Russia to Pump More Oil, Cut Export Duty

Prime Minister Vladimir Putin announced long planned cuts in oil export duty to coax more production at stagnating Russian fields, but official disagreement on details showed the reductions may take time.

Putin gave officials two weeks to put the finishing touches on proposals that would reduce the coefficient used to calculate export duty to 60 percent from 65 percent, to boost output.

Russia is pumping at peak levels after reaching an annual record of 505 million tonnes (just over 10 million barrels per day) last year, but older fields are getting tapped out and incentives are needed to stimulate production.

"Last year Russia became the world's top oil producer," Putin said. "This is exactly the level of crude which allows us to cover our own needs as well as export requirements. This year we expect 508-509 million tonnes."

Speaking in London, however, Finance Minister Alexei Kudrin -- who has resisted tax cuts for the oil industry, especially in times of high oil prices, in favour of reaping windfall revenues for the budget -- said it would take time to implement the cut.

"The issue has come back to my ministry now and we are preparing conclusions," Kudrin said.

"We will hold another meeting," he said, adding: "On the whole we think the approach is correct."


DISAGREEMENT

Russia's oil companies say the new export duty regime --dubbed "60/66" as it cuts the crude duty to 60 percent, with oil product duties to be set at 66 percent of crude duty -- should be implemented as soon as possible so they can plan investments.

It is just one element of energy tax reform, with a more comprehensive reform of extraction taxes expected later.

But disagreement over the details of 60/66 -- particularly the oil product export duty -- went to the very top.

With harsh words for Russia's refiners, Putin spelled out an unexpectedly tough duty regime for fuel oil, a heavy product that requires further processing by sophisticated refinery units into gasoline and diesel.

Fuel oil has long been subject to a low rate of export duty, which has in turn encouraged refiners to produce large volumes of the straight-run product for export as a crude oil surrogate.

The 60/66 regime was designed not only to encourage crude production but to prompt oil companies to build more modern gasoline and diesel units, which would consume such residues.

Energy Minister Sergei Shmatko later contradicted Putin, saying the proposal was, as expected, to levy duty on exports of all oil products at 66 percent of the level charged on crude.

A deputy economy minister also spoke in favour of retaining temporary protective export tariffs to staunch a major gasoline deficit which has forced motorists to queue for petrol and pushed some petrol station chains to the brink of closure.

"We have one type of duty which was introduced not long ago, on gasoline and straight run gasoline, which is 90 percent of the crude duty," Stanislav Voskresensky told the meeting.

"In this situation, it must be retained."