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Tuesday 20.02.2018 | Name days: Smuidra, Vitauts, Smuidris

Haim Kogan: fuel excise tax increase will hit the country’s economy

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Fuel excise tax must not be increased, such action would hit the entire country’s economy, said Lukoil Baltija R Deputy Chairman Haim Kogan in an interview to the business news portal BNN.

Lukoil Baltija R Deputy Chairman Haim Kogan

He also reveals Lukoil is considering options to take part in a tender for fuel reserves storage and that the company is not participating in negotiations on Mažeiķu nafta refinery acquisition. He says Lukoil has already paid 50 million lats in taxes this year.

Winter is coming and they say it is going to be both cold and severe due to increased heating tariffs. What can fuel traders expect?

It is difficult to forecast, but we are ready for winter. Arctic diesel is already here and as soon as the temperature at nights drops below zero, we will start selling it at Lukoil gas stations. I do not think this winter will bring surprises to the fuel market. I should note, though, that I am sure only about Lukoil, I will not judge about other fuel traders. We are ready for winter.

Harsh economic circumstances have taught Latvians to save. What about Latvian fuel traders?

I must say tendencies suggest something else, if we compare Lukoil fuel sales volumes of this September and the last year’s, they have increased by 20%. The fact that people buy more means they have more money than a year ago. Diesel consumption has grown the most, though. People have started to operate trucks, construction works have resumed as well. I believe this signals economic growth, transit increases and there is more cargo transported.

Latvian bio fuel producers propose introducing 5% instead of 7% bio blend into fuel, how do you evaluate this proposal?

I do not think this will happen in near future. We will see. It is clear rapeseed oil producers are lobbying their interests, as there is no considerable demand for their production, but I do not consider this additional 2% will help them. The rest of the Europe does not buy rapeseed oil as much as before either.

Considering the fact there are cars whose documentation sets bio blend into fuel cannot exceed 5%, will the additional 2% harm the vehicles?

I know that the latest Volkswagen cars are taken off the guarantee if they use fuel of even 2% bio blend. But otherwise cars do not feel this 5% considerably, especially cars equipped with gasoline engines. If the blend is increased to 7%, I would not suggest pouring it into new cars. I think people should be given choice, they cannot be pressed to pour fuel of 7% bio blend only. They have to be offered also fuel without blends, even though it is more expensive. They have to have options after all.

A tender on fuel reserves storage has been announced in Latvia, is Lukoil interested to take part and why?

We are still considering this. The funds attributed to the storage are not big. Participation in the tender can take place only if we are convinced it will bring profit. The very process is not simple, the state finances only the storage, the fuel has to be purchased and transported until the storage site ourselves. We are interested only if it is profitable.

One of the main Latvian fuel sources – Mažeiķu nafta – has suffered serious losses, its owner PKN Orlen is searching for buyers of the refinery, Poland invites Lithuania to involve in the company’s recovery. What future do you see for the company?

Currently Mažeiķu nafta is facing considerable difficulties. The margin is negative not only for Mažeiķi, but for all refineries. Mažeiķi is an old refinery, almost all if it will have to be modernized. They still have problems with oil transit ways, oil is supplied only with tank ships, which is expensive and creates unnecessary costs. The closed oil pipe from Russia is damaged, maybe this is the reason why they are seeking for a prosperous Russian company, so that it could fix the pipe ensuring oil supply. As far as I am concerned Poles ask an excessive sum of money for the refinery – 3 million. Such price is not even near the current value of the refinery. Lukoil is not participating in negotiations on Mažeiķi refinery acquisition.

If PKN Orlen does not succeed in selling the refinery or finding investors in near two to three years, could it be shut down?

If there are some collisions in the refinery – for sure. Otherwise I do not consider clever to manage a refinery suffering losses all the time. If I am not mistaken, Poland owns the refinery. Why should Lithuania invest its money? If it is 100% Poland’s property, their government should solve the problem themselves. It is not that Lithuania does not have any problems at all, they do not have spare money; moreover they have to build a nuclear plant. I do not believe they will invest tax payers’ money in Mažeiķi refinery, although it is the biggest tax payer in Lithuania.

What are the most urgent tasks the new government should accomplish concerning the Latvian fuel market?

I do not think significant changes are necessary. Fuel market secures great tax income, for example, Lukoil has already paid 50 million lats in taxes this year; it is clear that also other fuel traders pay a lot in taxes. Why should a hen laying golden eggs be subject to considerable changes? If the government plans reviewing taxes, they should by no means touch the fuel excise tax. Such action would hit the whole country’s economy, because along with fuel price increase, prices of other consumption products would go up as well. I assert the excise tax should remain flat. The state should not forget the most important thing –  people; people undergoing difficult times, pensioners, large families and people with disabilities should be their first concern. This is what the state should think about, not the fuel market changes, because those who can afford pouring fuel in their cars – are more or less financially stable.

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