Russia Said Near Oil Tax Plan That May Cost State $6.6 Billion

Russia has started work on a final three-year oil tax plan that may cost the state as much as 240 billion rubles ($6.6 billion) in favor of producers next year, according to two state officials.

Deputy Prime Minister Arkady Dvorkovich is leading a meeting today to decide on tax rates on oil production, choosing between two proposals that will cut revenue by 185 billion or 240 billion rubles, the two officials said, asking not to be identified as the information isn’t public yet.

The government, which gets 45 percent of its revenue from oil taxes, is trying to balance the interests of producers and the budget as the $2 trillion economy faces the threat of recession amid a standoff with the U.S. and Europe over Ukraine. Russia will also have to cut some export duties to bring them in line with Kazakhstan, one of its two customs union partners.

While the Finance Ministry published a draft with the higher output tax rates for 2015 on a government website today, both options will be discussed with Dvorkovich, the officials said.

State-run OAO Rosneft, which pumps 40 percent of the nation’s oil, may boost earnings before interest, taxes, depreciation and amortization by about $1 billion next year because of the new tax plan, the officials said.

OAO Lukoil, Russia’s second-largest oil producer, may also add about $1 billion to Ebitda, oil analysts at VTB Capital in Moscow said in an e-mailed response to questions.

Refined Products

To comply with Kazakhstan’s tax rates, the government in Moscow has to lower export duties on crude and refined products. The rates will continue to decline in 2016 and 2017, except for fuel oil, which will rise to 100 percent of the crude oil tax by the last year of the plan.

A plan, approved in 2013, calling for the fuel oil duty to reach 100 percent next year, would have been a shock for the industry, which still produces a significant amount of heavy products, another government official said.

As well as increasing the extraction tax and lowering most export duties, the three-year plan will also cut gasoline excises to prevent jumps in domestic prices.

Russia’s finance and energy ministries have been trying to reach a compromise on the rates with oil producers since at least May.

“The discussion over the new tax regime for the oil industry is gathering steam and, with half a dozen different proposals, the final shape is starting to crystallize,” Alexander Donskoy, an oil analyst at VTB Capital, said by phone.

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