Russian oil industry to pay for the roads

Russian business daily reported that the Russian Ministry of Finance discovered a combined deficit of 108.7 billion rubles (USD 3.5 billion) in the Federal and local road infrastructure funds. The deficit is a consequence of tax incentives provided to the oil refining industry – in order to stimulate the sales of ecologically friendly fuel, the Government set the excise duties for higher-quality fuel lower than the duties for low-quality fuel. As both the oil companies and consumers switched to higher-quality fuel faster than the Ministry of Energy predicted, the overall revenues from excise duties fell.

The deficit will primarily affect the local authorities, as more than 70 percent of their road infrastructure funds depend on excise duties. The Ministry of Finance considers tackling the deficit by increasing the duties on higer-quality fuel, but that won’t be enough to solve the problem. Therefore, the Minister of Finance Anton Siluanov proposed to modify the oil export duties and increase the mineral extraction tax by approximately 5 percent. According to Raeffeisenbank’s analyst Andrey Polischuk, given the price per barrel of USD 100, the latter measure would increase the mineral extraction tax to approximately USD 22 per barrel and bring additional USD 3.6-3.7 billion in taxes. An increase in oil export duties is already projected in the budget and is not sufficient to fix the road infrastructure funds deficit by itself.

The mineral extraction tax accounts for 18.8 percent of the federal budget; oil companies contribute 88 percent of the total mineral extraction tax collections, while the gas industry adds another 10.6 percent. Representatives of several large oil and gas companies were not available for comments on the proposed measures to close the road infrastructure financing gap. Analysts find frequent changes in tax policies to be irresponsible and damaging, as well as not entirely reasonable. An interesting argument is provided by one of the local experts, who considers it strange to dedicate a percentage of the total mineral extraction tax revenues to a particular purpose, as they were always used arbitrarily, as a general budget income. However, with the oil and gas sector playing a dominant role in the economy, the Government’s only option seems to be to increase its reliance on oil and gas revenues even further.


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