MOSCOW, (Sergei Kolchin for RIA Novosti). --Russian gasoline consumers are being hit harder and harder by soaring petrochemical prices. Wholesale prices for high-grade gasoline have shot up by 50% since the beginning of the year, exceeding �0.5 per liter.
Oil producers blame global oil prices, which have led to regular increases in the severance tax in Russia.
So far, the Russian authorities have been raising export duties on oil and petrochemicals in the hope that exporters will reorient toward the domestic market. However, to make up for the increased tax burden, oil companies have simply raised domestic prices. This jeopardizes the government's plans to contain inflation and has contributed to heightened social tensions in the country.
Prime Minister Mikhail Fradkov and his "economic bloc" ministers - German Gref, Alexei Kudrin and Viktor Khristenko - have recently made a number of statements about their intentions to reduce the severance tax. It is believed that once the oil producers have a lower severance tax, they will be able to return to the standard 15-20% difference between wholesale and retail gas prices.
However, it will take some time to fix the taxation issue. Therefore, the State Duma (the lower chamber of parliament) has recommended that the government introduce amendments to the current year's budget in order to allocate subventions of 11 billion rubles ($387.87 million, or �317.55 million) to Federation constituent members and budget-dependent organizations that have suffered the most from the spiraling gas prices.
The State Duma has even raised the possibility of setting a ceiling for gasoline and diesel fuel prices. Yet the government is unlikely to resort to this measure, which could be perceived as a digression from market economy principles.
Yet that which should not be enforced from above can be successfully carried out from below. The Russian oil community reacted promptly. LUKoil President Vagit Alekperov announced that from September 19 the company would freeze retail gas and diesel prices at all LUKoil gas stations in Russia. "This move will allow us to contain fuel prices in the short-term," he said. Rosneft, Sibneft, Surgutneftegaz and TNK-BP have followed suit. This means that in effect Russia's largest oil producers have agreed to introduce a moratorium on petrochemical prices growth.
Despite their seeming altruism, the benefits to these companies are obvious. Firstly, the moratorium coincides in time with the period when demand for fuel in Russia traditionally declines. Traders say that gasoline prices have already reached their peak. Secondly, oil majors have much to gain from the anticipated reduction of the severance tax burden, which cannot be said of small and medium-sized oil traders. Thirdly, the petrochemicals market will evidently be redistributed to the benefit of larger, vertically integrated companies. However, the country will still have to find a way to correlate domestic and export fuel prices and create effective price setting mechanisms.
Sergei Kolchin, Ph.D. (Economics), is a senior researcher at the Institute of International Economic and Political Studies of the Russian Academy of Sciences.
