The government has taken a number of steps in an attempt to resolve this issue, from reducing export tax on oil products to signing a beneficial ‘oil balance’ agreement with the Russian Federation.
It appears that the price of oil is decreasing worldwide; this became apparent at the end of last week. On Friday the price of Brent crude oil fell to $52.18 per barrel and the West Texas Intermediate (WTI) fell to $47.17 per barrel.
According to Bloomberg, oil prices fell to their lowest in July and it appears that there was a decline in the price of hydrocarbons around the same time period. Bloomberg stated that the reason for the depreciation is as a result of lower demand and excess supply. As it stands today, USA’s stock of crude oil is 100 million barrels more than they have had over the last five years. Oil prices are also influenced by the economic growth of China, which has turned out to be lower than the anticipated level.
The worldwide fall in oil prices has subsequently meant that there is a fall in the price of oil related products. Oil products are one of the biggest export items of Belarus to Europe, and the fall in the price means that the budget receipts decrease. There is a number of different taxes that collectively make up 70% of petrol and diesel fuel prices. From 1st August 2015, the Council of Ministers reduced export duties on oil and oil products that are exported from Eurasian Economic Union with its decree №637 from 27th of July in order to compensate the losses.
In particular, export duty rate on crude oil was lowered from $143.1 to $133.1 per ton, the duty rate on directly distilled gasoline was reduced from $121.6 to $113.1 per ton and on commercial gasoline from $111.6 to $103.8 per ton.
The duty on light, medium distillates will be $63.8 per ton which was previously at $68.6 and the same tariff is imposed on diesel, benzene, toluene, xylenes, and other lubricating oils.
The deputy Minister of Foreign Affairs, Alexander Guryanov, told reporters that around the same time Belarus reduced its taxes on oil prices, it also increased its supply of petrol to Russia. Guryanov pointed out that according to the current agreement of ‘oil balance’ between the two countries, Russia sells oil to Belarus and in turn Belarus exports oil products to Russia.
“Today the demand for petrol on the Russian market has slightly increased due to various reasons, stated Alexander Guryanov – and as a result we have increased our exports in order to meet the demands of our Russian colleagues, here we primarily take into consideration the situation on the market – when the economy allows us to raise the supply we do that” he further elaborated.
Some other Russian sources, including the Ministry of Energy, similarly announced that Belarus is increasing its supply of gasoline to the Russian market.“The only reason is that as of late prices of petrol for Russian motorists have risen which makes the Russian market extremely attractive for Belarusian producers” they admitted.
According to the current ‘oil balance’ agreement, Russia will sell to Belarus 23 million tons of oil in 2015 and in return we provide the Russian Federation with 2.1 million tons of oil products, of which 1.8 million tons is motor petrol. However, this spring Belarus faced difficulties with supplying Russia with petrol as the Belarusian oil refineries stopped several dispatches due to a fall in petrol prices which was making such activities profitless. As it happens, it was more profitable for Belarus to sell petrol to Ukraine and the EU. The halt of petrol supply to Russia led to a scandal at government level in May.
The conflict was short lived and was settled swiftly, as prices of petrol in Russia began to rise again. As a result, Belarusian oil refineries increased supply of gasoline to Russia as early as July and for the first 20 days of July, 94 thousand tons of gasoline (mainly AI-92) was dispatched to the Russian market.
Belarus and Russia have already agreed on mutual supplies of oil and oil products for 2016. This agreement so early in the year comes as a surprise to most, since the coordination of the ‘oil balance’ agreement usually takes place in December and it usually takes a few tense days to reach an agreement. There were years when there was no coordination at all and the balance had to be approved separately for every quarter.
This year the situation differs greatly and the deputy Prime Minister of Belarus, Vladimir Semashko, told journalists the following
“The balance with Russia has been approved. We met with the deputy Prime Minister of Russia, Arkady Dvorkovich, and signed the protocol according to which the supply of oil will be raised for 1 million tons next year. Thus, this year we sell 23 million tons and next year it will be 24 million tons”.
The official also clarified the ‘oil’ relationships between Moscow and Minsk.
“This year 22 million tons out of 23 million were delivered by pipelines and 1 million by wheel transport, but we agreed that next year all 24 million tons would be delivered by pipelines, this is also beneficial for us, stated Vladimir Semashko – The supply of motor gasoline to Russia will diminish in 2016 and all issues concerning the next year have already been resolved, what remains now is for us to sign the document and I think we will sign it without any delay” declared Semashko.
The information that Belarus has asked Russia to raise its supply of duty-free oil to 24 million tons in 2016 was delivered by Russian Minister of Energy Alexander Novak some time ago. This growth fully corresponds with the schedule of mutual deliveries, which was approved under the intergovernmental agreement in 2014. The figure of 1 million tons of oil-product returns from Belarus to Russia is provided by the agreement as well – it is the lowest possible stipulated volume (previously they planned 2.1 million tons for 2016).
In this regard Alexander Novak said: “The Ministry of Energy believes that there should not be any problem with reduction of oil-product returns since initially the amount of 2.1 million was slightly overestimated”.
Consequently, the released 1.1 million tons of oil products will be sent to more profitable markets of Central and Western Europe in 2016.
“Personally I do not find it surprising that Belarus and Russia easily agreed on oil balance for 2016. Both states have suffered from the fall in the world prices of crude oil as well as oil products, that is why now it’s more reasonable for them to reach an agreement rather than argue about lost revenues, – said Victor Baranitsky, an associate professor of National Research University Higher School of Economics (Moscow), he further stated– Reconstruction of Russian oil refineries is ongoing and will not be finished anytime soon, therefore products of Belarusian oil refineries are highly sought by Russian consumers. On the other hand, Belarus needs to compensate losses from the reduction of prices of exported oil products and the only way to do that is to increase sales, and this is when the Russians agreement to raise supply of crude oil comes in handy”.
Meanwhile the President of Belarus still hopes to extract more of Belarusian oil as it is extremely beneficial for the economy of the country, as it stands the extract of ‘Rechytsa’ oil in the Gomel region is 1 million tons a year and all of it is exported to Germany.
When listening to the report of Andrew Kovhuto, the Minister of Natural Resources and Environmental Protection, Alexander Lukashenko stated
“I do not believe that we do not have large volumes of oil and that there is no natural gas. They extract a lot of oil, natural gas and precious metals which is the basis of welfare and sustainability of any economy in any country – in similar areas of Russia and other states”.
At the meeting the president also announced a special council dedicated to reserves of minerals in Belarus, which will be held this year. The head of the state emphasized that they will discuss not only prospects of already explored resources, but also of further exploration for minerals as well as international cooperation.
“There are many resource-rich countries that offer us partnership – Venezuela, Zimbabwe, and other Latin American and African countries, Lukashenko stated – We must work seriously on these issues together with those that are interested , clarifying terms of collaboration and our benefits”.