27.09.2012 / 10:07

New Oil Wars: Moscow Reduces Oil Supplies to Minsk Blocking Shadow Export Business 25

Minsk has blocked Russias proposal whereby Belarus revenues from export duty on solvents and diluents would have to be transferred into the Russian treasury, RIA Novosti reported on Wednesday with reference to a source in the Russian government.

Belarus has blocked proposals submitted by Russia to the Council of the Eurasian Economic Commission that, if passed, would exclude the production and export of solvents, diluents, lubricants and biodiesel from the Customs Union regime,
the source said.

According to the source, in particular, Russia proposed excluding naphtha (one of the intermediate products from the distillation of crude oil) from the Common Economic Zones processing regime, classifying as petroleum products various mixtures of alcohol and petroleum products, and not applying the Common Economic Zones processing regime to acyclic alcohols and their derivatives, biodiesel and its blends containing no crude oil or petroleum or comprising less than 70 weight percent crude oil or petroleum products.

Russian officials have repeatedly expressed concern about a dramatic increase in the export of solvents from Belarus, saying that Belarus may be exporting crude oil and petroleum products as solvents, diluents and lubricants in order to avoid transferring the export duties it collects to Russia.

We are confronted with the fact that the export of organic solvents from Belarus have increased several times, Russian Deputy Finance Minister Sergei Shatalov said in late June.

We fear that this merchandise is being used as a cover for exporting petroleum products.

Belarus should levy duty on the export of oil and petroleum products from its territory and transfer the collected amount into the treasury of the Russian Federation, Mr. Shatalov said, noting that this system compensated for Russias losses only partially.

While visiting Minsk on July 18, Russian Prime Minister Dmitry Medvedev said that if there were violations of agreements in the export by Belarus of petroleum products, those responsible should be brought to account.

We agreed to thoroughly sort everything out and make decisions even if they are very difficult, Mr. Medvedev said, pointing out that the economic interests should be restored.

In late July, a Russian inter-agency commission, which included representatives of the Federal Customs Service, examined the legality of the export of solvents and diluents from Belarus. As a result, Russian Railway halted the shipments of naphtha to Belarus.

According to Sergei Agibalov, an expert at Russias Institute for Energy and Finance, Russia lost at least $700 million because of the re-export by Belarus of Russian petroleum products as solvents and diluents last year.

This year the losses may increase to $2 billion, a significant amount for the Russian budget.

Russias Federal Customs Service has reported that Belarus export of solvents and diluents jumped 8.6-fold from 242,000 tons in 2010 to 2,073,000 tons in 2011, whereas Russia exported only 16,900 tons.

According to official data, in the first half of 2012, the export of solvents and diluents increased 4.9-fold year-on-year and that of lubricants 47 times.

Russian is also intending to cut the oil supplies to Belarus by 26 per cent in Q4, 2012,
RIA Novosti says.

Belarus expects Russia to take a constructive approach to the export of solvents and diluents, Prime Minister Mikhail Miasnikovich told reporters in mid-September.

Aliaksandr Lukashenka said that if this [the export of solvents] was worrisome to our Russian partners, we should stop these deliveries,
Mr. Miasnikovich said.
And we did that. The last tank car carrying the so-called solvents left the territory of Belarus on August 4. If our strategic partners have doubts, they shouldnt suspect us of unconscionable practices, we stop this activity. We undertook this commitment and abide by it.

According to Mr. Miasnikovich, Minsk told Moscow that Belarus had not violated any provisions of the Customs Code of the Customs Union, but if Russia had doubts, the parties could consider imposing duties or quotas, and Russia replied that this would be done after the current situation was sorted out.

We suggested that the [Russian inter-agency] commission should develop constructive approaches for further work, but the commission limited itself to examining the situation that existed at the time, he said.

They drew up a report and left. And we dont know what decisions are being made there. But we are in favor of working out approaches and conditions in a constructive manner, which, if necessary, could be adopted by the governments or within the framework of the common Eurasian Economic Commission. There should be no doubts in relations between economic entities and between states.

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