On-standby. What is waiting for the fuel market in 2019 © Business Petersburg

Excise taxes on motor fuel in Russia have increased by 2,8-4,1 thousand roubles per tonne since January, 1st. This decision of the Russian government has basically restored the level of excise taxes planned since July 1, 2018.

That way excise taxes on diesel fuels increased to 8541 roubles, on petrol to 12314 roubles per tonne. Besides, the VAT rate increased by 2% since January, 1. Officials are trying to convince motorists that the price hike is unlikely to happen. However, the experts interviewed by “DP” are not sure about this. “The rise in fuel prices is highly likely to continue, says Yaroslav Kabakov, the Strategic Director of the investment company “FINAM”. Yes, authorities can try to reduce it, but it is hardly achievable to significantly freeze the prices for a long time throughout the country. However, authorities might not set governmental price control as this can lead to its total deficit”.

The last stage of the tax maneuver in the oil industry, that introduced a negative excise tax for the largest refiners, started in January. In case more than 10% of raw materials are processed into fifth class commercial gasoline, the factory is owned tax deduction at the rate of 3 thousand rubles per tonne. In addition, a floating excise is introduced it will depend on world oil price volatility. Attempts to predict the  performance of the prices  at gas stations is akin to reading the oil market tea leaves, says Grigory Sergienko, the Executive Director of the Russian Fuel Union (RTS): “Officials themselves do not have a clear image of the way motor fuel pricing will develop in conditions of increasing VAT and excise taxes in addition to the simultaneous effect of freezing wholesale and retail prices. Russian governmental economic bloc is planning to get 1,6 trillion rubles (of the total 8 trillion rubles) from the fuel and energy sector by 2024 as a result of finishing the tax maneuver. Money is necessary to finance the President’s May decrees implementation.

 

Uncertainties of the future

However, while drivers are worried about their purses independent gas stations are worried about their existence. Last year turbulence made them short of money, reduced marginalization per liter and took a significant part of customers in the direction of vertically integrated firms. “2019 will be difficult. I think this year we develop a rational way to preserve this market so that vertically integrated firms and independent gas stations can exist. It will also be possible for everyone to earn enough. We are not expecting a sharp turnabout in prices. The established mechanism provides total control without letting to rising retail prices. Whether regulators succeed in making a profit of this industry or not is the question for 2019” hopes the President of St. Petersburg Oil club Oleg Ashikhmin. Grigory Bazhenov, the head of the Analytic Center of the IFU, is pessimistic about future forecasts for consumers. The high scenario entails fuel prices rising by 4,6%. “The main question is if the safety margin of the independent fuel market is enough. The Russian government is not ready to provide a complex fuel market reform and everything depends on the position of civil society. The independent sector hopes that drivers are interested in breaking the Russian cycle – oil prices are increasing – petrol prices are increasing, oil prices are decreasing – petrol prices are increasing.

Representatives of independent gas stations don’t know what will happen in the future. “This question cannot be answered while such uncertainty. The government has both extremely pessimistic and optimistic scenarios. There are control measures, but macroeconomic factors can influence the situation differently. Market players are on standby. We will be able to give some forecasts for our sector at best only in March”, says Leonid Churilov, first Deputy General Director of “PTK” (Saint-Petersburg Fuel company). Last August “PTK” concluded that the simultaneous rise of excise taxes and VGAT can cause the petrol price per liter rise by 4,4 roubles (approximately 10% from current price). “Taking into consideration the forecasts of various departments, next year’s driving season minimum inflation rate will be about 5%. As this is the benchmark for regulatory authorities we shall expect the minimum rise in fuel prices to be no less than that with preserving seasonal bursts during the driving season”, – assures Alexander Shkurin, Head of the Analysis and Marketing research Department in “Refininetiv”.

 

Pressure on the small ones

The next 6 years tax maneuver contains replacement (by 5% per year) of export oil duty with simultaneous mining taxes increasing. The first step in Russia is to equalize market conditions within the Eurasian Economic Union by 2025.

The next step is to compensate budget losses caused by 230 milliard roubles growth of subsidy support to oil companies. Independent oil producers resent these conditions subsidy support is absolutely useless without factories. Assoneft believes that because of the increase in met,  the tax independent oil producers will incur costs 5.7 billion per year more than usual. In short, this year will be full of surprises, says Viktor Kostuykov, the Director-General of JSK “RK Integrator”. “Oil market tax maneuver, taken by the authorities 3 years ago, is amended in an unpredictable way”. However, in addition to internal issues, there are external ones. At the end of last year, world oil was waiting for the outcomes of the OPEC+ talks. Ministers decided to reduce mining. In In the first half of 2019 23 OPEC countries will reduce the production of black gold mining by 1,2 million barrels a day. Russia has 1/5 of this amount of 230 thousand barrels a day. The only exceptions are made for Iran, Venezuela and Libya: the first two got it as a compensation for American sanctions, the third one – due to the difficult internal situation. Members hope that mining limitations will stop the fall in oil prices. «The key OPEC+ agreement for oil products will be in force in 2019. It might not last for the whole year, some countries might exit the agreement, but use it again in case of necessity to preserve the oil market stable – assures Yaroslav Kabakov. Not only the price rate will determine the oil market trends, but also maintaining the demand for oil. That will keep oil companies occupied and will let them plan the future and fulfill their obligations to partners”.

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