The government approved the introduction of a protective duty on fuel exports

The Government Commission on Energy Development and Integration approved the introduction of a protective export duty on gasoline and diesel fuel, for the supply of which to the domestic market, manufacturers received payments on the damper, the press service of the Ministry of Industry and Trade reported on November 21. The corresponding protocol was signed by First Deputy Prime Minister Andrey Belousov.

The report says that, in accordance with the decision of the subcommittee on customs-tariff and non-tariff regulation, protective measures in foreign trade, the formula for calculating export duties on petroleum products will include a mark-up factor of 20,000 rubles per ton, which will be applied to exporters who do not produce petroleum products .

“The decision made will make it possible to exclude the export of certain categories of oil products if their manufacturer has already been reimbursed for the damper in connection with the sale on the domestic market,” the Ministry of Industry and Trade explained.

The proposal to introduce a protective duty on the export of petroleum products from January 1, 2023 became known on November 15. Then the Deputy Minister of Finance of the Russian Federation Alexei Sazanov told Interfax that the Ministry of Finance had sent a draft resolution on the introduction of such a measure to the departments for approval. In October, Sazanov said that those who buy oil products on the domestic market with a damper and export them are engaged in “tax optimization” and called this unacceptable. According to him, various options for combating this were discussed, but the option of restricting exports was not considered.

On November 9, the head of the FAS, Maxim Shaskolsky, called for the introduction of foreign economic mechanisms to limit the export of diesel, for which damper payments have already been received. He noted that the wholesale price of gasoline since the beginning of the year has decreased by 30%, while the price of diesel fuel on the stock exchange has been growing for some time, but now it has “slightly decreased”.

The oil damper mechanism was introduced in Russia in 2019 to keep domestic fuel prices down. If the export price of gasoline and diesel fuel is higher than the price on the domestic market, then the state compensates oil refineries (ORs) for part of this difference in order to encourage them not to raise prices in Russia. Otherwise, oil companies transfer part of their excess profits to the budget. In the summer of 2022, the mechanism was adjusted – from September 1, when calculating the damper, until the end of 2022, the discount for Urals to the reference Brent began to be taken into account. On November 21, Russian President Vladimir Putin signed a law extending the adjustment until 2025.

Russian companies began to export oil at a discount to Brent after the start of a special military operation (SVO) and the introduction of anti-Russian sanctions. In March, the US and the UK imposed a total embargo on fuel from Russia. The EU sanctions will come into force on December 5 for offshore oil supplies, and on February 5, 2023 for oil products. At the same time, the G7 countries (G7, includes the UK, Germany, Italy, Canada, the USA, France and Japan) and the EU countries plan to introduce a ceiling on prices for oil and oil products from the Russian Federation. Its level has not yet been established. At its peak, the discount level for Urals approached $35/bbl, and in autumn it stabilized at $25/bbl.

As a result, oil companies from Russia had to redirect supplies of oil and oil products from Europe to Asia. If China, India and Turkey began to actively buy oil, then the supply of oil products from Europe was redirected to the domestic market of Russia (Vedomosti wrote about this on November 9). As a result, deliveries to the Russian market over the 10 months of 2022 increased by 30% year-on-year and amounted to 41.6 mmt.

According to the head of the Energy Development Center, Kirill Melnikov, large damper payments in 2022 and difficulties with oil exports have led to the fact that it has become profitable for producers to load plants to the maximum, despite low prices in the domestic market. At the same time, large volumes of oil products production put additional pressure on prices in Russia, which led to their even greater decline, Melnikov notes.

Finam analyst Sergei Kaufman believes that the optimal moment for the introduction of a protective duty has already passed, because payments on the damper have normalized due to lower export prices and adjustments to the mechanism. Kirill Rodionov, an expert at the Institute for the Development of the Fuel and Energy Complex, draws attention to the fact that against the background of the EU embargo, additional restrictions on the export of petroleum products look redundant. Melnikov, on the contrary, believes that the protective duty should help stop the “grey” export of oil products from Russia. If the difference between world fuel prices and prices within the Russian Federation begins to grow, then the duty will have to be increased, he notes.

According to SPIMEX, wholesale prices for diesel fuel in the domestic market fell from 65,600/t in January to 57,000/t in August. As of November 21, diesel fuel prices increased to 63,000/t. Wholesale gasoline prices from January to August decreased from 50,000-52,000/t to 44,000-51,000/t. As of November 21, AI-92 gasoline cost 34,679/t, AI-95 – 38,514/t.

Kaufman notes that in the spring of 2022, damper payouts were abnormally high, “which probably made this scheme especially profitable.” Rodionov clarifies that payments for the damper for oil products for 10 months of 2022 were three times higher than for the whole of 2021 and amounted to 1.9 trillion rubles. The increase in payments was affected by an increase in the export alternative, he explains: the price of gasoline for delivery in North-West Europe in October 2022 was 23% higher than in October 2021 ($949/t vs. $770/t), and the price of diesel – 47% higher ($975/t vs. $662/t). At the same time, there is a real export alternative only in the diesel fuel segment, Rodionov notes, since in 2021 Russia exported 50% of diesel produced (40.3 million tons) and only 10% of gasoline (4 million tons).

Rodionov believes that in the face of sanctions on the oil industry, Russia needs a tax compromise. For example, the authorities can reduce excises and abandon export restrictions in exchange for the elimination of some indirect support mechanisms that are difficult to administer, the expert adds. The excise tax on eco-class K5 gasoline increased from 5,530 rubles/t in 2015 to 13,793 rubles/t in 2022, while the excise tax on diesel of the same class increased over this period from 3,450 rubles/t to 9,556 rubles. /t, Rodionov noted.

Vedomosti sent inquiries to the Ministry of Energy, the Ministry of Finance, the Ministry of Economic Development and large oil companies.