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The main part of the energy supplies (84.3% of oil, 91.3% of oil products and 81.1% of gas) was exported beyond CIS countries. The share of oil products export having increased to some extent, the crude oil export, being 67.2% of the total export volume, still prevailed in the structure of oil export. It was the furnace fuel oil, which is used as a primary product in Europe for further processing, and diesel oil that consisted the main part of the oil products export.

According to the data of Ministry of Economic Development of the Russian Federation, in January-February 2009 the Russian export reduced by 2.7% as compared with the corresponding period of last year.

The earnings of the oil sector of the economy were under the influence of the dynamics of world prices for oil. In 2008 the total earnings from oil and main kinds of oil products export (car petrol, diesel oil and furnace fuel oil) reached USD 228.9 bln., which exceeds the earnings from oil and oil products export in 2007 by 38.8% and is a record level over the whole post-reform period (table 5). For reference it can be noted that the minimum level of oil export earnings was observed in the environment of world oil prices fall in 1998, when the export profit was only USD 14 billion.

As a result of drop in oil process in the fourth quarter 2008 and the first quarter 2009 the monetary profits from the oil export reduced considerably. At the same time the decrease in ruble exchange rate as well as export duty rate for oil have considerably improved the financial situation of the oil sector in the 1st quarter of 2009 as compared with the last quarter of the previous year. As it is demonstrated by our calculations, the average dollar exchange rate forecast by the Ministry of Economic Development of the Russian Federation (35.1 RUR per USD) in 2009 even if the world price for oil is USD 41 per barrel will provide the oil sector with the necessary opportunities to make investments and with the OIL AND GAS SECTOR positive value of net profit remaining at the enterprises disposal after compensating all kinds of costs and paying taxes.

Table OIL AND OIL PRODUCTS EXPORT EARNINGS IN 2002-2008, AS USD BILLION 2002 2003 2004 2005 2006 2007 Earnings from the export of oil 38.7 51.1 74.6 112.4 140.0 164.9 228.and main kinds of oil products Source: calculated on the basis of Federal State Statistics Service Under the influence of the decrease in world prices for oil and the ruble exchange rate there has occurred a considerable decrease in internal prices for oil and oil products (producers prices) in dollar terms (table 6). Internal prices for oil and gas in Russia still remain considerably below the world prices. The gap between world and internal prices is accounted for by the presence of export duty rate and additional transportation costs for export. The price for oil at independent internal market (segment of market at which the oil is sold not at transfer prices) in recent years is practically formed on the basis of its world price deduced by the export duty rate and expenditures for export. Internal prices for gas are still regulated by the state and established by the government.

Table INTERNAL PRICES FOR OIL, OIL PRODUCTS AND NATURAL GAS IN DOLLAR TERMS IN 2000-(AVERAGE PRODUCERS PRICES AS USD PER TON) 2005 2006 2007 2008 2008 2008 Dec Dec Dec Jun Jul Dec Jan Oil 167.2 168.4 288.2 360.4 410.2 114.9 62.Car petrol 318.2 416.5 581.2 763.6 810.3 305.1 244.Diesel fuel 417.0 426.1 692.5 850.7 902.8 346.5 306.Furnace fuel (mazut) 142.7 148.8 276.5 337.2 392.8 125.0 107.Gas, USD/1 thousand cu m 11.5 14.4 17.6 20.0 23.8 18.1 13.Source: calculated on the basis of the data of Federal State Statistics Service Starting with January 1, 2009 a number of serious decisions improving the taxation of oil sector of the economy came into effect. System of oil industry taxation, which was introduced in 2002, is based on flat specific severance tax rate did not take into account existing differences in oil production conditions because of mining and geological characteristics of oil field, their location, as well as the stage of exploitation. In this connection starting with 2007 the system of oil production taxation was supplemented by new elements: stepdown coefficient Ce to severance tax rate has been introduced for oil fields with exhaust of reserves of more than 80% (the coefficient is calculated according to some general formula and lies in the range from 1, level of exhaust being 0.8, to 0.3, level of exhaust being 1 or more; tax vacations from severance tax are introduced for oil fields in East-Siberian oil and gas province in the Republic Sakha (Yakutia), Irkutsk oblast, Krasnoyarsk krai; zero severance tax rate is established for superviscous oil fields.

Starting with 2009 the amendments in the Tax Code of the Russian Federation aimed at the reduction of the tax load on the oil sector of the economy, stimulating the deeper development of the oil fields currently in exploitation and the start of new oil fields development in the undeveloped regions and in the continental shelf. In the formula used for calculation of Cp coefficient, which characterizes the world oil prices dynamics and applied to the severance tax basic rate, the price minimum not levied with the tax was increased from USD 9 to USD 15 per barrel (table 7). Such a change in the formula for - - RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES Cp calculation as well as the decrease in the basic severance tax rate in real terms as a result of inflation result in the considerable decrease in the severance tax rate applied to oil production.

Table SEVERANCE RATE FOR OIL PRODUCTION IN 20022002 2003 2004 2005 2006 2007 2008 Severance base rate, RUR 340 340 347 419 419 419 419 per ton Coefficient, characterizing the (P-8)R/252 (P-9)R/261 (P-15)R/oil world prices dynamics (Cp) Key: P is the average price level for oil grade Urals in USD per barrel over the taxation period; R is the average over the taxation period value of USD to RUR rate exchange, which is fixed by the Central Bank of the Russian Federation Source: tax Code pf the Russian Federation, federal Law No 151-FZ from 27 July 2006, Federal Law No. 33-FZ from 7 May 2004, Federal Law No. 126-FZ from 8 August 2001.

Starting with 2009 the requirement for application a direct method of oil production quantity control at the subsoil area for the established severance tax privileges to be used at oil fields with high level of exhaustion and at oil fields in East-Siberian oil and gas province (in the territory of the Republic Sakha (Yakutia), Irkutsk oblast and Krasnoyarsk krai) is abolished.

Earlier the opportunities to apply the established privileges for severance tax and primarily the deflation coefficient to severance rates at exhausted fields were substantially limited by the requirement for the application of a direct control of oil production quantity.

Since taking technical steps to secure direct control over oil production at such oil fields is economically ineffective in the majority of cases, this prevented using the severance privilege, established for them, which led to pre-term cessation of their exploitation and loss of oil in subsoil areas.

Application of severance tax privileges on the basis of the system of oil production control currently in use at some subsoil plots will allow application of privileges at all exhausted oil fields, which will secure the prolongation of the period of their exploitation, additional oil production and extra tax earnings. This will also allow application of severance tax privilege (tax vacations) at new small oil fields of East-Siberian oil and gas province and other privileged regions. The organization of the direct method for oil production at such oil fields is economically ineffective and they will remain undeveloped unless there is a severance privilege.

At the same time it should be noted that upon application of the existing system for the control over the quantity of oil produced the oil producing companies get some incentive for maximizing the amount of the received privilege manipulating when distributing the volumes of oil produced among the separate licensed plots. Therefore it is an important task of the governmental bodies to secure necessary control over the reliability of such accounts.

In order to create necessary conditions for development of new oil fields the sphere of the application of tax vacation from the severance tax has been broadened significantly.

Starting with 2009 oil fields for which this privilege is applied include oil fields situated in the territory of Nenets autonomous okrug (the north of Timano-Pechor oil and gas province) and on the Yamal peninsula in Yamalo-Nenets autonomous okrug, oil fields on the continental shelf of the Russian Federation, situated to the north of the Arctic circl, as well as oil fields in Azov and Caspian seas..

The measures enumerated will stimulate deeper development of the exploited oil reservoirs and start of development of new oil fields. At the same time it seems advisable to OIL AND GAS SECTOR expand further and improve the mechanism of tax vacation from the severance tax or the introduction of the lowering coefficients applied to the basic rate primarily when producing oil at oil fields of the continental shelf and the development of small-scale oil fields.

It is also advisable to consider the issue of the decrease of the export duty rate for oil and introduction of tax vacations from the export duty rate for some promising fields of oil production. Simultaneously the preparation of the Russian legislation should be started to introduce the tax on the additional income whose implementation will stimulate the development of new oil fields.


ECONOMIC IMPLICATIONS FOR FARM PRODUCERS AND POPULATION N.Shagayda Paradoxical as it may seem the discussion and adoption of Technical regulation for milk and milk products entailed a lowering of purchase prices for milk. It might be supposedly due to the wish of processors to get rid of dried milk that they had already bought. With high degree of probability such policies of processors and traders can result in the sending of dairy cows to slaughterhouse. While the state encourages development of dairy cattle breeding and spends money on supporting it, numerous dispersed farm producers are helpless before processors that are usually monopolized.

The Federal Law Technical regulation for milk and milk products was adopted by the RF State Duma at the end of May 2008 and enforced six months after its official publication. Given discrepancy in dates it was published in two official sources with a three days lag it came into effect beginning from December. Thereon according to the Law a product made out of dried milk cannot bear the name milk and should be called just a dairy drink.

Consumers awaited the introduction of this regulation with a mixed feeling. On the one hand with enthusiasm, on the other with fear of price surge. While the retail price for natural-powder or powder milk was 30 rubles per litre, how much would the whole milk cost The fears turned out to be groundless: now even if there is a product out of dried milk in a shop called dairy drink, its standing on the far shelves; the price for milk grew but not many fold. The question of prices for what milk natural or powder are up remains rhetorical. As of January 15, 2009 average retail prices for milk in Russia were 4% higher than those of June 1, 2008. Given the 14% inflation rate in 2008 this growth can be neglected.

Theoretically the introduction of technical regulation should have resulted in bigger demand and consequently higher prices for domestic natural milk. But due to the unjustifiably high price for the product out of dried imported 12 milk the transfer to natural milk should not have entailed a sharp growth of price since in the current crisis situation the latter stumbled at by the beginning 0 the falling solvent of the month 1 2 3 4 5 6 7 8 9 10 11 consumer demand.

Our suppositions Russia's average Pilot farm in Moscow region proved to be wrong (Picture 1). In Fig. 1. Average prices for milk received by farm producers in average purchase Rubles per kg TECHNICAL REGULATION FOR MILK...

prices for milk in Russia unexpectedly fell in February, rose in March-April and dropped sharply in April. The sliding down continued till August. Starting from August prices were growing but even at the beginning of 2009 havent reached the level of early 2008.

In the pilot farm in Moscow region the fall was observed since January 2008 and was deeper than in Russia in general: in December 2008 purchase prices equaled only 59% of the years start level, the arrears of payments for milk by milk processors increased.

Processors were not much interested in fresh milk they were overstocked. Was it due to bigger stocks of dried milk in Moscow that were to be utilized before the introduction of technical regulation One can hardly answer this question.

The decline of purchase prices for milk in summer is a usual thing. In Russia the output of milk by months is still not even due to the fact that most farms havent adopted the system ensuring even calving and consequently milk production throughout the year. Calving traditionally starts in spring increasing milk production and supply. Then output reduces and beginning from autumn prices start to rise. In 2006 the situation was somewhat different (Picture 2).

In 2006 the drop of prices for milk started already in March, i.e. earlier than usual.

It coincided with the introduction to RF State Duma of draft Federal Law Technical regulation for milk and milk products (March 29, 2006) that envisaged restrictions for products out of dried milk. After that purchase prices for milk had not restored to their previous level even by the end of the year when the Law was passed in its first reading (December 15, 2006).

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