Rosneft's Volga refineries in limbo over tax reform, low oil prices
MOSCOW (Reuters) -- Some of the domestic refineries of Russia's largest oil producer Rosneft have been hit hard by tax reforms and weaker oil prices, putting a strain on profits, sources and analysts told Reuters on Friday.
The government has tweaked tax for the oil industry, aiming to encourage companies to produce better-quality oil products. Starting from January, it hiked the export duty for fuel oil, a low-grade product, under a so-called "tax manoeuvre."
According to think tank Vygon Consulting, oil refining margins, which reflect the difference in the value of petroleum products and the price of crude, averaged 6.3% in 2014 when the oil price was around $98 per barrel.
Refining margins fell to 1.8% in 2015 and seen at a breakeven level this year with the price of oil around $50 per barrel.
A source close to Rosneft said the big refineries were a "headache" for the company - particularly Syzran and Kuibushev in the Volga region as well as Angarsk in East Siberia.
"The tax manoeuvre has put (Rosneft) large plants on the verge of non-profitability," the source said.
He also said Syzran refinery had "negative core earnings". "There has been no decision on a (possible) temporary shutdown of the plant taken yet but the modernization of the plant has been slowed down," the source said.
Another source familiar with Rosneft plans said Kuibyshev, Novokuibyshev, Syzran and Saratov had been hit the hardest by the tax reforms and falling oil prices due to a high share of low-grade fuel output.
Those four Volga-region plants have a total annual refining capacity of over 30 MMt, or 600,000 bpd.
A Rosneft spokesman said the company would keep the Russian downstream business and was not looking at options to sell some of the plants.
Russian plants cut refining throughput by 3.5 MMt in 2016 with plans to cut it further by 7 MMt this year to 270 MMt, according to the energy ministry.
Rosneft's domestic refining capacity stands at around 100 MMt per year, including the Bashneft plants it acquired last year.
Rosneft's downstream business has also been under strain due to its deals to increase crude oil supplies to international traders such as Glencore.
Reporting by Oksana Kobzeva, Olesya Astakhova and Maxim Nazarov; writing by Vladimir Soldatkin; editing by Susan Thomas
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