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Slovakia to tax Russian-processed oil

| 2022-05-19 2 min read

Slovakia to tax Russian-processed oil

Reading Time: 2 minutes

The Slovak government approved a proposal to impose an extra import tax on Russian-processed crude oil on Wednesday. The levy would impact Slovnaft, a subsidiary of Hungarian energy firm MOL that has a refinery in the Slovak capital of Bratislava, Hungarian-language Slovak daily Uj Szo wrote.

Slovak Finance Minister Igor Matovic proposed the levy on Tuesday, and recommended that the tax be initiated next month. The tax would raise EUR 280-290mn per year, and would be earmarked for social institutions to help ease inflation burdens on households.

The plan comes as an EU-27 consensus is sought on an embargo of Russian oil by the year’s end. Slovakia, which receives Russian crude oil via the Soviet-era Druzhba pipeline, has been offered a derogation. Hungary has been the EU’s biggest dissenter on the planned embargo.

The US State Department said on Tuesday that the G7 is planning to submit a proposal for EU import tariffs on Russian oil as a more expedient approach to a total oil embargo. 

The price gap between Brent and Ural oil has widened in recent weeks: while it was USD 1-4 a barrel before Russia’s invasion of Ukraine, Russian oil is now nearly USD 36 per barrel cheaper than Brent, Hungarian business website Portfolio calculated.

MOL processes Russian oil at its refineries in Hungary and Slovakia, and is making a healthy profit from the price differential, Portfolio noted. The measure could cost the company around EUR 285mn annually at the current exchange rate, the Hungarian business daily added.

The suggestion caused friction in the governing coalition. Economy Minister Richard Sulik of junior coalition partner SaS fears a further rise in fuel prices and said his party would consult Slovnaft before deciding on whether to veto the proposal. 

Matovic said the Slovak government has informed Slovnaft about the measure, and the company has promised not to raise prices because of the new tax. Slovnaft said in a statement that it would apply pricing based on market principles for the time being. 

In February, the Slovak government sought a tax on ‘excess profits’ from nuclear power production, Reuters notes. It ditched the plan after securing a pledge to cap household electricity prices from nuclear plant operator Slovenske Elektrarne.