Sechin criticized the Ministry of Finance for tax policy and the Central Bank for the key rate

Chairman of the Board of Rosneft Igor Sechin criticized the work of the Ministry of Finance and the Central Bank. Among other things, he accused the Ministry of Finance of mistakes that provoked a crisis in the domestic fuel market, and the Central Bank of not creating “reliable routes for the execution of cross-border payments in various currencies.”

Mr. Sechin’s comment is given in press release Rosneft based on the results of work for the third quarter and nine months according to IFRS. It notes the effectiveness of the company’s business model and lists the obstacles it faces.

“The company’s activities are greatly influenced by the constant changes in the industry’s taxation system. An undeveloped decision to reduce the damper provoked a crisis in the domestic fuel market in August-September of this year,” the commentary says.

Igor Sechin recalled that already in October the Ministry of Finance initiated further changes to “one of the basic parameters of taxation in the oil industry – the procedure for determining the price of oil for tax purposes.” The head of Rosneft called the reduction in the forecast differentials between the price of Russian oil and the price of Brent oil economically unjustified.

Mr. Sechin believes that the Ministry of Finance is “ignoring fundamental changes in the operating conditions of the country’s oil industry: the formation of new directions for the supply of Russian oil and approaches to its pricing.” He recalled that the agency continues to use for taxation “a price indicator that is irrelevant for Russia” – the Brent quote, and also proposes to use “virtual freight costs for no longer existing routes for the supply of Russian oil to Europe, without taking into account the cost of transport and other logistics costs, expenses for insurance, conversion costs, interest payments on borrowed loans.”

The head of Rosneft also does not agree with the differentiation of gas prices for different categories of industrial consumers. He said the initiative was implemented without a “comprehensive analysis of its impact” and without discussion with the industry. According to Mr. Sechin, this measure will lead to “an imbalance in the market and the creation of a gas shortage for socially important industries.” In addition, as the head of Rosneft said in a statement, an increase in the mineral extraction tax on gas will lead to “the withdrawal of investment and working resources from the industry and will reduce the ability to maintain production levels in the future.”

“All this significantly complicates long-term investment planning and the further implementation of already started projects,” the commentary says.

An increase in the key rate has a negative impact on the cost of financing, noted Igor Sechin. This leads to an increase in the cost and timing of projects and affects profits, which are the basis for determining dividends. Thus, over nine months, interest expenses increased by 15%, and “the delayed effect of the decisions of the Central Bank of the Russian Federation on the key rate will increase it in the coming periods.”

“I should also note the constant increase in sanctions pressure – in almost every round of sanctions, restrictions are introduced that negatively affect the Company’s activities. Since the beginning of the strengthening of sanctions, the Bank of Russia has not created reliable routes for the execution of cross-border payments in various currencies, which makes it difficult to timely credit export proceeds,” the commentary says.

Igor Sechin has headed Rosneft since May 2021 (in 2004–2011 he headed the company’s board of directors). He worked as Deputy Head of the Presidential Administration in 1999–2004, 2004–2008, and Deputy Prime Minister in 2008–2012.

Leonid Uvarchev