Putin signs changes to Russia's gasoline damping mechanism

Russia's President Vladimir Putin signed July 2 amendments setting a lower indicative price used to calculate the gasoline price-damping mechanism, according to the official government legal site.

The changes have been retroactively applied from May 1, even though the law was only later passed by the Duma and Federation Council. The draft law was submitted by Russia's energy and finance ministries in April.

The draft law envisaged a Rb4,000/mt ($54.9/mt) cut to the previous indicative price of Rb56,300/mt and will be applied between May 1, 2021, and Jan. 1, 2022.

Thus the indicative price for the remainder of 2021 was set at Rb52,300/mt, with a significant reduction also envisaged for 2022.

From 2023 onwards, the indicative price will be increased by 3%, the ministry has said previously.

Separately, the price used for calculating the diesel damping mechanism will be increased by 3% annually, rather than 5%, from Jan. 1, 2022.

The amendments are aimed at increasing compensation to refineries and were expected to have a "stabilizing impact on the domestic prices against the background of rising international crude oil and oil products prices," the energy ministry has said.

Russian oil companies have been pushing for a change in the damping mechanism, introduced in 2019, which compensates them when domestic prices are below export netbacks, but requires them to pay into the budget when the spread flips.

As a result, oil companies had to pay significant sums into the budget last year, which resulted in deteriorating refinery margins.