WEDNESDAY, NOVEMBER 7, 2012
VOLUME 12 ISSUE 44
Russia May Revisit Lube Export Tax
By Boris Kamchev
In response to industry complaints, a senior Russian official agreed that base oils and
lubricants should be exempt from the new export tax slated for 2015, and said he would look
at possible relief in the face of country’s slow-growing lubricants market.
Lukoil, the biggest Russian lubricants marketer, was the country’s first oil major to voice
industry concerns over export duties in a high-level note to the government that Lube Report
obtained last week.
“Lubricants are special petrochemicals supplied in almost every branch of the Russian
economy,” Vagit Alekperov, the company’s general director wrote in a September letter to
Energy Minister Alexandr Novak. “The lube production process is very complex, unlike other
products such as tar oil. And if export duties for these special petrochemical products
become equal to crude oil export duty rates, it could hamper the country’s economic
development.”
High production cost and low market value could harm lube production in Russia, which in
turn could stimulate competitors abroad, Alekperov continued. “On the other hand, the
federal budget couldn’t benefit substantially by the higher export tax on these products
because their export volumes are insignificant [compared to the other products such as
crude oil or gasoline]. Hurting their production could lead to their shortage in many domestic
industry branches and on the regional level,” he contended.
Changing the lubricants export tax code would change the company’s investment plans, a
spokesman for LLK International, the company’s lube arm, told Lube Report.
Currently there are at least 100 lube players in Russia. “The oils themselves are the most
competitive niche of the entire petrochemicals market,” said Maxim Donde, LLK’s general
director. “As a result [of the competition], in the last few years small regional market players
were eaten by the big lubricants producers.”
Lukoil’s letter was reportedly well received by the Energy Ministry, which supported the
company’s idea of calculating export duties under the current formula, which states that tax
should be equal to 66 percent of the crude oil export duty.
“The decision to slate lubricants for export duty increases is groundless,” Pavel Fedorov,
deputy energy minister, told a working meeting at last month’s opening of Shell’s new
blending complex in Torzhok, Russia. During the meeting Fedorov called for finished oils and
other petroleum products such as bitumen and coke not to be included the new export tax
code.
At the meeting, attended by Shell Neft's general director William Kozik and officials from
Lukoil, Gazprom Neft, Rosneft and other oil majors, the ministry instructed the oil majors to
file reports on their investment plans by mid October,so the ministry can later decide on
possible export duty privileges. The ministry did not respond to Lube Report’s inquiries about
the reports.
Moscow legislators last year introduced a flat export duty for petroleum products such as
bitumen, fuel oil, tar oil and vacuum gas oil, as well as base oils and lubricants. The
government increased the export duty from the current 66 to 100 percent of the crude oil
export duty, effective by 2015. The export duty for many petrochemical products, including
lubes and base oils (but excluding gasoline, which stays at the current 90 percent of crude
oil’s export duty) will be equal to the crude oil export duty.
Attracting investment in petrochemical production is Russia’s main priority to help develop
the oil refining sector. “Investment can solve problems related to import dependency, and will
create such conditions that our oil refining industry could supply high-value added products
not only to Russia but to international markets as well,” Fedorov said at last month’s meeting,
Russia’s engine oil market will grow 2 to 3 percent annually supported mainly by the growth
of good and premium quality products, according to Shell Neft, which manages operations
for the Anglo-Dutch oil major.
Development of Russia’s lubricants market is defined by three interrelated trends, Kozik told
Lube Report. “First, is increasing sales of synthetic lubricants compared to the minerals. In
2011 the share of synthetics and semi-synthetics grew by 30 and 8 percent, respectively,
compared to the year before. While last year mineral oils sales slumped by 25 percent,
compared to 2010.”
Motor oils sales in Russia are triggered by increases of vehicle population and increased
imports of finished products. “In fact, this car replenishment is basically driven by new
automobiles, which all use high quality lubricants,” Kozik said.
The third trend is related to a steady growth in the share of imported oils on the Russian
market. “According to our estimates, the share of imported motor oils in 2011 grew by 70
percent of total imported oils into Russia.”