The government and oil firms agreed to cut wholesale domestic fuel prices last year as a temporary measure to keep a lid on petrol and diesel costs, a politically sensitive issue.

Under the deal, which runs from Nov 1 until June 30, oil companies are allowed only to slowly increase petrol and diesel costs, which started to rise due to stronger global oil prices.

Russia is part of a global agreement to cut oil production aimed at propping up crude prices, a major source of state revenues.

But that is hitting it back at home as the cost of gasoline is one of the key factors affecting inflation – and the central bank’s main policy rate.

Alexei Sazanov, head of the finance ministry’s tax department, told reporters that in February alone the state paid to oil companies back 20-30 billion roubles for keeping fuel prices under control.

Russia is using the National Wealth Fund (NWF) as a buffer against potential external shocks and to pay out pensions or support some important large projects at home.

The spending rules are strict as the state wants to preserve the fund.

Sazanov said that for 2019 as a whole, the payout from the NWF to the oil firms was estimated at 210 billion roubles.

“If we are paying the cash, we want to get a quality service in return. This service should result in the fact that the consumer should see prices at the fuel filling stations based on levels we pay back to the oil companies,” Sazanov said.

Under a “fiscal rule”, any revenue from oil prices higher than US$40 per barrel goes into the NWF, which is part of Russia’s gold and foreign exchange reserves, held by the central bank.

The NWF currently stands at US$59 billion and is expected to quadruple to over US$200 billion, or 12% of gross domestic product, in 2021.