Treasury considers pegging oil taxes to Dubai instead of Brent with lower discount
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State Secretary, Deputy Minister of Finance Alexei Sazanov told Vedomosti on possible options for changing the principle of calculating taxes on oil revenues with the linkage of the price of the Russian grade Urals to foreign brands. According to him, a decrease in the maximum maximum discount to Brent and linkage to the Dubai quotation is being considered, but with a decrease in the discount when determining the price of Urals for tax purposes. As Kommersant reported, Rosneft had previously proposed linking the settlement to Dubai.
The Ministry of Finance calculates the amount of taxes on the sale of Urals at the market price of the reference grade, reduced by the amount of the discount. Since July, the maximum discount for Urals to Brent for tax purposes is $25 per barrel.
The first option that the Ministry of Finance is considering is reduction of marginal discount to Brent from $25 to $20. As Mr. Sazanov noted, the decision has not yet been made and, “accordingly, the date when this new price limit may begin to operate has not been determined.”
The second option is binding to Dubai. The Ministry of Finance is ready to start discussing this option in the fall. The deputy head of the Ministry of Finance, however, notes that the size of the marginal discount should be less than to Brent. “For example, instead of the current discount to Brent $25, you can consider Dubai minus $20 or $21. Or instead of the currently discussed Brent minus $20, the discount to Dubai should be $15–16, respectively,” Mr. Sazanov said.
The Deputy Minister noted that the Ministry of Finance will not support the transition to Dubai without changing the discount, because this will lead to a decrease in budget revenues. However, the department is “open to proposals from oil companies or the Ministry of Energy on the possible amount of the discount.” “But so far, the Ministry of Finance has not received proposals from them on the size of the discount to the Dubai quote,” added the deputy head of the Ministry of Finance.
Vedomosti’s source, close to one of the oil companies, considers reducing the discount to Brent a simpler option. However, it can lead to “endless discussions, because the size of the discount will have to be constantly reviewed.” He considers the link to Dubai to be more correct, although more complicated. “In terms of meaning, this is a more correct option: this variety is closer to Urals in terms of characteristics and sales markets,” the agency’s interlocutor explained.
According to Kommersant’s information, in May, Rosneft proposed to the government to use the quotation of the Dubai variety instead of Brent when calculating the MET and export duty. The reason is that the main flows of Russian oil are now redirected to Asia, where Dubai is mainly traded, while the European Brent grade is poorly represented. Rosneft itself has already switched to linking to Dubai for the supply of Urals. The Ministry of Finance is “working through” this idea.
Read more about Rosneft’s proposal in Kommersant’s article “Dubai is like oil”.
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