Fuel prices to go up in Belarus to improve financial health of refineries
Petrol excise duty hikes, anticipated increase in the price of crude oil supplies to Belarus and unfavourable foreign market situation are the main reasons why Belneftekhim is likely to increase prices on petrochemicals. Revenues from refining make a lion’s share in the Belarusian budget income. Amid the lack of alternative sources to replenish the budget and due to the need to continue modernising refineries, fuel price hikes are inevitable and may occur before the 2016 ends.
Belneftekhim management announced an increase in fuel prices in Belarus. They quoted the following reasons for the price hike: (a) petrol excise duty hikes in Belarus as of March 1st, 2016 at 50%, while fuel prices remained unchanged for over 670 consecutive days; (b) expected increase in the oil price for Belarus by 8-9% due to the tax manoeuvre in Russia; (c) unfavourable foreign market situation for petrochemicals. In addition, in H2 2016 oil supplies to Belarusian refineries decreased due to the unresolved gas dispute between Russia and Belarus.
Oil refining industry in Belarus is a strategic one. Export duties on oil products in 2015 made about 9% of budget revenues and fuel excise duties - about 2% of total consolidated revenues. Export duties on petrochemicals are a major source of funds to repay Belarus’ public debt. In H1 2016, refining earned USD 330 million for the state budget. In total, in 2016, the budget projected to earn USD 1.1 billion, with the oil price projected at USD 50 per barrel. Due to the fall in the oil price in early 2016, however, the Belarusian budget is unlikely to achieve its target.
Due to fuel excise duty hikes and reduced margin from oil refining at refineries, their financial health deteriorated in the first nine months of 2016 from USD 245 million to USD 76 million. Refineries require frequent modernisation, which, in turn requires significant financial resources, which they lack due to falling profits. The state is unable to reduce fuel excise duty due to falling revenues from other major items, such as tax income and potash export duties. In addition, redistribution of import duties within the EEU framework is likely to lead to deficit instead of surplus.
In the given circumstances, the rise in fuel prices is inevitable and will partially compensate for the missing income from the income tax, will improve refineries’ financial health and partially will reduce the burden on the credit sector. The population will be prompted to increase their spending on fuel, which will lead to an increase in the net currency supply on the domestic market and will enable the National Bank to service the national debt amid shortfalls in export duties on petrochemicals.
The state’s excise duty policy and refinery’s falling revenues have led to a sharp deterioration in the financial health at Belarusian oil refineries. With fuel price hikes on the domestic market the authorities aim to strip the population of additional revenue and spend it on the modernization of refineries and other government purposes.
Over the past year, military-political relations between Minsk and Kyiv have become complicated. Due to their high inertia and peculiarities, this downward trend would be extremely difficult to overcome.
The root cause of the crisis is the absence of a common political agenda in the Belarusian-Ukrainian relations. Minsk is looking for a market for Belarusian exports in Ukraine and offers its services as a negotiation platform for the settlement of the Russo-Ukrainian war, thereby hoping to avoid political issues in the dialogue with Kiev. Meanwhile, Ukraine is hoping for political support from Minsk in the confrontation with Moscow. In addition, Ukraine’s integration with NATO presupposes her common position with the Alliance in relation to Belarus. The NATO leadership regards the Belarusian Armed Forces as an integral part of the Russian military machine in the western strategic front (the Baltic states and Poland). In addition, the ongoing military reform in Ukraine envisages a reduction in the number of generals and the domestic political struggle makes some Ukrainian top military leaders targets in politically motivated attacks.
Hence, the criticism of Belarus coming from Ukrainian military leadership is dictated primarily by internal and external political considerations, as well as by the need to protect the interests of generals, and only then by facts.
For instance, initially, the Ukrainian military leadership made statements about 100,000 Russian servicemen allegedly taking part in the Russo-Belarusian military drill West-2017. Then the exercises were labelled quazi-open and military observers from Ukraine refused to provide their assessment, which caused a negative reaction in Minsk. Further, without citing specific facts, it was stated that Russia was building up its military presence in Belarus.
Apparently, the Belarusian and Ukrainian Defence Ministries have entangled in a confrontational spiral (on the level of rhetoric). Moreover, only a small part of the overly hidden process has been disclosed. That said, third states are very likely to take advantage of the situation (or have already done so). This is not only about Russia.
The Belarusian Defence Ministry officials are restrained in assessing their Ukrainian counterparts. However, such a restraint is not enough. Current military-political relations between Belarus and Ukraine are unlikely to stabilise without the intervention of both presidents.