BELARUS NEWS AND ANALYSIS

DATE:

13/12/2006

Lost in Exportation

Russia closes the Belarusian oil offshore

Friendship of Nations

The Russian government announced Tuesday calling off privileged taxation on oil exports to Belarus. The Industry and Energy says it is closing "the oil offshore in Minsk" to protect Russia's interests and its budget. Moscow's decision will strip Belarus of annual $1.7 billion in taxes, but will give Russia $3.6 billion of additional revenues. Now even the settlement of a gas dispute between the two countries will not be able to avert the coming economic war of the countries of the two-member union state.

Starting from 2007, Russian oil exports to Belarus will be charged with a normal export duty as it is the case with other countries, not members of the Taxation Customs Union, the government's blueprint, which was published Tuesday, says. Mikhail Fradkov's government is convinced that this will help "protect Russia's economic interests". From January 2007 on, Russian oil exporters to Belarus will be paying the standard export duty of $180 per metric ton. At present, no duties are paid for oil exports to Belarus.

Mikhail Fradkov's decision has shut down "the Belarusian oil offshore" which emerged following the signing of Russia and Belarus' treaty on May 12, 1995. Under the agreement, duties on these oil exports which go to the Belarusian budget will be shared by the two countries. The proportion was not discussed. A task force of Russian economic and finance authorities has lately suggested that Russia receive 85 percent of the duties, leaving 15 percent to Belarus.

Belarus declined to discuss the matter which is no surprise. Belarus has not transferred a ruble of revenues from the duties to the Russian budget since 1995. Direct exports of Russian oil to the EU via Belarus are scares. Almost all Russian crude exports stay in Belarus, get refined at two refineries and then exported. Furthermore, export duties on oil products in Belarus are far lower than in Russia - $75.8 for a metric ton of light distillates and gas oil, compared to $134 per ton for the same product if it is exported from Russia.

Russian Industry and Energy Minister Viktor Khristenko says "all Russian oil companies are elbowing through to get to the offshore in order to avoid extra taxation in Russia." According to the Interfax news agency, Surgutneftegaz accounts for 30 percent for oil exports to Belarus, Rosneft takes up 25 percent, Sibneft - 13 percent, LUKOIL - 11 percent, Slavneft - 10 percent, Russneft - 6.5 percent and minor exporters export the remaining 4.5 percent. Belarusian refineries proceed between 20 and 22 million tons of oil annually, according to the Russian Economic Development and Trade Ministry. Given current duties rates, oil prices and excises, Russian may gain addition $3.6 billion if the decision is enforced. In contrast, oil companies which use the "offshore" will have to spend $1.9 billion more every year.

Belarus in its turn will lose from $1.7 billion to 2 billion, which is a serious blow on Alexander Lukashenko's regime. The Belarusian budget's supply comes to $15 billion annually. A 10-percent of the supply, or 2 percent of the GDP, will be added to the planned budget deficit for 2007. In 2006, Belarus' budget surplus was 2 percent of the GDP, so Russia is actually taking it away. This loss will also entail either a hike in the state debt, or a jump of inflation, or cut in state expenses - or all these things at the same time.

Sources of Kommersant report that Russia took the political move to seize extra profits from Belarus shortly before November 24 - the day when President Vladimir Putin spoke in the annual call-in TV show and urged Belarus to accept Russia's terms. Otherwise, Moscow could cut oil supplies, he said. The Russian delegation was soon called back from talks in Minsk, and Moscow started drafting the blueprint that the prime minister signed on December 8. A participant of the talks with Belarus told Kommersant that the regulation was drawn up in a great hurry following Vladimir Putin's personal order and was to be published on December 4. The delay was due to technical reasons. The text shows that the document was drawn up in haste. This is the only explanation for its legal roughness. The official reason for the governmental regulation is cited as the fact that "the agreement of 1995 has already been dissolved by the Belarusian party." In fact, there is no formal dissolution of the document. A source of Kommersant in the Russian delegation explained that the fact of non-observance of agreements was indeed considered the "dissolution of the contract" after 11 years in force.

As Russia and Belarus are still in talks over gas export prices for next year and Gazprom offers $200 per 1,000 cu. meters, it is clear that even the new gas deal will not avert a trade and overt political war of the two countries. The regulation comes into effect on January 1, i.e. signing of any gas contracts.

However, neither Russia nor Belarus regards the issue of the "Belarusian oil offshore" as a decided matter. A Kommersant source in the Russian government says that Belarus has been too slow suggesting proportions of the duties. "I guess, if they call the proportion 70 percent to 30 percent, this will be an acceptable offer, and we could discuss it again," he said. Minsk is reluctant to draw early conclusions. Alexander Timoshenko, spokesperson for the Belarusian prime minister, said in an interview with Kommersant: "Let's talk when there is an official confirmation." Mikhail Fradkov's regulation states that the Russian Economic Development and Trade Ministry is to inform the Belarusian government of the decision. The Russian government did not announce it Tuesday, though, when and how this is going to happen.

Pyotr Netreba; Vadim Dovnar from Minsk

Source:

http://www.kommersant.com/p729812/r_527/Russian_Belarus_Oil_Duties/