Belarus will receive all duties on petroleum products that remain after Russia’s tax manoeuvre

On October 7^th, Belarus and Russia reached an agreement on compensations for Belarus’ losses from Russia’s tax manoeuvre. Belarus claimed only half of the duties on petroleum products in 2015. As a result of Russia’s “tax manoeuvre”, Belarus could suffer losses, which could have negatively affected the rouble’s stability. Belarus expects to receive up to USD 2.5 billion in revenues from the new arrangements, but Russia will limit their amount to USD 1.7-1.8 billion.

In exchange for ratifying the EEU treaty, Belarus demanded that Russia allowed her to keep revenues from export duties on petroleum products. In 2015 Belarus wanted to keep circa 50% of the revenues and in 2016 – all of them. As a result of Russia’s “tax manoeuvre”, Belarus’ proceeds could reduce by USD 700 million.

Russia’s “tax manoeuvre” means higher oil prices in Russia, lower duties on light oil products and higher duties on heavy petroleum products. For Belarusian refineries, it could mean higher prices on Russian oil and that exports of residue oil become unprofitable, reducing therefore revenues from export duties. In 2015, Belarus will have to repay over USD 3 billion of foreign public debt and any decline in her revenues could have a serious impact on the stability of the national currency – a very sensitive issue for the 2015 presidential elections.

Under the new arrangements, Belarus will keep all revenues from export duties on oil products in 2015. The Belarusian officials have calculated that the new agreement will secure circa USD 2.5 billion for the Belarusian budget in 2015. However, that is rather “wishful thinking”, as Belarus’ revenues will depend on the cost of oil. Currently, oil prices have reached their lowest since 2012. In addition, Russia has demanded for some petrol and diesel fuel to be returned to Russia. Previously Belarus had not fulfilled her obligations on counter-deliveries. Under the new agreement, if Belarus fails to fulfil the counter-deliveries obligation, oil supplies from will be cut. Oil duties on petroleum products supplied within the counter-deliveries clause will not be paid.

Such additional obligations and projected oil prices will reduce Belarus’ revenues to circa USD 1.7-1.8 billion. The new agreement also creates good opportunities for the re-export of heavy oil products via Belarus, but if Russia sees a rapid increase in re-exports, she might reduce the supply of oil products from Russia and decrease the supplies of crude oil.

Belarus has forced Russia to agree to allow her to keep proceeds from export duties on petroleum products. However, Russia will reduce the size of benefits Belarus might receive by enforcing the counter-deliveries obligation and limiting the opportunities for new re-export schemes.