The Ministry of Finance and the Ministry of Energy agreed to adjust the damper for motor fuels

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The Russian Ministry of Finance and the Ministry of Energy have agreed on a draft law on adjusting the parameters of the damping mechanism for the domestic fuel market. The amendments to the Tax Code were introduced on April 20 for government consideration.

The document provides for a decrease in the indicative price of motor gasoline in the damping mechanism formula from May 1, 2021 to January 1, 2022 by 4 thousand rubles per tonne compared to the current rate, from January 1, 2022 to December 31, 2022 – by 2700 rubles per tonne compared with the established now in the Tax Code. From January 1, 2023, the indexation of the indicative gasoline price will be carried out by 3%.

It is also expected to decrease from 5% to 3% in the annual indexation of base prices for calculating the damper for diesel fuel, starting from January 1, 2022.

The measures taken will increase the volume of compensation payments to oil refineries, due to which they will be able to set selling prices that provide sufficient marginality for the retail segment while keeping prices at filling stations within inflation.

The total budget expenditures arising from the proposed damper adjustment will amount to RUB 350 billion over the period 2021-2023. Approximately half of the budget expenditures will be compensated by increasing the severance tax on oil.

The damping mechanism makes it possible to minimize fluctuations in world oil prices for the final retail prices of the domestic market for oil products. It has been in use since January 1, 2019. Due to the effect, the increase in gasoline prices at filling stations in 2019 was comparable to inflation, and in 2020 it was only 2.5%, which is almost half of inflation.

In the current macroeconomic environment, due to the ratio of the ruble exchange rate and rising oil prices, the government decided to tune the damper to keep retail fuel prices within inflation.

On April 16, it was reported that the Ministry of Energy and the Ministry of Finance would agree on the parameters of the damper in the coming days. On April 9, the “Independent Fuel Union” sent letters to the Chairman of the State Duma Viacheslav Volodin and the Chairman of the Accounts Chamber Alexei Kudrin, in which he asked for data on the effectiveness of the damper mechanism.