Russia Far East Bunker Volumes Plummet, Players Face Bankruptcy Risk After Customs Policy Change: Reports

Monday July 18, 2016

Bunker volumes have plummeted in the Russian Far East, and local players are at risk of bankruptcy following a change in policy at the country's Central Energy Customs (CEC), according to information from Russian market specialists PortNews IAA.

A key driver for the reduced volume has been the equally sharp drop in oil and bunker prices, which began falling in the summer of 2014.

Even as early as October 2014 Ship & Bunker reported that the once $100 to $150 per metric tonne (pmt) price advantage the Russian ports had over Singapore was starting to dwindle.

But after reporting a doubling of bunker sales for 2014, 2016 so far has seen a dramatic reversal, and presumably also ended the region's earlier hopes of taking a further cut out of the East Asia Market.

For the January to May period of 2016, bunker volumes at Vladivostok are reported to have fallen to 159,000 metric tonnes (mt), compared to 460,000 mt in the five-month period for 2015.

Meanwhile, at the offshore terminal of the port of Nakhodka in Primorsky Territory, bunker sales between January and April 2016 totalled 235,000 mt, less than half of the 498,000 mt sold in the four-month period if 2015.

Bunker sales at Posiet for the first four months of 2016 were reported to have dipped to 68,500 mt, from 103,400 mt in 2015.

Tax-Free Bunkers

At present, vessels performing cargo operations at the Far East ports do not have to pay tax on bunkers, and historically some ships have even sought to make so-called pseudo-cargo calls to meet those customs requirements - for example by purchasing small amounts of goods like mineral water.

In all other cases, duty-free bunker sales are limited to those supplied as stores to get the vessel to its nearest indicated destination port, with tax then being due on the "excess" bunkers.

However, Ship & Bunker sources have said that historically vessels had been permitted to take on enough tax-free bunkers to complete their entire loop.

Vessel bunker consumption, and the resulting calculation of what volume of bunkers can be considered tax free, is yet to be formalised.

Changes came in 2014 when CEC is reported to have considered calls specifically for bunkers as stores' replenishment an abuse under the duty-free rules.

Bankruptcy Fears

Now adding to the problem of falling bunker volumes, from last year local suppliers have also been dealing with CEC officials reinspecting past deliveries, and then requiring duty to be paid on what it says were previously supplied "excess" bunkers.

While those duties are around $50 pmt so far this year, down from $90 pmt last year, the average for 2013 to 2016 is understood to be around $250 pmt.

"It is therefore clear that in this situation the majority of small, medium and even large companies seem to face bankruptcy proceedings in the result of unreasoned claim of huge arrears," said Vladimir Sergeyev, Executive Director of Russian Association of Marine and River Bunker Suppliers.

"The adverse consequences expected in the result include considerable reduction of jobs and budget allocations, deterioration of investment climate in the country."

Local bunker players say the CECs actions are illegal, while Boris Titov, Russian Federation Presidential Commissioner for the Rights of Business People, is reported to have lodged a complaint with CEC over the matter.

As to where bunker buyers are heading instead of the Russian Far East, Singapore appears to be one of the likely candidates, where volumes have been particularly buoyant in recent months.

As Ship & Bunker reported last week, H1 2016 bunker sales stood at 24,384,100 mt, the highest ever total for the first half of a year, and 13 percent higher than the six-month period in 2015 - a year that ended with the highest ever annual sales of 45.1 million mt.