INDUSTRY AND ENERGY MINISTRY TO GIVE UP BINDING NATURAL RESOURCES PRODUCTION TAX TO WORLD OIL PRICES

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MOSCOW, August 24 (RIA Novosti) - The Industry and Energy Ministry suggested that the Russian government should give up binding the rates of the natural resources production tax to the world oil prices.

A source close to the Russian Industry and Energy Ministry told RIA Novosti that a letter with the ministry's proposals on improving the state regulation of the domestic oil products market and its stabilization had been forwarded to Russia's Prime Minister Mikhail Fradkov.

In the ministry's opinion, one of the measures towards improving the state regulation of the domestic oil products market can be reduction of excise taxes for oil products and differentiation oil products export tariffs with simultaneous increase in oil export tariffs.

The document points out that in 2004 the natural resources production tax covered about 50% of oil production costs, while the oil products excise taxes have grown by 62% over the period of 2002-2004 and amount to about 25% of the price.

The Industry and Energy Ministry also suggests that the government should consider potential use of the resources supervised by the Federal State Reserves Agency in order to provide goods interventions to the domestic market in the periods of excess demand in the amounts of up to 5% of annual consumption in Russia.

Besides, the ministry considers it advisable to amend the law "On Measures of the Russian Federation's Economic Interests Protection in Foreign Trade" by establishing that a threat to Russia's economic security is 5% growth of oil products prices above the official inflation level within one month.

In its address to the prime minister the Industry and Energy Ministry notes high rates of oil production growth in the Russian Federation. For example, over the seven months, oil production in Russia reached 263 million tons, while over the period of 2002-2004 (forecast) the increment of this figure was 9.2%, 11.1% and 10.4% respectively. The oil production growth provided for maintaining the oil refining level, which amounted to 111 million tons from the beginning of the year, exceeding the level of 2003 by 1.2%.

The letter points out that the shift of oil companies' priorities towards export in 2004 has been going on against the background of relatively rapid increase in world oil and oil products prices since February this year, as well as growing tax burden and production costs of the Russian fuel market players.

"The urgent measures of tariff regulation did not redirect the energy resources from export directions to the Russian market", reads the document. The domestic market's response to the developing situation was the significant increase in oil products' sale prices from oil refineries.

"The Russian oil products market is rather transparent and objectively responds to the current operational conditions", reads the letter of the Industry and Energy Ministry.

In the ministry's opinion, the market stabilization measures may include introduction of differentiated customs tariffs for oil products, restraint of export directions by establishing customs clearance post for oil products only at production sites.

According to the Industry and Energy Ministry, these measures may also include tenders on fuel resources purchase and establishment of motor petrol and diesel fuel stabilization stocks.

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