Russia hikes metallurgical coal extraction tax from January

Russia's mineral extraction tax for coking coal is set to rise by a minimum of 25% from January 2022, but will likely increase much more sharply.

The country has developed a formula linking the MET to the commodity price; the coal tax will become variable -- versus being a fixed rate currently -- and will be sensitive to the ruble value.

The federal legislative assembly -- the State Duma -- has in its three readings approved the amendments to the country's Tax Code, changing the computation of MET for a number of mineral resources, including coking coal.

The law changes are now awaiting approval by the Federal Council, the upper house of the assembly, before being signed off by the President.

According to the new formula, the coking coal MET will be defined by the monthly average price of coking coal, based on the SGX TSI FOB Australia Premium Coking Coal OTC Futures/Options index, multiplied by the same month's average dollar-ruble exchange rate.

Should the new tax be in force today -- based on October averages for the formula components, including a $384/mt coal price -- it would amount to Rb410/mt ($5.47/mt). This is a sevenfold increase from the Rb57/mt MET rate for metallurgical coal as it stands today.

If the coal price will be less than $100/mt, the tax will be equal to the product of $1 and the currency exchange rate, which would still be 30% higher at the current exchange rate of Rb74 to the dollar than what is charged today.

Russia's crude coking coal production totaled 88 million-98 million mt in 2019-20. Taxed according to the new formula, this volume could contribute Rb31 billion-Rb34 billion to the state budget at the current exchange rate and at S&P Global Platts assessed premium coking coal price of $317/mt FOB Australia.

Even if the MET value is midway between Rb71/mt and Rb410/mt, S&P Global Platts estimates -- assuming the same ruble value -- that the budget contribution would be Rb23 billion-Rb26 billion, still sharply higher than today's MET receipts of just over Rb5 billion.