impact on the amount of oil taxes. If the Ministry of Finance decides to switch to FOB quotes, the formulas for the MET, export duty and other taxes will need to be changed so that there are no shortfalls in budget revenues. The problem, the expert says, may arise if Argus refuses to quote Russian oil in principle, but this did not happen even in the case of Iranian oil.
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