Russia's energy minister warns of refining crisis

Moscow (Platts)--31Mar2006

Russia's energy minister Viktor Khristenko said Friday that existing
refining capacity cannot meet future demand for products and warned the sector
may face a crisis in the near future.

"The forecast demand for oil products cannot be met with the country's
current refining facilities," Khristenko said at a government meeting on
energy, according to materials posted at the ministry's website.

Among the key measures designed to improve the situation are improvements
to industry's infrastructure, changes to a
tax-setting mechanism, approving of new subsoil law as well as establishing an
exchange floor to trade oil products in Russia, Khristenko said.

He minister said that the government was considering reducing export duty
on oil productd to attract more refining interest rather than export crude
oil. Export duty is currently set at $160.8/mt for crude, and to $120.7/mt for
light products.

The government has already taken a decision to introduce a zero rate of
import duty on equipment for refining and petrochemicals, in a move which will
allow companies to upgrade plants, Khristenko said. He did not say when the
decision would come into force but said that the government resolution on the
issue was signed on March 24.

The government is also discussing a tax incentive on cleaner oil products
to boost crude refining capacity and to improve the quality of light
products. In particular, a regressive excise duty could be introduced to
reduce duties on products of higher quality in the future, Khristenko said.

In 2005, Russia refined 207.4 million mt of oil, up 6.2% on the year, or
some 44% of the country's oil output. Oil products exports rose to 96.45-mil
mt in 2005, up from 80.93-mil mt in 2004, according to the Russia's federal
customs service.

Installed capacity of Russia's 27 refineries amounts to 252.7 million
mt/year, according to the energy ministry. But light oil products accounted on
average for some 55% of the domestic refineries' total output last year, due
to mostly outdated equipment.

Of the country's total installed capacity, Yukos refining capacity
amounts to 47.1 million mt, Lukoil (41.3 million mt), TNK-BP (31.7 million
mt), Bashneftekhim (29.3 million mt) and Sibneft (19.5 million mt),according
to the document.

--Nadia Rodova, nadia_rodova@platts.com

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