BELARUS NEWS AND ANALYSIS

DATE:

18/01/2010

Belarus Offers Compromise in Oil Dispute With Russia

Just when it was beginning to look like the ongoing oil dispute between Russia and Belarus would have no end, the former Soviet satellite state has come forward with a possible resolution to this war of words. According to reports in the Russian media, Belarus has proposed a solution that would require Russia restarting duty-free supplies of crude oil to Belarus, in return for which it would gain the right to refine oil in Belarus and export refined products without being subject to duty. Theoretically in this scenario, everyone's a winner: the scheme would allow Belarusian refineries to continue fully functioning while increase Russian control over the Belarusian economy.

Under the so-called 'tolling scheme', Russian oil supplied to Belarusian refineries would remain Russian, and it would therefore remain exempt from export duty. Following processing, the refined products would be exported to their usual target markets in Europe, but as technically still 'Russian' products they would be subject to Belarusian export duty. Government sentiment suggests that Belarus is willing to forgo export duties on any refined products transported under this scheme in return for the restarting of crude oil supplies from Russia. Belarus's profits under the scheme would derive from processing fees and a share of the profits from re-exports.

Minsk currently receives the large majority of its oil supplies from neighbouring Russia. Historically, the country has profited from a deal which saw the country's two refineries receiving a discount on the standard Russian crude export tariff and then making a healthy profit exporting their refined products to European customers at market prices. During negotiations at the back end of 2009 to renew the two countries' oil supply deal, Russia attempted to close this loophole by claiming that it would provide tax-free oil to Belarus for domestic consumption, but that the country should pay export duties for oil exported on to Europe. Belarus argued that this would go against an agreement on a customs union that the two countries signed late in 2009 and responded by demanding higher transit fees for oil crossing its territory. The contract governing the supply of oil to from Russia to Belarus ran out on December 31, prompting Russia to cut off crude supplies to Belarus' two refineries with immediate effect.

Belarus' two refineries have a total capacity of just under 500,000 barrels per day (bpd). This figure sits significantly higher than its domestic demand for petroleum products, which the Energy Information Administration (EIA) puts at 175,000 bpd for 2008.

Source:

http://www.oilvoice.com/n/Belarus_Offers_Compromise_in_Oil_Dispute_With_Russia/760cc8d2c.aspx


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