Ruble US Dollar Exchange Rate Analysis

Idea

The main idea of this research is to find a mechanism which can be used for long term exchange rate projections.

Data

In the analysis the following data were used:

  • Daily exchange rates from January 2002 till December 2014 published by the Central Bank of Russian Federation;
  • Daily Brent prices from January 2002 till December 2014 published on BP’s website;
  • Monthly inflation rates for Russian Federation and the US; and
  • Annual GDP growth rates for Russian Federation and the US published by the World Bank.

Adjustments

The actual data is not suitable for regression analysis because:

  • Inflation influences oil prices and exchange rates; and
  • Economic growth influences exchange rates (the faster economy is growing the higher demand for its currency).

To make the actual data applicable for regression analysis all the available historical daily exchange rates and oil prices were adjusted with the following methodologies:

  • We normalize the historical oil prices to one date like there were no inflation in the middle. The prices were multiplied by respective US inflation factors. The US inflation factors equal to cumulative US inflation between the newest data point, in our research it is the 24th December 2014, and respective data points.
    Example: to adjust the 24th December 2013 oil price of $112, assuming cumulative 1.7% US inflation between 24th December 2013 and 24th December 2014, $112 should be multiplied by 1.017 which makes the adjusted price equal to ~$114.

The whole document can be downloaded in a PDF format using the following link:
Research: Rusble US Dollar Exchange Rate Analysis.

Boosting Russian Economy with Oil Industry Tax Optimization

Idea

The main idea of this research is to assess the impact on the oil industry in Russia if all existing revenue based taxes will be replaced with a profit based tax. In general income based taxes are more efficient than revenue based taxes for the industry and government. The hypothesis will be proved if under the profit based tax environment production is higher than under the revenue based tax environment however the overall governmental take does not suffer.

Current Tax System

There are two major oil taxes i.e. the export duty and mineral extraction tax. The two are linked to the Urals price which constitutes the revenue streams of the industry. Rough estimates shows that after 2018 the export duty will be ~26% of revenue at $90 Brent and will be continuously approaching 30% in a growing price environment. the mineral extraction tax will be ~40% at the same oil price environment and will be approaching ~48% respectively. That estimates assume substantial increase of the mineral extraction tax and decrease of the export duty from what we had in 2014 (the latest tax manoeuvre).

Other taxes such as the property tax and even the corporate income tax are neglectable in comparison with the export duty and the mineral extraction tax.

Proposed Tax Amendments

The export duty and mineral extraction tax to be replaced with the excess income tax. The excess income tax rate is defined based on project internal economics either historical IRR or full project life IRR. Both have five tax rates i.e. 0%, 20%, 40%, 60%, and 80%. Historical EIT (HEIT) is 0% before project hit 4% IRR, from 4% till 8% IRR HIET is 20%, from 8% till 12% HEIT is 40%, from 12% till 16% HEIT is 60%, from 16% HEIT is 80%. With Full Life EIT (FLEIT) you run full life economics with rates 20%, 40%, 60%, and 80% and apply the maximum rate which can still generate at least 16% IRR. If none of them can deliver 16% IRR then 0% FLEIT is assumed. In relation to fields which generate positive free cash flow in 2015 for simplicity the maximum EIT of 80% is applied.

Other taxes are kept unchanged.

The whole document can be downloaded in a PDF format using the following link:
Research: Boosting Russian Economy with Oil Industry Tax Optimization.