Russia Boosts Gasoline Export Duty to Keep Fuel at Home

RIA Novosti reported that Russia will hike its gasoline export duty 44% from May 1 instead of an expected 34% to fight local fuel shortages.

The government said that the tariff, tied to international prices for gasoline, will stand at USD 408.3 per tonne instead of the previously planned USD 304 per tonne.

Mr Vadim Mitroshin an analyst at Otkritie bank said that gasoline exports will now make sense only for companies with refineries near the border. International oil and oil product prices have been boosted by unrest in the energy rich Middle East and local companies prefer to sell gasoline on the world market after the Russian government capped retail prices. The price regulations led to a deficit of gasoline in many Siberian regions and in the north of the country.

Mr Troika Dialog investment bank said in a research note that the rather kneejerk emergency measure to raise export duties comes in response to shortages on the domestic market. The shortages in turn were provoked by the government's insistence in February that oil companies freeze prices at the pump which incentivized them to export more of their gasoline.

Mr Troika said that Russian companies sent just about 8% of total gasoline production abroad in 2010, so the direct effect will be small but higher export duties should depress domestic prices. Gasoline price rises were reported across the country at between 2% and 20% this week and Mr Sergei Kudryashov deputy energy minister of Russia has said he expected a further 5% rise.

Mr Troika also questioned whether the government could cap domestic gasoline prices effectively as unlike diesel they are not necessarily an efficient tool to limit exports. In any case, the state has no one but itself to blame for the fiasco it coupled a doubling of the excise tax in January with arbitrary demand for gasoline price cuts in February and then was shocked, shocked to learn that shortages have sprouted. The havoc at the pumps in some regions shows that the current taxation system, heavily reliant on export duties and other revenue based sources is a spectacular failure.

He said that we have decided to insure against the difficult situation. We have agreements with a number of clients who have already paid for their gasoline and we are doing everything so they could continue using our services.

Mr Lev Snykov analyst of VTB agreed that the government was to blame and keeping a tight lid on gasoline prices had led to falling refining volumes. The current initiative is designed to bring export prices and domestic prices in sync. However, the measure only aggravates the discrepancy between the profitability of crude oil exports and refining operations.

He said that therefore, unless the companies are forced to run their refining operations at full capacity even if at a loss to them the deficit might well persist maybe in a less acute form.