Russian tax reform to benefit oil and refined exporters, hurt petrochemical producers

02-Dec-14

New laws signed by Russian President Vladimir Putin are predicted to benefit Russian oil and refined product exporters while hurting domestic petrochemical producers and refiners, Moody's Investor Service said, as per Platts. However, to mitigate the impact of the expected higher feedstock prices, Russia is planning to refund excise duties to the petrochemical companies, Russian industry sources said. Export duties on crude and refined products are to be slashed by 50% over three years, while increasing extraction taxes 1.7-fold for oil and 6.5-fold for gas condensate. The new law is predicted to lower the tax burden on oil exporters 2-3%, with Rosneft, Lukoil and Tatneft anticipated to benefit the most, as increased production costs are more than offset by lower export duties. Domestic petrochemical producers will struggle to pass on increased costs as the government discourages above-inflation fuel price rises. The situation could worsen further if the ruble continues to depreciate, having lost 40% since the beginning of 2013, and extraction becomes more expensive. The so-called tax maneuver lowers the export duty on naphtha from 90% to 85% of the crude export duty. But to mitigate the effect of the lower duty, which will push the export netback up and subsequently domestic naphtha prices, the government will offer a refund to petrochemical users who use naphtha as a feedstock. Petrochemical users are already exempt from an excise duty on naphtha, but will receive a refund 1.37 times the amount of the naphtha excise duty in 2015 when they use it as a feedstock. Separately, they will receive refunds of the excise duty on benzene, paraxylene and orthoxylene at the amount of 2.88 times in 2015, when those are used for further downstream petrochemical production.