OREANDA-NEWS. March 02, 2010. The Federal Anti-Monopoly Service (FAS) has proposed three types of refined product price formulas aimed at establishing ‘fair price levels’ for Russian refineries, according to mass media sources. All three formula types employ the export netback principle, whereby wholesale prices for individual products depend on corresponding European product prices adjusted for export duties and transportation costs, reported the press-centre of OTKRITIE Financial Corporation.

The first formula proposed by FAS assumes that wholesale prices will equate their corresponding export netback levels. Under the second ‘premium netback’ proposal, prices charged by all Russian refineries will be based on netbacks received by Surgut’s Kirishi refinery, as the closest to the export markets. The third proposal assumes that prices charged by all domestic refineries will be based on netbacks calculated for a ‘reference refinery,’ such as the Novo-Ufa Refinery (as Russia’s most centrally located). 

View: We believe the introduction of wholesale refined product price caps (regardless of the formula) can be potentially negative for Russian refiners, as it would reduce the potential for the inland premium-—a premium that oil companies have captured by setting their product prices, on average, a little higher than corresponding export netbacks. In addition, we believe that controlling wholesale refinery gate prices is unlikely to eliminate distortions seen at the level of retail stations.