It was supposed to be decided in September, but as spring arrives the government is still debating what to do about the “negative export duties” that will have a big impact on Russia’s petrochemical and oil and gas sectors.

The Ministry of Finance and the Ministry of Energy were reportedly due to pick up the discussion again this week on widening a negative excise on liquefied petroleum gases (LPG) and ethane that is in effect a subsidy for the production of these products.

The problem is that as part of the so-called tax manoeuvre that changes the way raw materials are taxed, shifting the burden from downstream production to upstream, the end of duties on the imports of these hydrocarbons led prices to rise on the domestic market. The duties on these products were acting as a form of protectionism and that made domestic prices lower.

Petrochemical producers in particular complained and said they would go out of business after the first tax changes were made last year and the government introduced a “negative export duty” on naphtha to compensate the domestic producers. These negative duties were supposed to be broadened to cover a wider range of hydrocarbons by September, but the government can’t agree on how to fund the subsidy, which is holding up the decision.

“The ministries disagree over the way in which this negative excise is to be financed. Ministry of Finance has proposed deciding on the matter in July and insisted that the introduction of a negative excise on LPG needs to entail the introduction of mineral extraction tax (MET) on associate gas (AG) in 2022 at a rate of RUB 50/kcm, growing to RUB 150/kcm by 2026. The Ministry of Energy calculates that the negative excise on ethane and LPG will result in additional investments in petrochemistry of $50bn and exports of $7bn over a ten-year period, and thus will not affect the tax base,” VTB Capital (VTBC) said in a note.

According to the Ministry of Energy’s proposal, the government was supposed to decide on the sources of financing in February. The introduction of MET on associate gas might influence the margins of either oil producers (which do not bear such an expense now) or Russia’s leading petrochemical company Sibur, which is currently the key consumer of AG, as the AG MET might raise the price of feedstock for petrochemistry. The CEO of Sibur told bne IntelliNews at the end of February that the decision on the subsidy will be a key factor in deciding if the company goes ahead with its next big investment: the construction of a new petrochemical facility in the Amur region in the Far East.