Belarusian oil-refining enterprises are on the brink of bankruptcy

Belarus has raised state subsidies for Russian oil suppliers. A corresponding decree was signed by Aliaksandar Lukashenka the other day. The purpose of the decision is to provide Belarusian oil-refining enterprises with oil.

The decree will touch upon the supplies appointed after August 1, 2007. According to the decree, the state subsidy for each ton of oil transported by railway is to make $93 starting from October 1 ($83.3 per ton of oil supplied August-September), the subsidy for oil transported by pipelines is to make $80.5 ($72 per ton of oil supplied August-September), Nezavisimaya Gazeta reports.

The state subsidies for Russian oil suppliers was launched on February 1, 2007, as a reaction of the Belarusian government to the new terms of oil supplies to Belarus introduced in January 2007 by Russia who decided to move to market relations with its former ally. So now Belarus has to pay income duty for the oil imported to the country as well as a higher export duty for the oil and oil production exported from the country.

As a result, oil-refining operations with Belarusian enterprises became unprofitable for Russian suppliers. They had to purchase oil to load the factories themselves in the first quarter of 2007. Some of the suppliers left the Belarusian market, but some came back after the state subsidy had been introduced. Nevertheless, the higher oil prices become, the higher the income duty is.

The amount of the state subsidy (it made 90 percent of the income duty before the recent raise) couldn’t compensate for suppliers’ losses. The income duty is a calculated figure and it is linked to the customs price of oil exported from Russia. It made $65.6 per ton before October 1, and the state made up for $59 of this amount.

Suppliers refused to transport oil by railway because of high transport fees, which became another problem for Belarus. In case the oil balance planned (21.5mln tons, with 4mln tons transported by railway) is not fulfilled, the amount of oil supplies for 2008 will fall. To prevent the crisis, the Belarusian government offered a higher subsidy for the suppliers who use railway transport. According to the decree signed, the amount of the compensation for “railway” oil is to make 127 percent with 110 percent for “pipeline” oil.

Nezavisimaya Gazeta has already reported about the plans of the Belarusian government on a higher subsidy. Oil manufacturers have been waiting for the decree for two months, as both the Finance Ministry and President’s Administration demanded adequate reasons for allocation of the state budget funds. According to the sources of Nezavisimaya Gazeta, the Belarusian oil refinery enterprises are on the brink of bankruptcy.

Belarus has nearly ceased to export the raw oil manufactured in the country in order to load the factories: only 150 tons have been exported in 2007, with 873 tons exported in 2006. This year Russian companies have supplied 8 percent less oil than the amount of 2006. This is solely a higher state subsidy that could at least keep the situation with no changes, experts say.