Russian authorities seeking to impose 8% fertilizer export duty for 1.5 years, awaiting advance payment - sources
MOSCOW. Aug 1 (Interfax) - Russian ministries have agreed to adjust the parameters of the export duty on fertilizers: the current mechanism is expected to be replaced by an ad valorem rate not linked to the cost of fertilizers as early as September, three sources familiar with the discussion told Interfax.
The option that now looks final is the introduction of the 8% rate for all types of fertilizers for a period of 1.5 years, the sources said. The Finance Ministry expects to collect 120 billion rubles from the industry in this way which is factored in this year's budget. At the same time, the Ministry expects that, as in the case of windfall tax, exporters will pay the planned amount in advance by the end of 2023, they companies indicate.
Proceeds from windfall tax (estimated by the industry in the amount of about 25 billion rubles when paying this year at a discount rate of 5% rather than 10%) will be factored into these 120 billion rubles, Interfax sources in two fertilizer companies said, referring to the relevant agreements with the Finance Ministry.
The duty is now levied on the export value of fertilizers above $450 per tonne at a flat rate of 23.5%. The duty was introduced in December 2022 under these parameters for the period from January 1 to December 31, 2023. Initially, it was positioned as a mechanism to tap excess profits arising from favorable market conditions.
However, by the beginning of this year, the cost of nitrogen and potash fertilizers, which account for more than 60% of the industry's exports, fell below the cut-off price. As a result, in H1, duty revenues amounted to only about 6 billion rubles.
At the moment, the duty has fully stopped working: phosphate and complex fertilizers, which were subject to the duty in the first half of the year, have also seen prices fall to levels below the benchmark, Interfax sources said.
In order to still collect the planned amount from the industry, the Finance Ministry proposed replacing the export duty with another mechanism for accrual of excess revenues. Deputy Finance Minister Alexei Sazanov said in mid-June that such discussions were underway.
A combination of two instruments was discussed as an alternative: an increase in the MET and the introduction of a gas excise tax, but the companies expect that they have convinced the authorities to reject these, sources said. A further increase in the mineral extraction tax would have necessitated a reduction in the production of feedstock for fertilizer production, while the gas excise tax would have made the production of a number of nitrogen fertilizers, including ammonium nitrate, unprofitable given the current market conditions, they explain.
The draft government resolution setting new export duty parameters should be published on the portal of draft legal regulation in the near future, Interfax sources said. According to them, the new duty may enter into effect as early as September 1.
The Finance Ministry declined to comment.
In parallel with the discussion around the export duty, ministries have agreed to abolish quotas for fertilizer exports: this mechanism will be replaced by export licenses, which will be revoked if a company fails to meet its obligations to supply the domestic market, Interfax sources say. This initiative was previously proposed by the Russian Association of Fertilizer Producers (RAPU).
The Russian government introduced quotas on exports of nitrogen and complex fertilizers from December 1, 2021 as a measures to curb rising food prices. The restrictions were extended several times. At the end of May, the quotas were extended for the period from June 1 to November 30, 2023. The total volume of export quotas for this period will be more than 16.3 million tonnes.
