Today Prime Minister Vladimir Putin will discuss the terms for oil distribution to Belarusian refineries with his Belarusian counterpart Mikhail Myasnikovich. Russian oil companies want the price of oil to include a share of any sale of redistributed oil products. They also insist on the Minsk-guaranteed freedom of exports of oil products processed from Russian crude oil. Only the Belarusian government can guarantee this.
Prime Minister Vladimir Putin and his Belarusian counterpart Mikhail Myasnikovich will meet in Moscow today to discuss the resumption of Russian oil supplies to Belarusian refineries suspended since January 1 of this year. The prime ministers will also have to agree on a new oil price formula and guarantees that the Belarusian government will not discriminate against Russian business.
In line with the December package of agreements on forming the common economic space in 2012, Russia will supply Belarus with oil sans export duties starting on January 1 of this year. In turn, Minsk has agreed to pay a 100% export duty to the budget of the Russian Federation on the export of oil products produced from Russian oil outside the Customs Union. However, Russia has yet to do this because no oil contract has been signed yet.
The parties have yet to agree on new crude oil prices in connection with the transfer of the customs border. From 2007 to late 2010 Russian oil prices for Belarus were based on netback Rotterdam prices (the price of sea exports to foreign countries), discounted export duties and a bonus of $1.5 per barrel of oil ($12 per tonne). When export duties to Belarus dropped to zero, Russian oil companies insisted that this bonus be increased to $45 per ton and made a number of other demands. Talks on these issues went nowhere for a week. Representatives of Belneftekhim (the Belarusian State Oil and Chemistry Company) reported in early January that the current oil reserves would keep Belarusian oil refineries busy for 20 more days – in other words, a compromise must be reached before the end of this week.
A spokesperson for the Russian Energy Ministry told Kommersant that a bonus of $45 per tonne (the expected oil price increase for Belarus) amounts to half of the profits from the export of oil products processed from a tonne of Russian oil. Indeed, starting in February, oil export duties will reach $346.6 per ton, and light oil product duties will amount to $232.2 per tonne.
Mikhail Turukalov, an analyst from Kortes analytical center, explained to Kommersant that Belarusian advanced oil refineries produce large quantities of light oil products that also prevail in their export basket. Therefore, the average export duties on a basket of oil products from Belarus could be estimated at $220 per tonne. In other words, the export duties on a tonne of oil products is $126 less than that on the oil exports of the same amount (without counting the processing costs and the refining margin).
The refining margin is the difference between the cost of a barrel of oil and that of a basket of oil products produced from it. Russia's inefficient oil refineries have a negative margin whereas in Belarus it is about $3 per barrel or $22 per tonne of oil.
Considering transportation and other overhead, an exported ton of oil products from Belarus brings on average $90 more than that of crude oil. Russian oil companies want to get back half of this sum by marking up oil prices for Belarus by that amount.
However, this does not mean that the profits will be divided fifty-fifty. Even if Minsk approves the oil price with a $45 bonus, there will remain the issue of the correlation between the oil sold to Belarusian refineries and the oil sent to them with the payment for processing alone. In the first scenario Russian oil companies would receive half of the profits from the export of oil products and in the second scenario they will receive all profits but only if Belarus does not raise prices for processing of its own free will. The processing costs required by Minsk are already high enough – $35-$40 per tonne, which is double the average processing costs in Russia. Therefore, an agreement will have to be reached on the processing costs and the output of the produce that will guarantee Russian companies a part of the profits at the level of $45 per tonne.
The sides also discussed the ratio between the volume of oil for sale and for processing in Belarus because they return different profits to Russian oil companies. Russia wants all of the supplied oil to be refined on processing terms but Belarus is only willing to do this on half of its Russian supplied oil. In other words, Minsk is offering to Russian oil companies to take their half of the profits from their own independent export of oil products, without including it in oil costs.
Political risks were the next item on the agenda. Sending oil to Belarus on processing terms, Russian oil companies want guarantees that Minsk will not prevent them from exporting oil products by imposing logistics restrictions or by introducing Belarusian duties on the exports of oil products. Only the Belarusian government can provide such guarantees and for this reason the talks have been elevated to the prime minister level.
Alexander Gudkov
