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Oil becomes a hard-to-get thing in oil-rich Russia

April 29, 2011, 10:15 UTC+3
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MOSCOW, April 28 (ITAR-TASS) - For overcoming the gasoline crisis that has developed on the Russian market the government has published a set of prompt administrative, tax and regulatory measures concerning the fuel industry.

At a meeting of the Cabinet's presidium Prime Minister Vladimir Putin today ordered increasing as of May the export duties on oil products. Thereby the government guaranteed the fulfillment of the agreements the Ministry of Energy achieved earlier in the day with the largest oil companies to suspend the export of petroleum products in May.

"As of May this year, please, prepare a proposal for raising export duties on petroleum products to ensure the economic parameters of export and of the sale of goods on the domestic market should be appropriate," Putin told the participants in the meeting. He also proposed creating a register of all sales divisions of fuel companies.

"We need a list of retail companies, including independents. It is necessary to develop a relationship that would give the regulators full information about what is happening there," he said.

Another significant innovation, announced by the prime minister, was the proposal to shift the deadlines for the transfer of Russian oil refineries to more environmentally friendly fuel quality standards Euro-3 and Euro-4.

"We need to move as far as the dates are concerned," said Putin. "Naturally, we must move to Euro-3, and this movement will not be stalled, but as for the deadlines, they should be compared with our arrangements with Belarus and Kazakhstan," he said.

As Deputy Energy Minister Sergei Kudryashov said, "today the partners in the Customs Union offer slightly different conditions (for the introduction of Euro-3 and Euro-4) - in Belarus there are no restrictions, and Kazakhstan asks for introducing Euro-3 in 2014 and Euro-4, from 2015.

Despite the fact that Russia is lagging behind the partners in the G8 by this parameter by about five years, Putin said he was prepared to sacrifice part of the previous government decisions to synchronize them with the capabilities of the partners in the Customs Union - Kazakhstan and Belarus. Europe since 2005 has had the Euro-4 standard, which reduces emissions by 65-70 percent as compared to Euro-3, and on January 1 this year in the U.S., Japan and the EU there entered into force the Euro-5 standard. The Russian government will have to reverse the already effective technical regulations on gasoline that outlawed all fuels below the Euro-3 standard, including the most massive 92-octane fuel.

The problem of the unexpected consumer crisis, this time called as "gasoline shortages" is largely linked to the struggle around the 92-octane gasoline, whose share in the total volume of gasoline produced in Russia in 2009 amounted to almost 65 percent.

A possible delay in introducing the technical regulations may hit the export plans of Rosneft, and to some extent, LUKOIL, which after the meeting at the Ministry of Energy said that a temporary ban on the export of gasoline from Russia would not harm them. At Rosneft Itar-Tass was told that a ban on exports would not affect it, because all high-octane gasoline it was making was being supplied only to the domestic market, and all Euro-2 standard gasoline, prohibited in Russia, was meant for export.

In turn, the press service of LUKOIL said that the company exported only 92-octane class 2 gasoline. Last year LUKOIL did not produce it at all, and in this year's first quarter it produced 44 thousand tonnes, while in the second quarter it had no plans for its production at all.

Along with these measures, the prime minister instructed to ensure coordination of their implementation with the repair work that is in progress at Russian refineries. Amid reports of dwindling supply of gasoline due to transfers of large quantities of 92-octane gasoline for export to the CIS countries and the suspension of four major refineries for repairs Putin addressed the deputy head of the Ministry of Energy with this remark: "As for the state-owned oil companies, I am asking you and the companies to revise the upgrade work schedules."

The government plans to compensate for all these obviously painful measures with tax cuts. Putin said that while raising export duties on petroleum products the government would reduce the tax on mineral resources extraction and excises duties for oil companies. He acknowledged that "the increase in export duties is, of course, building up pressures on oil companies."

"I am asking the Economics Ministry and Finance Ministry to take a look at the issue of a possible adjustment of the tax burden on the oil sector," said the prime minister. "There may be an adjustment associated with a decrease in mineral resources production tax or excise duties," Putin added.

Later, the prime minister's spokesman Dmitry Peskov found it difficult to explain when oil companies might expect the promised tax benefits.

"This is probably going to happen in 2012, but theoretically it is possible earlier. It is difficult to say exactly," Peskov replied.

In addition to the anti-crisis measures announced at the meeting of the government's presidium, the Cabinet is ready to expand stock-market trading in oil products. Starting from this year Russian oil companies are obliged to sell 15 percent of their output in this way. Moreover, as the leadership of the St. Petersburg International Commodity Exchange has recognized, in the first months of this year regional traders did not purchase the volumes offered for sale by larger companies seeking to obtain fuel at lower prices through the sales and distribution divisions of vertically integrated oil companies. With the emergence of signs of shortages in April the situation changed dramatically and demand exceeded supply 200 times.

The crisis began last weekend in the Altai Territory, where occurred oil products shortages, and then most independent fuelling stations had to close down, as their tanks had emptied. On Monday and Tuesday gasoline shortages were felt in almost 20 regions. But, after the adoption of urgent measures, as it was announced at the meeting at the Ministry of Energy, the fuel crisis eased. On Thursday only three of ten regions surveyed in the distance conference said they still had significant problems gasoline supply.

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