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Search for New Taxation of Russian Oil and Gas Industry

Search for New Taxation of Russian Oil and Gas Industry

The taxation issue is becoming a key one for development of the Russian oil and gas industry. The reason is simple – significant investments in new and rather complicated regions are required.

It is necessary to raise the oil recovery index and to work efficiently at brownfields. Moreover, there are more speculations about development of unconventional oil. All these projects are impossible without tax incentives.

At the same time, our companies operate on the global market, and they are beginning to compare returns on investments in the domestic market and abroad. Moreover, the state is encouraging Russian concerns to go abroad viewing this as expansion of its geopolitical influence. But in this case the problem of increase in investments in Russian projects can be solved only by introducing competitive taxation in Russia. And this is where problems emerge.

The most interesting thing is that the state claims it is allegedly ready to amend the taxation system. But in reality only taxation preferences and exceptions are employed. Executive authorities do not support the idea of changing the philosophy of taxation, e.g. taxing profits of companies, not revenues, although the sector needs a fundamentally new approach, rather than preferences.

The problem is that direct taxes and customs duties on oil and gas companies account for half of the federal budget revenues.

Executive authorities are afraid of risking under such circumstances. Moreover, the system of preferences blends very well with the psychology of functionaries. Clear-cut and common rules of the game decrease the administrative weight of the bureaucracy, while granting special preferences, on the contrary, increases this weight.

Possible taxation novelties in the oil and gas sector are the central topic of this report.

Key topics of the report:

  • Views of main players on taxation novelties

    • Positions of oil and gas companies and relative ministries
    • Putin’s opinion as the supreme arbiter; difficulty of selecting between the current budget interests and strategic tasks in the fuel and energy sector

  • The first results of application of the 60-66 system: insufficient changes

  • The fate of oil production tax and export duties

    • Latest proposals by the finance ministry on altering tax rates, consequences of their application

  • Struggle for preferences

    • Main procedures of taxation exceptions for oil and gas companies

  • New system of taxing production of hard-to-recover oil: correct direction but questionable way

  • New formula of gas production tax:

    • New complexity without economic logic
    • What does it carry for Gazprom and independent gas producers?

  • Prospects of developments

    • Political possibilities and restrictions of transfer to a new taxation system

Contents of the report:

Introduction 3
Chapter 1. First Results and Prospects of Taxation Restart 4
Chapter 2. Search for Way Out of Taxation Deadlock 21
Chapter 3. Continuing Practice of Tax Preferences Vs. New Taxation Philosophy 32
Chapter 4. Taxation of Oil Products 44
Prospects of Developments 50
Date of release: September 9, 2013

If you are interested to obtain please contact » Elena Kim

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After February 2022 the agenda was radically rewritten. Western companies began leaving Russia en masse, economic relations with the West were drastically reduced, and the Russian economy began to be pushed violently from the global economic space, hemmed in by sweeping sanctions. All that was, to put it mildly, not the best background for talking about ESG. Especially because tasks of survival and stability under unprecedented pressure became the priority in the economy. In late 2022, however, attempts to reanimate the ESG agenda already became obvious. The message is put across insistently that it is important to Russia regardless of the foreign policy situation. While earlier the “green pivot” was seen as an opportunity to attract Western investors and their technological solutions to Russia, now Keynesian reliance on domestic manufacture is discussed.
Oil and Gas Sector Regulation in 2022 and Prospects for 2023
Gazprom at the Forefront of Economic and Political Battles with Europe
Gazprom is being actively thrown out of the market. Its annual supplies to Europe have shrunk from the previous 150 billion to 65 billion cubic metres of gas. European officials assure that they have already learnt how to live without Russian gas, so they will bring its purchases down to but nominal values in 2023. Their main hope is liquefied natural gas. Today the EU must make a crucial decision: whether it has passed the point of no return in gas business with Russia and whether it is certain that its economy will endure without supplies of Russian pipeline gas. Or, on the contrary, Europe will realise after all that the gas balance will not be achieved and the payment for so headlong a rush for LNG will be disproportionate. Assessment of the potential volume of LNG that will appear on the market before the end of the current decade will be the most important factor for making the decision.

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