Russia considers MGO excise duty

According to oil producers including Lukoil, Rosneft and Bashneft, an excise duty would help to stem the significant volume of marine fuel sold to the Russian automotive market as a low-price alternative to conventional diesel fuel.

An excise duty of RUB 3,450 (US$55.9) a tonne, comparable to the existing excise duty for diesel fuel, has been suggested. But leading Russian transport companies have already criticised the proposal.

Konstantin Anisimov, general director of the Moscow River Shipping Company, one of Russia’s leading shipping companies, said that the introduction of an excise tax on marine fuel will lead to its shortage and even disappearance from the market. This will force shipping companies to switch to diesel fuel, which will result in higher prices for transportation. This, in turn, will result in the withdrawal of some shipping companies from the market, Anisimov warned.

At present prices for distillate ship fuel in Russia are estimated at RUB 25,000 (US$405) a tonne, while the price for fuel with additives for low-temperature use is around RUB 30,000 a tonne. According to analysts at the Russian Ministry of Industry and Trade, about 12 million tonnes of marine distillate fuel was produced in Russia in 2014, about half of which is supplied to the domestic market and could be sold under the guise of a diesel fuel.

State analysts report that problem is a familiar one, but is increasingly pressing for the government. In recent years the sale of ‘fake’ diesel fuel has reached record volumes, posing a serious threat to the environment. The problem costs the state budget up to RUB 18 billion (US$289.3 million) a year in taxation and makes further modernisation of refineries unprofitable for oil companies.

Despite the existing problems, the Russian marine fuel market still appears attractive to foreign investors. Greek Aegean Marine Petroleum Network, the second-largest oil refiner in Greece, recently announced that it hopes to expand into the Russian market, starting sales of its marine fuels in Russian seaports.

Russian marine fuel consumption is estimated to run at around 10 million tonnes a year. About 70% of the market is held by domestic suppliers including Gazprom Neft, Rosneft, Lukoil and Transneft.