A possible ban on the use of tolling arrangements for processing raw materials in the aluminium industry would have a negative impact on the industry, analysts surveyed by Interfax said.

However, such a ban, which would force Russian aluminium companies to pay value-added tax, would not destroy the industry, analysts said.

"We are not saying that this would kill the whole economy. This business will remain profitable, but the impact will be felt," Troika Dialog analyst Sergei Donskoi said.

Analysts at the Prospect investment company said a ban on tolling would be introduced gradually. "It would not be that as of August 1 or January 1 [tolling] schemes would be banned and everyone will start working normally on purchases. The departure from schemes will be made more gradually, the aluminium industry is big and it has two main players of global scale," one analyst said.

Analysts said the possible ban on tolling would not have serious consequences for the aluminium industry. "In principle, it's no big deal – flows will simply be redirected," the Prospect analyst said.

The issue of banning tolling schemes is not a new one, and it was discussed in the late 1990s. "In 1995-1996, when this topic was fairly hotly debated, tolling schemes were very often used to hide revenues," BDO Unicon analyst Yelena Matrosova said.

"In actual fact, tolling is needed because this ensures the use of capacity. Aluminium companies have continuous production and they need to constantly ensure the necessary amount of raw material," Matrosova said. Russian smelters "are not 100% supplied with their own raw materials. And the boom when our companies entered foreign markets to acquire resource assets to increase their own raw material supplies happened a couple of years ago," she said.

"Doing away with this scheme will lead to the need to compensate the loss, that is, the niches in production will have to be filled with something. The main problem of tolling was that a large movement of financial streams was not altogether transparent," Matrosova said.

Analysts at Antanta Capital said tolling in Russia has essentially turned into a way to reduce the taxes of aluminium holdings, and has consequently stunted the development of the domestic alumina industry. Producing alumina in Russia would increase taxes and reduce the profits of Russian aluminium companies, they said.

Analysts also said that everything that plays against aluminium companies would benefit hydropower companies. This is because it is hydropower stations that make the private aluminium business very profitable in Russia, Antanta Capital said in a report.

If tolling is banned, Russian aluminium smelters can one way or another demonstrate the real profitability of their business, which will put the spotlight on the industry, the analysts reckon. Meanwhile, power companies would get serious arguments in favor of raising the rates charged by hydropower stations.

Raising prices to economically reasonable levels – about 2 cents per kWh, or 100% to 300% more than current levels – would sharply increase the profitability of Siberian hydropower stations such as Sayano-Shushenskaya, Krasnoyarskaya and the cascade that is part of Irkutskenergo. This would make it possible to get a return on investment on new stations within a reasonable time period, provide sources of funding for investment programs and lead to a real boom in the power sector, analysts said.

Overall, a ban on tolling would have a positive impact on the Russian economy, another analyst said. "I think that from the point of view of the Finance Ministry, the tax and customs services, this is undoubtedly the right decision. It's another thing that aluminium companies will lobby in every way to prevent this from happening. A great deal of money is washed out of the country due to tolling," he said.

The Finance Ministry has drafted a bill on amendments to the Tax Code and Customs Code. An Industry and Energy Ministry official told Interfax that the bill "concerns nonferrous metallurgy, specifically aluminium." He did not disclose any other details on the grounds that the ministry has not yet finalized its position.

"We could be moving towards at a total ban on trolling in some sectors," an official at the Russian Economic Development and Trade Ministry said, without specifying which ones. The ministry is due to give its approval to the bill this week.

The sources at both ministries said the possible ban on tolling would not affect the oil industry.

Russia's aluminium, zinc and oil refining industries use tolling, whereby a foreign company supplies raw material for processing. The foreign supplier keeps some of the end product as payment and the rest is sold on the market.

Tolling is classed as a service export. The raw material is not subject to VAT when it is imported, and any customs duties or VAT charged are refunded when the finished product is exported.