Economic Calendar

Thursday, September 18, 2008

Russia Cuts Oil Export Tax to Free Up $5.5 Billion

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By Lyubov Pronina and Greg Walters

Sept. 18 (Bloomberg) -- Russia plans to slash export duties on oil and refined products to free up $5.5 billion for companies after crude fell from a record, Finance Minister Alexei Kudrin said.

The government intends to reduce the tax on crude oil to $372 a metric ton from Oct. 1, Kudrin said at a meeting in the Kremlin today. The duty is currently $495.90 a ton and the Finance Ministry had said earlier this month it would be reduced by 2 percent from Oct. 1.

``This will compensate for a recent 25 percent decline in crude pricing,'' Renaissance Capital analysts including Alexei Moisseev and Maxim Raskosnov said in a note to investors. ``It will also help address the so-called Kudrin scissors problem, whereby oil companies are already operating in the lower oil price environment while the change in oil export tariffs has lagged.''

OAO Rosneft, the country's biggest producer, rose as much as 26 percent to $5.93 before falling back to $5.60 in London trading at 1:41 p.m. local time and OAO Lukoil, the second-biggest producer, advanced $4.20, or 7.9 percent, to $57.20. Moscow's stock exchanges will open tomorrow after being halted by the market regulator yesterday, Kudrin said.

Oil Products

Russia will cut the export tariff for light oil products to $263.10 a ton and for heavy products to $141.70 a ton, said Alexander Sakovich, deputy head of the Finance Ministry's customs department. The government normally revises the taxes every two months based on the previous two-month average price for the country's benchmark Urals export blend.

Urals crude peaked at $140.80 a barrel on July 3, and has fallen about 36 percent to $90.01 since then. Crude oil for October delivery rose as much as $2.84, or 2.9 percent, to $100 a barrel on the New York Mercantile Exchange today.

Lukoil will ask the government for additional relief by lowering fees to use state-run pipeline operator OAO Transneft and OAO Russian Railways, Interfax reported today, citing Chief Executive Officer Vagit Alekperov.

Russia's oil companies are losing money on crude production after a decline in prices pushed the market value of a barrel of Urals below the cost of getting the fuel to consumers and paying taxes, UBS AG said on Sept. 16. A company shipping crude from the Siberian city of Nizhnevartovsk would post an operating loss of $13 a barrel after costs and taxes are taken into account, UBS said.

To contact the reporter on this story: Greg Walters in Moscow gwalters1@bloomberg.net


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