Russia’s government is considering cutting subsidies to the country’s oil refineries as it looks for ways to limit spending amid the costly war in Ukraine, according to people familiar with the matter.
Last year, the Russian state spent 2.17 trillion rubles ($26.6 billion) compensating refiners for the difference between the base price of domestic fuels and their theoretical value if exported to Europe , according to data from the Ministry of Finance. In the first quarter of 2023, companies received more than 253 billion rubles, the data show.
Now, as the second year of war in Ukraine takes a toll on Russia’s budget, the Moscow government is looking to raise the base price of gasoline and diesel in subsidy formulas by up to 50 percent, two people familiar with the matter said. the matter, which they asked. not named because discussions are private. This would reduce future subsidies, or could even lead to a situation where refineries would have to make payments to the budget if the base fuel price exceeded the European export value.
There is no final decision on the size of the hike or whether the formulas will be changed, one of the people said. If the proposal were to go ahead, it would hit the profits of Russian oil companies because the government has said it aims to keep domestic fuel price growth within inflation, so the cost could not be immediately passed on to consumers.
The Russian finance and energy ministries did not immediately respond to requests for comment.
Russia’s public finances have deteriorated sharply since the Kremlin started the war in Ukraine. Defense spending, along with the related national security category, is now second only to government social programs as a share of the budget.
The country’s oil and gas industry is a key source of tax revenue for the Kremlin, but Western price caps and import restrictions have weighed on revenues. In March, industry contributions to the budget fell by more than 40% year-on-year to 688.2 billion rubles, according to data from the Ministry of Finance.
The government has come up with other solutions to replenish state coffers, including an exclusive corporate tax and so-called exit fees for foreign companies planning to exit the Russian market.
