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Russia may have to raise oil and gas taxation to receive more money from the energy industry, considering that the current lower-than-planned budget revenues and the risk of oil and gas revenues remaining lower for years could derail the budget plans through 2026, according to Russia’s central bank.
“One of the most important factors in budget policy planning in the medium term will be the risks of exhausting the liquid part of the NWF funds and the stability of the current budget rule (validity is based on 8-8.3 trillion rubles in 2023-2026 in basic oil and gas revenues),” the Bank of Russia said in guidelines for the monetary policy through 2026, as carried by Russian news agency Interfax.
Under the so-called budget rule, Russia sells foreign currency from its National Wealth Fund (NWF) to make up for shortfalls in oil and gas export revenues or makes purchases if there are surpluses.
“Under conditions of sanctions pressure on Russia and a gradual cyclical decline in world prices for raw materials, there is a possibility that oil and gas revenues will remain below the baseline for a long time even with a moderate weakening of the ruble,” the draft guidelines say.
Last week, as the Russian ruble continued to tumble, the central bank effectively abandoned temporarily the budget rule after saying that it would not make any purchases of foreign currency on the domestic market from August 10 until the end of 2023, as a means to prevent the ruble from plunging further.
At the end of last month, Russian President Vladimir Putin signed into law amendments in the tax code in the energy sector which will narrow the discount of Russia’s flagship Urals crude to Brent to $20 per barrel from September from a $25 discount now. The amendments will also halve the subsidies to Russian refineries as of September 2023 to the end of 2026.
The halved subsidies to refiners will allow Russia’s budget to save $326 million (30 billion Russian rubles) in expenses per month, according to Finance Minister Anton Siluanov.
By Charles Kennedy for Oilprice.com
Charles is a writer for Oilprice.com