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Tuesday, August 22, 2017

VTB analysts predict tax changes could affect Russian oil

Amendments under consideration for Russia's already implemented tax scheme could have significant effects on Russian oil companies, four analysts from VTB Capital said on Tuesday.

Elena Kopylova, Ekaterina Rodina, Alexander Kirevnin and Dmitry Loukashov made the statement following a report on the potential amendments in Vedomosti, a Russian language business daily. The analysts said the tax changes would be perceived negatively in the sector.

"The changes in the approved in 2013 tax maneuver would be negative for the sector perception, as it would decrease the transparency and confidence in the sustainability of the tax scheme," the analysts said. "However, we believe that the initiative is at the initial stage and, given a lack of details, we would not expect any market reaction."

The Russian government might consider the amendment because the country will not be able to set limits on the export of crude oil and oil products through Belarus and Kazakhstan after 2015. The lack of a limit could result in a change in the export routes to those countries, as the export duty rates are much lower there.

As part of the change, the export duty rate could be decreased to $80 per ton from the current level of $384 per ton. There would also be a corresponding increase in mineral extraction tax.

"These numbers do imply a substantial reshuffle in the structure of taxes paid by the oil companies," the analysts said. "Given the significant differences in the refining to production ratio between Russian oil companies, we would expect these potential changes to have materially different effects on the companies. Moreover, this would lead to an increase in domestic oil product prices, which would also need to be addressed."